D
ating back 10 years, a handful of leading urban universities began investment and development programs targeted at their surrounding neighborhoods. Their foray into the world of real estate has been both productive and instructive—as has the experience of retailers that joined the universities in this experiment.
Competitive Pressures
Urban institutions such as University of Pennsylvania, Harvard University and New York University were built over a century ago when city life was much different than it is today. By the mid-1990s, the impact of infrastructure neglect and crime had taken its toll on campus safety and amenities at many of these universities.
Student enrollment was also expected to swell 150% between 1993 and 2007. Universities saw the impending wave of new applicants and began preparations to increase enrollment and to develop infrastructure to support the new students. To preserve or enhance their reputations during this period of growth, urban universities also recognized that to compete for the best and the brightest they had to clean up their campuses and offer more compelling amenities.
Being one of the early pioneers, University of Pennsylvania learned many lessons and made great strides. The University lamented the fact that so many students, faculty and alumni had great affection for their school but had no desire to live near campus. At that time, there simply was not the requisite housing and services to attract them.
Like many of its fellow Ivy League institutions, Penn enjoyed a large endowment that allowed the University to take full control of its investments. The University began acquiring land around campus for residential, office and retail development. From 1999 through 2008, the redevelopment around the university has continued in earnest.
Retailer Realities
As universities across the country began taking an active role in development off-campus, they and their consultants began knocking on the doors of the retail community. The initial reaction was tepid.
Everyone understood that income demographics—the bellwether measure for retailers—were irrelevant since the disposable income of students would not be captured. The only reasonable gauge was the number of students enrolled along with faculty and university employee population. After that, retailers and campus consultants had only the hope that students could support more than they were currently being offered.
Focus groups were also misleading because the student population came and went every four years. To be successful, the industry needed to anticipate new trends not simply react to trends as they happened.
This untested market struck most retailers as too risky to pursue. Until more recent times, many deals were closed as a result of alumni connections to the retail industry. These retail executives were invested in seeing campus revivals succeed and were willing to experiment. Today, the climate has changed dramatically and there is a significant understanding of the campus retail market's potential in the industry.
Fundamentals Remain
The biggest lesson learned since the late 1990s is that the campus market is not homogeneous. What works on one campus may not work on another—students everywhere dress, eat and decorate their dorms differently. Students are not simply defined by their age and education level, but also by the tastes and cultural norms that stem from their upbringing and that then continue to develop in college.
The constants are the need for clothes, food and housing décor. For fashion retailers though, the one disappointment has been the realization that students still go home in the summer and winter and have the bulk of their clothes bought for them by parents. At Penn, the success of Ann Taylor Loft and American Apparel is instructive because these retailers have carved out lucrative niches. American Apparel's everyday wear is a popular way to satisfy interim needs while Ann Taylor Loft's evening wear is perfect for the next campus formal. For some retailers, there is also a prestige factor for having location on an elite campus like Penn or Harvard—an investment in developing a loyal following that is important, but that does not apply to a majority of urban campuses.
Restaurants have found tremendous success on college campuses—especially those that accept the school's. proprietary electronic payment cards that parents often fill with money for books and meal plans. Food is a major form of entertainment on college campuses and many local and national restaurant concepts of all levels have done well.
Another major success story is CVS—which in a few short years has become the department store of college retail. It satisfies many of the basic needs of students at a "bargain" price point. While places like Target are popular destinations before leaving for school, CVS is dominant on campus. Students are assigned new dorm rooms every year—and new student housing development is expanding the average size of these rooms substantially.
Retailers of all stripes have also stumbled upon a great benefit of campus locations—a built-in labor force. Finding quality, low-cost workers is a major obstacle for most retailers, but college students are the perfect fit because of their aptitude and desire for work.
One other factor that retailers have come to understand is the seasonality of campus retailing. Unless there is a substantial year-round program, campuses are often desolate around the summer and holidays. While this seasonality can be made up for at other times of the year, it is a departure for traditional retail calendars that operators must recognize and plan for accordingly.
The Future
The growth in enrollment witnessed in the last decade is expected to wind down over the next few years. That might be a concern for retailers except for the fact that the next wave is expected to hit campuses in 2014 and forward-thinking universities and retailers will take the lessons of the past and prepare for the new opportunities of tomorrow.
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