Enterprise Northern Ireland Response to Committee for Enterprise, Trade and Investment:

Enterprise Northern Ireland Response to Committee for Enterprise, Trade and Investment: Developing a Co-Ordinated Programme for Retail Incubation in Northern Ireland Dr Caroline O Kane 2014 A g h a n l o o I n d u s t r i a l E s t a t e, A g h a n l o o R o a d, L i m a v a d y, C o u n t y L o n d o n d e r r y, B T 4 9 0 H E

ENTERPRISE NORTHERN IRELAND RESPONSE TO COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT: DEVELOPING A CO-ORDINATED PROGRAMME FOR RETAIL INCUBATION IN NORTHERN IRELAND Enterprise Northern Ireland welcomes the opportunity to report to the Committee for Enterprise, Trade and Investment on the development of a co-ordinated programme for retail incubation. Enterprise Northern Ireland, the voice of enterprise support, represents the interests of the network of Local Enterprise Agencies across Northern Ireland, as well as thousands of small businesses who have, through their participation in Enterprise Northern Ireland-managed programmes, gone on to make a valuable contribution to the local economy in terms of new venture creation, job creation and wealth generation. Through its administration and management of programmes such as the Regional Start Initiative, Business Boot Camp, Exploring Enterprise and Trade Links, Enterprise Northern Ireland has experience in the issues which make retail incubators more likely to succeed. These include offering incentives which help small businesses enter the marketplace, such as training, business development assistance, mentoring programmes and financial assistance incentives that Enterprise Northern Ireland has substantial experience in successfully delivering. Enterprise Northern Ireland is aware, however, that incentives and financial assistance for start-ups alone are insufficient in ensuring business longevity and ongoing success. To this end, Enterprise Northern Ireland and its wider network possesses the knowledge, experience and expertise in delivering on-going technical and business support that would allow small retailers participating in retail incubation programmes become self-sustaining in a growing and revitalising marketplace. Business and retail incubation defined As with general business incubation programmes which have been identified as a means of meeting a variety of economic and socio-economic policy needs, retail incubation programmes contribute to economic development in terms of job and wealth generation, business creation and retention, and encouraging community revitalisation, as well as fostering entrepreneurial culture and climate. In many countries, business and retail incubators are funded by regional or national governments as part of an overall economic development strategy. Others are sponsored by economic development organisations, city and county councils or academic institutions. There are some commonalities: in general, they are defined as physical facilities that provide new firms with the supportive network necessary to increase their probability of survival during start-up and the early years of trading when formative businesses are most vulnerable. 1 P a g e

Business and retail incubators differ from existing business support programmes in that they serve only selected clients. Unlike the majority of existing business support programmes, incubators do not serve any and all companies those who wish to enter a business or retail incubation program must apply for admission, with acceptance criteria varying but, in general, granting admission to only those with feasible business ideas and a workable business plan. Good practice within retail incubation Retail incubation programmes have become essential economic development tools for communities across the world that are trying to improve and sustain their economies. Whilst many enterprise agencies across Northern Ireland are taking individual steps to investigate retail incubation as a means of economic development, increasing participation in entrepreneurship, job creation and finding new tenants or uses for vacant retail premises, Enterprise Northern Ireland believe that a co-ordinated approach to retail incubation is needed in order to foster the growth of both small companies and the local economy, as outlined in this submission. A co-ordinated programme does not mean, however, that a one-size-fits-all approach is required or necessary: retail incubators afford each community an opportunity to address specific concerns and reflect differing and divergent needs germane to each community s economic reality and social situation. Retail incubators allow small businesses to make the leap, perhaps from being a homebased business or solely having an online presence, to occupying a retail space. Such spaces give small retailers a chance to grow and become successful by providing a safe place to explore retail ideas, experiment with products and displays and see what works at a market level and what does not. Enterprise Northern Ireland believes there is no single model or formula for retail incubators. In general, however, a number of key elements exist: 1. A physical retail presence 2. Shared services 3. Additional training and support services This paper details each of these key elements in turn. 2 P a g e

