Michigan Land Use Institute

Thriving Communities / News & Views / Articles from 1995 to 2012 / Internet Sales Help Downtown Smart Growth Revival

Internet Sales Help Downtown Smart Growth Revival

Online entrepreneurs compete with big-boxes

November 28, 2005 | By Keith Schneider
Great Lakes Bulletin News Service

Gary Howe/MLUI

Downtown merchants are reaping steady increases in revenue as a result of Internet-based sales. E-commerce enables them to turn over their inventory much more quickly, allowing store owners to add more products and variety to sales floors.

MANITOWOC, WI – Almost every significant American economic era is apparent in this neat as a pin city on Lake Michigan’s western shore. The city’s agrarian heritage is reflected in the crop and dairy farms that lie at the city’s edge, and a beer malting plant at the center of town, as it has been since 1843. The maritime and industrial eras are represented by a coal-fired ferry that crosses Lake Michigan twice a day, and the steel cranes that are built here by the 103-year-old Manitowoc Company. The rust belt period, characterized by manufacturing job losses and downtown decline, is still felt in slow population growth, modest housing prices, and shuttered plants.

Now in the early years of the 21st century a new economic era spurred by the Internet is taking hold and contributing to a downtown revival in this city of 34,000. Visitors use the Internet to book rooms at bed and breakfasts, downtown hotels, and passage on the Lake Michigan ferry. Professional offices, no surprise, are using the Internet for research, to display their services, and for email. But most apparent are interesting stores that have helped Manitowoc establish what downtown development specialists call a “recreational” shopping experience.

Manitowoc’s merchants are reaping steady increases in revenue as a result of Internet-based sales. And they are recognizing a wealth of other results. The most important, they say, is that e-commerce is enabling them to turn over their inventory much more quickly, allowing store owners to add more products and variety to sales floors. That, in turn, encourages more interest and customer traffic, diversifies their revenue stream, and contributes to downtown street life here and in other small cities. 

Retail business owners have long understood they can’t compete with Wal-Mart and the other big-box stores that set up in the suburbs, competed on price, and steadily drained customers from family-owned downtown stores. America’s downtowns, if they thrived at all, did so by evolving in the 1980s and 1990s into districts of restaurants and entertainment, and clusters of specialty stores that filled niches – candy, healthy bread, sports equipment, used books, gifts, custom clothing, kitchen ware, and the like.

The Internet has strengthened that trend. The technology’s widening use by small retailers is enlivening downtowns across the country by enabling merchants to market niche products to a national and global Main Street.

See For Yourself, Downtown Is Alive
A walking tour of Manitowoc reveals several examples of the convergence of new technology, the evolving economy of America’s downtowns, and old-fashioned entrepreneurship. 

At 8th Street is Cooks Corner, which bills itself as the country’s largest kitchen supply retailer. The 11-year-old company, which employs 35 people and occupies a 20,000-square-foot store — once a Kresge’s — is stocked with 15,000 gadgets and appliances. The Web site accounts for a third of the company’s revenues because roughly a fifth of the 1,000 customers who visit the site each day place a digital order, said Peter Burback, the company’s owner and founder, with his wife, Cathy. The Web site has also elevated Cooks Corner to regional and national attention. Mr. Burback keeps a customer log of cash-register receipts totaling 170,000 people who visited the store last year. “We’re the No.1 tourist draw in the city,” he said.

Around the corner on 9th Street is Healthy Chocolate Treats, a business founded in April by Paul Stitt, a 65-year-old biochemist who turned another Manitowoc-based specialty food company, Natural Ovens Bakery (naturalovens.com), into a $29 million-a-year business that gets 20 percent of its sales from Internet orders. Healthy Chocolate Treats, which employs seven people and attracts 100 or so retail customers a day, specializes in vitamin D-fortified candies. Its revenues have already reached nearly $40,000 a month, a third from orders from the Internet, Mr. Stitt said.

Nearby on 10th Street, the Fitness Store, founded in 1993, sells an array of exercise and cardiovascular equipment. John Brunner, the 44-year-old owner, says that his 2005 sales are expected to reach $2.5 million, twice as much as last year. “The Internet accounts for 75 percent of our sales now,” he said. “I started the company in 1993. We launched a Web site in 1995. I didn’t know the Internet was going to be such a catalyst for growth until 2000, when we developed an e-commerce site. We’re making huge gains now.”

An Internet Driven Shopping World
To some extent, the influence of the Internet in helping small businesses thrive was anticipated. In 2002, the U.S. Small Business Administration published a study that found that 61 percent of small firms managed a Web site, and 35 percent were selling products online. In most cases, said the report’s authors, the Internet helped small businesses gain more sales revenue and customers, improved their competitiveness, and strengthened profitability. The study found that “the smallest firms with fewer than 10 employees benefit the most from being online” because of the Internet’s extraordinary reach as a marketing and sales tool, and its relatively low cost.

