Retail Real Estate Trends: In-Store Restaurants and Hip Hybrids are On the Rise

High-End Cuisine and Artisanal Coffee Draw Customers, Boost Sales

The grand department stores of yesteryear – Marshall Field’s, Hudson’s, Wanamaker’s and others – always featured a “tea room” where elegant ladies could enjoy refreshments during shopping sprees. Over the decades, in-store food service has changed, along with shopping styles, but it’s never gone away. Today, Starbucks keeps Target shoppers caffeinated, McDonalds fortifies bargain-hunters at Wal-Mart and Ikea continues to serve up Swedish meatballs and other Nordic favorites. At the higher end of the shopping spectrum, Nordstrom operates multiple restaurants throughout its chain, boasting a total of seven different food service concepts and 200 eateries and coffee bars in its properties. Still, new food-related retail real estate trends keep emerging –and they’re definitely not your grandmother’s tea room.

Department Stores, Branded Shops Build Traffic with Quality Food and Drink

When Fodor’s, the venerable publisher of travel information, starts listing the 10 best in-store restaurants, it’s a sign that store-based dining has reached both a critical mass and a quality high-point. On the retail real estate NYC scene, big name chefs like David Burke preside at Bloomingdale’s. Hip restaurant brand Momofoku Milk Bar operates out of Soho’s Band of Outsiders boutique – right in the front window. Lord & Taylor shoppers can take a break at branches of Sarabeth’s. Ralph Lauren recently joined in with a main level coffee bar (featuring Lauren’s own brand of beans) and a full-service restaurant upstairs at its Fifth Avenue flagship. Among the latest to join the in-store food trend is Urban Outfitters, who opened a three-floor venue on Herald Square in June –the largest in their 400-store chain. A main floor feature is an outpost of Intelligentsia Coffee of Chicago, “designed to serve an ocean of coffee to thousands of passers-by each day.”

At Tommy Bahama’s “Lifestyle” Stores Food and Drink Reinforce the Brand

A brand-oriented take on the in-store food service trend in retail real estate is Tommy Bahama’s Island concept. The resort-themed menswear company has launched 13 “Island” stores, where shoppers find an immersive environment that includes tropical cocktails and menus, a perfect backdrop to the brand’s beach-y fashions and accessories. Tommy Bahama reports that its “Island” stores, located in such venues as The Woodlands Mall in Dallas, Corona del Mar Plaza in Newport Beach, and Scottsdale’s Kierlands Commons, generate two and a half times the sales per square foot as their other 97 locations.

At Hip Hybrids, Store and Restaurant Merge for a Single Customer Experience

Saturday’s Surf may have launched the hybrid trend in NYC retail real estate. The five-year-old Soho-based boutique (now with three additional locations) offers surfboards, accessories and a full line of surf-inspired menswear. Its artisanal coffee bar is integrated into the selling floor. Co-founder Josh Rosen, who is expanding into new markets, insists that coffee is so essential to his business that any new leases must permit beverage service. Management at Shinola, a Detroit-based merchandiser of watches, bikes and accessories with shops in NOHO and Tribeca, second Rosen’s sentiment. “Sights, sounds, and smells of a café bring a no-fuss feeling to a luxury goods store,” they said in a recent statement.

Custom-brewed coffee, along with craft beers, is fueling the success of lifestyle retailers on the West Coast, who, like Saturday’s Surf and Shinola, merge merchandise and refreshments in a single space. In Portland, Velo Cult, which purveys bikes and all things bike-related, relies on the “nerdiest black coffee around” and a menu of local beers, along with live music and film screenings, to pack their “man cave” venue. Seattle-based Chrome Industries, designer and manufacturer of bike-related clothing, footwear, bags and accessories, has six “HUBS” or stores in San Francisco, Seattle, Portland, Chicago and recently New York City. San Francisco’s famed Blue Bottle Coffee is the go-to beverage and like Velo Cult, music and screenings are key parts of the mix.

What’s this latest in-store eating and drinking trend all about? Beyond attracting and satisfying the customer, there’s doubtlessly the recognition that in-store amenities like high-quality coffee and unique menu options enhance the shopping experience beyond just browsing and buying. Shopping centers with a rich tenant mix have picked up on this retail real estate trend, just as urban stores and boutiques have. Here’s a powerful competitive edge that online can’t match.