1. A PHYSICAL RETAIL PRESENCE: One key element of retail incubator programmes is the provision of a physical and flexible base or space for retailers from which they can operate, at a rent that is either below average for the area or an exceptional value based on the additional services provided. Some also have room for each business to expand. Research suggests there are three potential approaches: i) Traditional retail incubators: buildings or centres that house several new retailers, under one roof, for a fixed period of time. Typically, large, empty spaces are converted to house a number of small businesses, with programme participants being allocated a retail space and other assistance in order to help them make their new retail ventures successful and sustainable. Although this approach may be successful in attracting small businesses and allowing them to test the market for their product offerings in a physical setting, retail incubation settings of this type do not provide a permanent location for a business. Retailers are required to move on after a set period of time, and vacate their space for another new business. Leases are provided, for example, for two or three years, with the expectation that retailers will, by this time, have sufficiently developed and grown their business, or have become self-sustainable. There are two main drawbacks to the traditional approach: the requirement that businesses must move on and find new premises after a set period of time can have an impact on their continued success. If a business is not ready to move on and yet is forced to vacate their premises, this will defeat the purpose of the programme, with resources and investment in that retailer lost; as this traditional incubation approach does not provide businesses with a permanent location, retailers may not see value in investing their own time, energies and finances in improving the physical aspect of their temporary retail space, impacting on their ability to attract customers and become successful and sustainable. ii) Marketplace retail incubators: buildings or centres that house several new retailers under one roof, in a marketplace environment. These marketplace retail incubators are commonplace in the United States, and typically entail the conversion of large, empty spaces into sustainable retail incubators for multiple merchants. Indoor space is generally remodelled to include clearly defined spots for each business, complete with designed pathways and communal areas to create a marketplace feel. To assist small businesses who are unlikely to be at the stage in their business life cycle to lease a large retail space or commit to a long lease, many marketplace retail incubators require an initial or minimum lease agreement of around three to six months, which can be extended on a month-to-month basis after that, allowing more flexibility to the owner. Evidence from the US has shown that marketplace retail incubators frequently become successful retail destinations in their own right, and with tenants usually extending into larger and more standalone retail premises. 3 P a g e

iii) Downtown retail incubators: The practice of encouraging start-up retail businesses in vacant shops is becoming increasingly commonplace, with many governments, cities and councils using this type of retail incubation as a tool to promote both economic development and community regeneration. There are a number of benefits to this approach: although occupancy rates of retail premises in Northern Ireland has stabilised since 2012, the region still has one of the highest average vacancy rates of empty shops in the UK. According to the Northern Ireland Commercial Property Report (Lisney, 2013), 19% of shops were vacant in Northern Ireland in 2013, compared to 10.1% in Scotland, 15.9% in Wales and 11.1% in the UK overall. Whilst Belfast has seen a marked improvement with vacancies standing at 17.2% (a 5.9% decrease on 2012 vacancies), and improvements in towns such as Enniskillen, Derry, Coleraine, Craigavon, Magherafelt, Newtownards and Portadown, the most negative results were reported by Ballymena (10% increase in vacancies, standing at 27.2%); Bangor, Lisburn, Newry, Omagh and Newtownabbey also experienced an increase in vacancy rates since 2012; the Northern Ireland Commercial Property Report (Lisney, 2013) also reveals a continuing deterioration within prime city centre retail locations. The authors suggest an improvement in vacancy rates in secondary and out-of-town retail locations is due to business rates, which are much less prohibitive for retailers, and which could have a negative impact on the sustainability of downtown or town centre retail incubation centres; a further benefit of this approach is that retail clients are generally incubated in their permanent location rather than in a smaller marketplace incubation environment that they may soon outgrow incubating businesses where they are going to stay helps with their continued success; as with the marketplace retail incubator, complementary groups of small retailers operating within downtown incubation programmes have been shown to make successful retail destinations. Physical retail incubation space: important considerations: Evidence from other areas has shown that physical retail incubators of any type are difficult to sustain if they are not correctly located. Retailers may struggle with visibility, particularly if planned walk-through traffic and customer buzz does not follow. Careful consideration needs to be given to finding affordable locations that permit sufficient foot traffic, access and parking adequacy, whilst satisfying customer needs in terms of public safety and physical attractiveness; If significant marketing plans are not in place, then retailers may not seek out inclusion in the retail incubation programme at all, or if they do, may not stay; Further, the task of marketing each individual business within the retail incubator is particularly crucial, in order to allow the establishment of individual store identities and to attract customers in. In general, successful retail businesses require visibility from the street, with retailers often achieving 4 P a g e

