Malls are dying (or have they officially been declared dead?). Former retail giants like Toys R Us and Sears are closing stores and filing for bankruptcy. From Mattress Firm, the largest mattress retailer in the U.S., to footwear and apparel company Nine West, the outlook for retail looks dismal at best. For commercial real estate owners, that means empty buildings and the loss of rent. Attorneys for Toys R Us blamed Amazon, Target and Walmart for dealing its final blow last holiday season. And while Amazon alone captured 44 percent of all U.S. e-commerce sales last year, is their success the real reason the toy giant failed?
A panel of experts at CRE.Converge 2018 went beyond the headlines to share what’s really happening in retail now, where it’s going next, and most importantly, what this all means for commercial real estate. Newmark Vice Chairman Geoffrey Millerd moderated the discussion.
“Long-enduring retailers have to have a unique value proposition that can handle these varied market changes,” said Kimco Realty Corp Executive Vice President and Chief Operating Officer David Jamieson. “You need to understand what the touch points are and what drives consumer behavior. The minute you get away from that, you risk making yourself obsolete.”
A standard anchor-driver tenant used to be a large box store. “Today, it could be a famous restauranteur who draws a big audience but doesn’t have a lot of credit,” Jamieson said. “You’re constantly weighing the credit with the quality to find the best mix.”
Successful retailers focus on two core elements, said Raider Hill Advisors President and COO Joseph Tichar: a high-quality product and experience – retailers can’t simply offer one without the other. Many retailers find it difficult to compete with Amazon for general commodity retail, but “retailers who offer new experiences are driving traffic,” Tichar said.
Walmart is one standout example of a retail giant that has evolved with changing shopping habits, Tichar said. The company recognized that its online shopping experience needed to be improved and invested the resources to, as Walmart U.S. eCommerce President and CEO Marc Lore said, “make shopping faster and easier… while also creating a cleaner and more modern digital shopping experience.”
Tichar noted that retail stores like TJ Maxx and Ross Stores, Inc. are thriving because they provide “the treasure hunt experience” (that word again!).
Jamieson agreed, remarking that the “treasure hunt” retail format can’t be easily replicated. “You can’t just take a product and throw a lower price at it and thinking that will work. [These companies] have extensive supply chain and merchandising teams that have been at this for a long time.”
“Through this turmoil and volatility in the headlines, we’ve been experiencing different results in the field,” said Jamieson. “Quality real estate has its value. This is a great opportunity to improve the quality of the tenancy in your shopping center.” He cited his group’s Lincoln Square project in Philadelphia – an 1850s train depot turned mixed-use development – as a test run to see how the concept of retail mixed with lifestyle components plays out in the local market.
“When we look at the momentum and the demand drivers, as long as you have high-quality real estate, the demand will be there, Jamieson said. “Look at where population growth and job growth exists – that’s where you see growth in retail.”
“If retailers don’t invest in their stores and the experience they offer, they will likely lose market share,” Tichar said. “For Toys R Us, there were hundreds of locations that were profitable in spite of strong competition and lack of investment. At the end of the day, it was overfinanced and couldn’t sustain itself.”
Tichar and Jamieson agreed that online retailers expanding into brick-and-mortar stores, and brick-and-mortar stores expanding their online presence, help a retailer become more agile and get closer to meeting its customers’ needs.
“Online only, digitally native companies can see value in offline because the customer acquisition cost is high to advertise only online and also there is a lot of noise,” Jamieson said. In the crowded online world, how does a retailer stand out? Having an offline presence can help with brand reinforcement as the customer sees, tastes, touches or hears the brand in person. Once again, it all comes back to the consumer experience.
Marie Ruff is Communications Senior Manager at NAIOP.