Gentrification is largely good for business. As apartment and condominium buildings begin to appear, restaurants and other services start to move in. As more people move in and residents become more affluent, their purchasing power increases. These new consumers are socially conscious and love to support local businesses. Crime rates start to decrease and investment in infrastructure by local municipalities increases. Gentrification is not all positive though. As more businesses move in, real estate becomes more competitive and as vacancies decrease, rent prices soar. So what should you do if you own a business on the other side of this equation? How do you battle rising costs, an increased battle for talent, and a struggle for resources?
Gentrification is not a new phenomenon by any means. Yet the rapidity with which neighborhood demographics are changing has increased dramatically over the last decade. While this is great for higher end services such as cocktail bars, five star restaurants, and day spas, some businesses can find themselves being squeezed out. So what should you do if you find yourself suddenly facing increased competition, higher real estate prices, and a changing customer base?
Stay true to your brand but make yourself appealing to the new demographic. Because you have essentially moved to a new neighborhood without moving physical locations, you may not feel like a new business. However because the new residents aren’t yet familiar with you, you should treat it as a grand opening. Do what you can to drive trial with the new residents.
If you are a dive bar, stay a dive bar. The artist/bohemian vibe that drove the gentrification of your neighborhood is still appealing to the new residents. Resist the urge to copy the other successful businesses you see popping up around you. Hiring a mixologist will alienate your current consumers and seem disingenuous to your new consumers. Instead, bring them in with happy hour specials or pinball or free popcorn. Tweak your formula but don’t diverge too far from what has made you successful.
Differentiate by Being Different
Embrace the fact that you are one of the original businesses in the neighborhood. Advertise how long you have been in business there. Depending on the neighborhood, you could even consider making fun of the new affluence of your residence and the new competitors. Residents grow tired of going to restaurants that are carbon copies of each other. Have the fastest dry cleaning in town or the hottest wings or the best Bloody Mary. Whatever you can do that others can’t just advertise it heavily and allow your originality to differentiate you.
Resist the temptation to price in line with your new competition. If you need to pass through some of your increased costs, do so to keep your business model intact but remember that part of your appeal as one of the original staples of the neighborhood will continue to be slightly lower prices.
Many of the businesses coming in around you will be owned by larger companies. Emphasize that you are independently owned and operated. Your new consumers appreciate if their new wealth stays in their neighborhood.
Keep sponsoring that softball team, renew that chamber of commerce membership, or whatever it is you do to help the community. This is an advantage that will be hard for your new competition to replicate in a credible way, and your new consumers will appreciate it.
Lock in Costs
To the extent that you can negotiate long term contracts, do it. If you have the ability to lock in a five year lease, consider signing on the dotted line before prices increase even further.
Spotlight: The North Loop Neighborhood in Minneapolis
Once a mishmash of abandoned warehouses in varying states of decay, the North Loop in Minneapolis is now one of the most desirable neighborhoods in the Twin Cities. While some businesses have inevitably failed, others have thrived. (Full disclosure: I used to live in the heart of this neighborhood) Here’s some of the keys to their strategy:
A Sense of Community
From face painting in the park to bike week, to half off drinks for residents on certain days, the perks of living in this neighborhood are clear. Differentiating the perks for residents relative to visitors helps to build a sense of community and make it more desirable to live in this area.
Depending on your business, you may have a different target than the businesses around you. While some establishments target young women, others target families or dog owners. Survey your new demographic and understand who you should be talking to.
Pride in Your Roots
Even though this neighborhood has a storied past, it retains its sense of self. It takes pride in its roots as a shipping and manufacturing hub, and leaves the original logos of the manufacturing companies on its renovated buildings. To the extent you can apply this methodology in your neighborhood, you’ll further reinforce that pride of ownership and sense of community.
From music festivals featuring local bands to galleries featuring local artists, businesses supporting residents and residents supporting businesses is a circular and symbiotic relationship. Figure out what your business can do to feature some of the uniqueness of your neighborhood and watch the crowds gather at your door.
Although gentrification is sometimes vilified in the press and does have its downsides, your small business can survive and even thrive with a willingness to adapt, an ability to understand what makes you special and emphasize it, and an advertising campaign to gain trial with your new customers. So get out there and tell everyone how great you are! You’ll have customers lining up around the block in no time.