identity through their window displays. This is something that would still be achievable for retailers within downtown settings but less so for those operating under one roof or in a marketplace environment, with retailers within these incubation settings relying on attracting customers on the basis of cumulative attention (the fact that many small businesses exist in one place), making it important that start-up businesses in retail incubators must be compatible. 2. SHARED SERVICES To help cut business costs, retail incubators typically provide their clients with shared office, general management and technical services that would otherwise be unavailable or unaffordable. These may include a receptionist, photocopying, conference/meeting rooms, security and camera surveillance, phone answering or messaging service, computer access, secretarial services, audio-visual equipment and shipping/receiving services. 3. PROVISION OF ADDITIONAL SERVICES Although most retail incubation programmes offer their participants a physical space from which they can bring their product offerings to market, including shared office spaces and amenities tenants can access, the heart of true retail incubation programmes are the additional services they provide to start-up companies. Evidence from the US suggests that retail incubators should be structured so that the property element takes a secondary position relative to programmes, since servicing businesses is the core of all quality incubation programmes. Management services and professional expertise generally offered by retail incubators include: i) Business development assistance: Clients of retail incubators are typically offered the opportunity to participate in training programmes, seminars and workshops in many disciplines, skills or competencies necessary for successful business, including: Financial management, including tax and bookkeeping assistance Strategic planning Sales Design Merchandise management Marketing and branding Customer service Legal advice Human resource management ii) Mentoring and coaching: Business development assistance may also be provided via mentoring and coaching. One of the most important aspects of any incubation programme manager s job is to act as a mentor and coach to client companies, and to facilitate networking between retail tenants. 5 P a g e

iii) Financial assistance: Most retail incubators provide financial assistance to participants. For instance: recognition from potential investors as being part of the retail incubation programme gives the retailer a degree of credibility, which helps them approach traditional lending institutions; businesses that become part of a retail incubation programme typically receive rent at a reduced, subsidised rate so that they are able to reduce overhead costs and build up cashflow in the critical early stage of business start-up. However, our review of practice elsewhere has revealed that some retail incubators charge rent at market rates, or even slightly more, and yet still attract clients because of the range and quality of additional services on offer; the business development assistance on offer helps businesses develop and enhance their business plan, with coaching/training on how to present it to formal investors; some incubators make small loans to client companies at below-market interest rates, and with more relaxed collateral requirements. iv) Networking: Retail incubators provide the opportunity for programme participants to network with other retailers located under the same roof or within the same downtown setting. As well as sharing information and knowledge, this may provide other benefits: for instance, businesses often purchasing goods and services from one another, entering into joint ventures or establishing other forms of partnership. There are huge gains to be made from small businesses becoming involved and embedded within their community. A sense of a camaraderie and community spirit is typically built, with programme participants having a ready-made sounding board, which helps increase the likelihood of success. DEVELOPING A CO-ORDINATED APPROACH TO RETAIL INCUBATION In terms of developing a co-ordinated approach to retail incubation in Northern Ireland, it would be important to take the following into consideration: Identify potential stakeholders: including entrepreneurs, politicians, Local Enterprise Agencies and community representatives who are tied to economic development; Conduct a needs assessment: identify local entrepreneurial base and gaps in existing business and financial services for entrepreneurs in the community and barriers to accessing these services; Identify the right location: including traffic factors, leasable space, security, insurance, access to facilities etc; Evaluate organisational issues: identify the relationship between stakeholders such as the owner, developer and management of the incubator, decide on legal structure and evaluate potential sources of financing for development and operations; 6 P a g e

Determine support services and how they will be costed and charged: determine the composition, organisation and pricing of shared services, management assistance, consulting and business financing programmes, and ascertain if tenants would be charged for these services on a flat-rate or in terms of usage; Select a management team: ensuring that the management team is committed to the community; have sympathy for the needs of start-up businesses; have high levels of experience in mentoring and administrating start-up and business sustainability services. POTENTIAL BENEFITS OF A CO-ORDINATED RETAIL INCUBATION PROGRAMME Retail incubators can significantly cut down on a start-up s overheads, allowing entrepreneurs to focus on the development of their ventures rather than on the more mundane aspects of running a business; Small entrepreneurial retail businesses, particularly those operating within marketplace and downtown retail incubation programmes, bring uniqueness to an area or community, increasing footfall and becoming a destination in its own right; A co-ordinated retail incubation programme would demonstrate evidence of policy makers supporting new retail concepts in order to increase job opportunities and create wealth and vibrancy; A co-ordinated retail incubation programme would generate economic development through job creation, job retention, the revitalisation of underutilised property and increased sales tax; Retail incubators encourage a more diverse mixture of retail uses and, by stimulating small local retail businesses, may act as a proving ground that helps attract national retailers. Evidence has shown that national chains are frequently reluctant to commit until local retail entrepreneurs establish the legitimacy of an area. Retail incubation centres are one way of achieving this; Retail incubators improve local community image and the physical environment and, in the case of downtown incubation programmes in particular, stimulate retail that will aid in the revitalisation of neglected areas; Encourage business ownership and entrepreneurship by providing leadership to the new business formation component of the region s economic development plan; Acts as a centralised place for entrepreneurs to meet and network, and as a focus for small business support programmes in the community. Retail incubators contribute to their client companies success and expand community resources, increasing early-stage capital, access to entrepreneurship education, and other sources of help to young companies. 7 P a g e