Outlook on Holiday Retail Sales is Optimistic

But Analysts Present a Mixed Picture of How Robust the Increase Will Be

After a tepid back-to-school season and with Black Friday just weeks away, all eyes in retail, including retail real estate, are fixed on analysts’ predictions for 2014 holiday spending. The majority of the announcements are cause for good cheer, with major forecasts from such sources as the bellwether National Retail Federation (NRF), pointing to healthy increases over the 2013 season. The question seems to be not whether there will be a spike in sales, but how much of a rise we can expect.

In General, a Bright but Mixed Picture of Crucial Retail Holiday Season

The National Retail Federation predicts that 2014 holiday sales will increase 4.1 percent for a total of $616.9 billion. That’s a full percentage point ahead of 2013’s gain and well above the ten-year average annual rise of 2.9 percent. Jack Kleinhenz, the trade organization’s chief economist, cites increases in employment, disposable income and the number of shopping days in this year’s calendar among the contributing factors. But don’t pop the champagne corks prematurely. The Wall Street Journal observed that the NRF’s forecasts have failed to match actual sales for the past six years. Other major retail analysts, however, mirror the NRF’s outlook for the upcoming season.

In September, Deloitte predicted a rise of 4 to 4.5 percent in holiday sales, which would be the biggest increase in at least three years. Alison Paul, Deloitte’s vice chairman and retail distribution section leader, said in a widely quoted interview that there is “a psychological glow of people generally feeling better about the economy” as a result of increased employment and rising personal income.

AlixPartners delivered an even more optimistic vision of the holiday ahead, predicting an increase in sales of as much as 4.9 percent. Like Deloitte and the NRF, they cited the improving economy, including falling gas prices and unemployment rates, as the reasons why shoppers can be expected to open their wallets wider this year.

Prosper Spending Score, based on their recent consumer survey, sees an 8 percent leap from 2013’s levels. The engine driving their outlook is feedback from upper-income households ($75,000+ per year) who maintain a spending score that is 13.2 percent higher than the overall average. Of interest to the retail real estate market is Prosper Spending Score’s predictions about the performance of individual retailers. According to their consumer research on 150 retailers, Gap, Amazon, Macy’s and Nordstrom are among those expected to be top holiday performers.

PricewaterhouseCoopers Says Cash-Strapped Consumers Point to Sales Drop

The sole dissenter among the major analysts is PricewaterhouseCoopers, who has predicted that average household holiday spending will drop by 6.9 percent from last year’s levels for an average outlay of $684 in 2014. Their projection is based on a poll of 2,200 U.S. consumers, who, in spite of a stable level of inflation, cited concerns over rising costs in food, transportation, housing and health care as motivators to cut their holiday spending. “The consumer doesn’t believe the economy has necessarily improved,” said Thom Blischok, chief retail strategist of PwC’s Strategy& unit (formerly Booz & Co).

There’s Agreement on One Thing: Online Looks Bigger Than Ever

The forecasters seem to be of a single mind about one thing for the 2014 holiday season: online will continue to be the star performer. Deloitte projects a spike of as much as 14 percent in online and mail-order sales, while Shop.org predicts an increase of between 8 and 11 percent. That’s good news not only for online retailers but for shipping companies like UPS, who is expecting to hire as many as 95,000 temporary employees. Total seasonal retail hiring is anticipated to range from 725,000 to 800,000.

But online shopping isn’t the only role electronic devices will play. Digital interactions will influence 50 percent of in-store sales as savvy shoppers research products and compare prices via their computers and mobile devices. Retailers are responding by optimizing their websites for mobile platforms and supplying their sales associates with tablets for in-store customer support.

Gift cards will continue to be top sellers and the most popular gift category will be electronics. Apparel sales may lag except among those retailers with a trendy inventory supported by a strong web presence.

Despite Solid Outlook, NRF Advises Retailers to be Cautious

The most wonderful time of the year may be about to arrive, but retailers are still advised to be aware of consumers’ continued price sensitivity. “Recognizing the need to keep household budgets in line, we expect shoppers will be extremely price sensitive as they have been for quite some time,” said NRF President and CEO Matthew Shay. “The lagging economy, though improving, is still top of mind for many Americans.” He advises retailers to respond by “differentiating themselves and touting price, value and exclusivity.” Promotions, though perhaps not as prevalent or as deep as last year, will continue to play a role.

What do Retailers Think About Holiday 2014? Levin Survey Looks for Answers

Levin Management is one of the retail real estate companies that conducts regular surveys of tenants in their shopping centers. Our annual Pre-Holiday Retail Sentiment Survey is currently in progress and we expect to release the feedback in mid-November. Key findings will be published here.