Retail apocalypse? What retail apocalypse?
Yes, there have been significant changes in the retail space in recent years, said Amy Sands, managing director with JLL during “The Latest Trends in Retail,” a panel discussion at CRE.Converge 2019 in Los Angeles. However, she said “apocalypse” is an overblown term for what might properly be called “an experiential revolution.”
“Experience is just as important as offerings,” said Lorena Tomb, CEO and founder of Urbanlime Real Estate. “On-site concierges and digital signs are just as important to shoppers. We like to see a mix of tenants: Food, beverage, health and fitness. If you have a mix that covers the different senses, we can feel good about that.”
Things such as BOPIS (buy online, pick up in store), enhanced services, omnichannel distribution, improved customer service, home delivery, better in-store experiences and augmented/virtual reality are changing the face of retail in the U.S. Physical locations are shrinking, too.
“Institutional investors have increased investment for smaller unanchored centers,” Sands said. “The preferred transaction size is shrinking.”
They’re also taking on investments with a focus on the right retail mix at a shopping center, and not necessarily based on the credit of the retailer.
“There’s an old saying: If they’re cool, they don’t have any money, and if they’re not cool, they’ve got money,” said Larry Casey, president and COO of Donahue Schriber Realty Group. “We find that other than the anchor, we’re happy to make more bets on concepts than credit. Say there’s a local chef who has a concept; if we believe in that concept, we’ll take the risk on the restaurant.”
However, Casey said his company, which focuses on grocery stores as anchors, has been steering clear of apparel retailers. “Apparel is suffering right now because it has a lot of competition from omnichannel,” he said.
At the same time, Donahue Schriber’s restaurant mix has gone from 18% to 24%.
“We find our restaurant concepts are more of what our tenant mix has evolved to,” Casey said, adding that the company likes to keep its restaurants under 6,000 square feet. “It’s hard to find 6,000 square feet, but not so hard to find 1,500 square feet,” he said.
Casey said his company has also added more veterinary and medical offices to its centers. “It’s something you can’t do on the internet,” he said.
However, the internet could even disrupt that, according to Karen Strack, senior vice president tenant coordination & lease documentation, Unibail-Rodamco-Westfield.
“When you look at the doctor office experience, the waiting room is wasted rent,” she said. “If you can use technology to text patients when their appointment is ready, that could save them time and save the practice money.”
Strack also noted that the internet is disrupting another traditional industry: car dealerships.
“The more industries that are disruptive, the more benefits come to us,” she said. “Millennials and Gen-Z don’t need to have car lots. They’re getting cars delivered that they’ve ordered online. They can choose their options and experience them in their own homes without going to a dealership.”
Sands asked the panelists if they thought shopping centers are designed differently than they were 10-20 years ago.
“I’d like to say yes, but we’re dictated by what our tenants are asking for,” Casey said. “You would think centers are being designed differently, but they’re the same as they have been. We’re getting more requests for pick and click, so the four best parking spaces in the shopping center are going for grocery pickup. Other than that, a center designed today is a lot like a center 10 years ago.”
Tombs said the current environment is extremely favorable for tenants to renegotiate better deals, and Casey said the so-called “treasure hunt” stores are doing well in his company’s big-box centers.
“The T.J. Maxxes, the Marshalls, the Michaels, the Rosses, those guys are on fire right now,” Casey said. “They’re coming to us and our vacant boxes. They’re going to bring us $8 million in sales, and they’re filling a box that we don’t want empty. They are in the driver’s seat. We will make a concession to get the right tenant in to increase traffic at the center. We are willing to make a bigger investment than in the past.”
Sands asked the panel if retailers can survive by using their existing stores as warehouse and retail platforms. Strack said it could depend on the product.
“One of the things I’ve been seeing more is a lot of fast-casual restaurants want ghost kitchens to cook for their delivery service so they’re not impacting the experience of the diner in the restaurant,” she said.
Looking ahead, Strack said services that are ordered online could present a major growth opportunity.
“Food provider Blue Apron is a really great example,” she said. “There’s a huge dollar value people will pay in order to have convenience in their life. And Taskrabbit and Ikea would be a perfect match. More than 60% of tasks on Taskrabbit are for Ikea assembly. That could be a natural partnership – brick and mortar meeting an app service.”
Casey said that despite the rise in e-commerce for grocery delivery, physical stores are going to be around for a long time in most of the country.
“We’re in the suburbs, and grocery delivery doesn’t work in the suburbs, unlike dense urban areas,” he said. “We’re signing leases today for 25 years into the future.”
Strack predicts more digital connectivity in the health care sphere.
“We’ll get to the point where holding your cellphone will tell you your blood pressure and cholesterol, for example,” she said. “Wearables will be able to do that, too. You’ll walk into the grocery store and it’ll generate a list of food to buy to be healthy based on data from your shirt”.
Strack also believes that e-sports arenas for competitive video gaming will be huge. “It’s probably going to be a bigger industry than the NFL,” she said.
Trey Barrineau is the Managing Editor, Publications for NAIOP. In this role, he supervises day-to-day operations of Development magazine.