Risks with retail incubators It is important to note that retail incubation programmes have proven difficult to sustain in other areas; for instance: 1. Expecting too much too quickly: the dynamics behind incubators can be complicated in terms of funders, politicians/policymakers and the public expecting things to come together quickly. For instance, when retail incubation programmes are launched with job creation goals attached, it is common that developers and the community want to see immediate results. It is important to remember that it can take sometimes up to five years for retailers to become viable in the marketplace, and that jobs and companies might not follow immediately after the launch of the retail incubator. Managing this expectation is important so that frustration and dissatisfaction can be avoided; 2. Overestimating the incubator s role: the most important purpose of an incubator is to work with entrepreneurs to accelerate the development of emerging companies. Whilst retail and business incubators can make a significant contribution, they cannot alone cure the economic problems of a region. As such, the key focus of business creation must be prioritised as opposed to economic development planners viewing incubators as a remedy to long-term unemployment: jobs follow the new businesses, not vice versa; 3. Securing wider support: evidence suggests that it can take an incubator a few years to get running and become financially stable. Some incubators secure their longer term future by seeking out, and putting in place, funding streams for when the initial start-up grant funding has expired; for instance, seeking funding from private sources, getting private companies such as accounting, law and marketing firms to make commitments of in-kind support. Resources are thus leveraged and a lot more people gain a stake in the retail incubator s success. 4. Selecting the wrong manager/administrator: because the manager or administrator of the retail incubator is the key person running the incubator programme, he or she must be skilled and experienced in programme administration and networking. The ability to gain resources and cooperation from important institutions, individuals and organisations has been shown, in other areas, to spell the difference between success and failure; 5. Overspending: incubators are businesses in themselves and require the ability to manage cash flow and stay within the boundaries of their operating budget. 8 P a g e

SUMMARY Retail incubators are proven tools for starting new businesses, creating jobs and revitalising local communities. Retail incubators accelerate the development of successful entrepreneurial companies by providing hands-on assistance and a variety of business, management and technical support services during the vulnerable early years. Typically, incubators provide space for a number of businesses under one roof with such amenities as flexible spaces and leases; office services and equipment on a pay-as-you-use basis; an onsite manager as a resource for business advice; orchestrated exposure to an network of outside business and technical consultants; assistance with financing and opportunities to network and transact business with other firms in the same facility. Incubators reduce the risks involved in business start-up, with tenant companies gaining access to facilities and equipment that might otherwise be unavailable and unaffordable. CONCLUSION Enterprise Northern Ireland recognises the vital contribution that the retail sector makes to the local economy. However, as we slowly emerge from the recent economic downturn, incentives are needed to stimulate a retail resurgence, particularly in town centres that have been affected by the development of out-of-town shopping destinations, parking inadequacies and large national chains squeezing out independent and new venture retailers. In this submission, Enterprise Northern Ireland have presented information and various options on how a co-ordinated programme of retail incubation might be developed in Northern Ireland, including a number of elements considered essential for the successful introduction and sustainability of retail incubator sites. Through its network of Local Enterprise Agencies, Enterprise Northern Ireland has experience in managing, administering and delivering programmes that have provided thousands of business start-ups with these required elements and services; namely business development assistance; networking, coaching and mentoring support; and financial assistance. As such, Enterprise Northern Ireland is in a strong position to play a key role and to work closely with the DETI Committee and Executive colleagues in developing a co-ordinated retail incubation programme and delivering it, through its network of Local Enterprise Agencies, on the ground. 9 P a g e