What was not well understood, though, was how the Internet would contribute to so many downtown revivals. Hours north of Manitowoc, in Michigan’s rugged Upper Peninsula, Marquette also is undergoing an economic transition from a mining-based era of heavy industrialization to a new recreation and tourism economy centered on the city’s access to magnificent Lake Superior. One of the anchors of Marquette’s revival is Getz’s, a rare family-owned department store that’s been on Front Street since the late 19th century and now earns roughly half of its sales revenue by selling Carhartt and North Face work and outdoor clothing on the Internet (getzs.com). The company’s Web site also has helped to establish Getz’s as one of the city’s tourist destinations, along with the county courthouse a few blocks west, where scenes from the 1959 Jimmy Stewart film, Anatomy of a Murder, were shot.

Around The Retail World On The Web
Legions of other examples exist. In upstate New York, Ithaca’s downtown is a hub of new retail activity and tourist trade generated by Internet marketing and sales. “There’s an upside and a downside of marketing on the Internet,” said Gary Ferguson, the executive director of Ithaca Downtown Partnership, a business development organization. “The floral business has been changed dramatically by the Internet. More and more people are buying flowers online. We had a business called Plantations, that had been here for 30 years and had a hard time with the transition and didn’t make it.”

Mr. Ferguson added, “On the other hand we have three used book stores and they do half their business on the Internet. That’s a great example of businesses faced with an industry that was really changing. They embraced the change and the technology and came out ahead.”

The Beeswax Candle Company in Lynchburg, Virginia started three years ago as an Internet-based business with a small brick and mortar store on the edge of downtown. In less than three years, due to rising Internet sales volume, the company moved into a space at the center of town that was twice as large. Employees now hand-pour candles in an upstairs loft of exposed brick walls and beautiful hardwood floors, while their colleagues on the first floor manage a gallery featuring candles and a variety of hand-made crafts from American and Canadian artisans.

“The internet has taken a small family-owned candle business and allowed us to compete on a national level while contributing to the redevelopment of our downtown area in central Virginia,” said Kathy Shaw, the founder.

Back and Front Platforms Must Be Sound
Merchants said in interviews that preparing for the transition and managing Internet marketing, sales, and distribution is not easy. E-commerce requires a business to modify its infrastructure in four ways. The first is understanding the basic computer hardware and e-commerce software, and efficiently managing vendors and servers and consultants. The second is applying the technology to sales and marketing by designing the Web site’s back end e-commerce ordering platforms for customers, and making the front-end digital showplace clear, attractive, informative, and easy-to-navigate. The third phase is hiring a consultant or training staff or doing both to manage the Web site, provide for regular updates, interact efficiently with customers, and invent new ways to reach consumers online. The last phase is developing the capacity to quickly and accurately fill and ship orders, respond to returns, and replace inventory, most of which can also be done on the Internet. 

In 1995, roughly two years after the technology began to appear widely in homes and offices, Internet sales totaled $5.3 billion, according to Zona Research, a market study firm and a unit of asp.com.

Ten years later, in just the second quarter of 2005 alone, Internet retail sales reached $21.1 billion, according to the Commerce Department, or 2.2 percent of the total $941 billion in second quarter retail sales in the United States. During the same quarter the previous year Internet sales totaled $16.7 billion, or 1.9 percent of all retail sales, said the Commerce Department.

Watch Pay-Per-Click Costs
Here in Manitowoc, small businesses are tapping that market primarily through pay-per-click advertising offered by Google’s Adwords and Yahoo’s Overture. Both companies require e-commerce retailers to bid on keywords and phrases that drive customers to Web sites. Mr. Brunner, of The Fitness Store, said he spends $6,000 a month on Google, and $2,000 a month on Yahoo. But he also gained $240,000 in revenue in August. “I expect to do more than that in November and December,” he said.

Still, said Dennis Mingay, the general manager of Getz’s in Marquette, the cost of Internet advertising can be a big concern. Getz’s, he said, is now spending nearly $1 per click. Advertising on Google and Yahoo accounts for 10 to 14 percent of his company’s revenues, which he would not disclose. A conventional retail store spends three percent of its revenues, or less, on advertising, he said. “We’re trying to master the marketing strategy to get that down so it’s affordable,” said Mr. Mingay.

One way to do that, merchants are learning, is email. Getz’s has a list of 20,000 email addresses. Cooks Corner in Manitowoc has an even larger list of 35,000 addresses that the company taps in twice-monthly promotional newsletters. Mr. Burback said that email-marketing has been very successful, accounting for 75 percent of the company’s orders in the week or so after they are sent. Email, he said, has helped Cooks Corner contain the cost of Internet advertising to $2,500 a month.

Keith Schneider, a journalist and editor, is deputy director of the Michigan Land Use Institute. A version of this article was published in the November 16, 2005 edition of the New York Times. Reach him at keith@mlui.org.

Michigan Land Use Institute

148 E. Front Street, Suite 301
Traverse City, MI 49684-5725
p (231) 941-6584 
e comments@mlui.org