After a Strong 2016, Our Retail Tenant’s Outlook is Optimistic

Annual LMC Outlook Survey Reveals Growth Trend, Continued Evolution
Retailers in our 95-property, 13 million-square-foot shopping center portfolio are feeling good about the future. In fact, three quarters (74.5 percent) of respondents in our annual Retail Sentiment Outlook Survey of store managers are optimistic about their anticipated 2017 performance – the highest percentage in the January poll’s six-year history. As a regional leader in retail real estate, this is the kind of news we love to hear.

Survey Respondents Report Record Sales Performance in 2016; Bricks and Mortar Stores Continued to Attract Shoppers
According to our President Matthew K. Harding, the percentage of respondents reporting 2016 sales at the same or higher level (68.8 percent) was the highest in Outlook survey history. Our finding reflects a positive year for retail nationwide. According to the U.S. Department of Commerce, 2016 retail sales rose 3.3 percent over 2015; for context, 2015 retail sales were up 2.1 percent from 2014.

The holiday season yielded a record performance, too, with survey respondents reporting sales and shopper traffic at the same or higher level than last year. These were the strongest in survey history at 75.6 and 74.4, respectively. “Industry experts agree that the recent holiday season was good for retail, yet some have indicated e-commerce was the real winner over bricks and mortar,” Harding said. “From a ground-level perspective we are seeing a different story – one illustrating the ongoing relevance of physical stores in our portfolio, which is comprised mostly of open-air shopping centers.”

Supporting our findings, the International Council of Shopping Centers (ICSC) in its Post-Holiday Shopping Survey found consumers spent an average of $711 on gifts and seasonal items during the holidays – a 16 percent increase over 2015’s post-holiday survey results. Further, ICSC reported 91 percent of holiday shoppers spent at bricks-and-mortar locations.

Expansion Plans Are Heating Up:  A 2017 Retail Trend to Watch
When we asked survey participants about their companies’ expansion plans for 2017, more than one-third (35.1 percent) indicated their brand plans to open additional stores.

“Again, our findings may seem to counter current headlines reporting ongoing store closings by major retailers,” Harding said. “But in the 65 years we’ve been leasing and managing retail properties we have witnessed the ongoing transformation of retail. Ultimately, concepts come and go, creating opportunities for new and expanding players. Today is no different, and our tenants are proving this point.”

Qualified Job Candidates: Retail Is Facing a Growing Scarcity
The decline in unemployment and its impact on retail hiring also was addressed in the Outlook Survey. Only about one-quarter (23.6 percent) of respondents have seen changes in the hiring climate related to the tightening jobs market. Of that group, more than half (51.7 percent) indicated they are seeing fewer applications from qualified job candidates, and nearly half (46.6 percent) said they are experiencing demand for higher starting salaries.

Tenant Business Models Are Adapting to Impact of E-commerce
The e-commerce phenomenon – and its impact on bricks-and-mortar – has remained top-of-mind for us. As leaders in retail real estate we are continuing to gauge how our tenants are taking competitive action. In the 2017 Outlook Survey, we asked our tenants how they have adapted their business models in response to e-commerce’s growth.

Marking a notable jump from the last two times the question was asked, 55.2 percent of survey participants indicated they have adapted in some way. This compares to 38.2 percent of respondents in the 2016 Mid-Year Survey and 37.3 percent at mid-year 2015. Among that group, our retail tenants have:

  • Added in-store services and/or incentives (50.9 percent).
  • Added in-store pickup and returns options for purchases made online (37.9 percent).
  • Increased coordination between online and bricks-and-mortar operations (30.2 percent).
  • Added “experience” draws such as demonstrations, classes, performances or other in-store events (28.4 percent).
  • Altered store inventory, such as having fewer in-stock SKUs or larger quantities of popular items (25.0 percent).
  • Altered store prototype, such as reducing store size or increasing focus on showrooming (17.2 percent).

In turn, 57.5 percent of the respondents who have adapted in response to e-commerce say they have seen a benefit in terms of sales and/or in-store traffic. That percentage compares to 43.0 percent at mid-year 2016 and 52.1 percent at mid-year 2015.

“In our last two mid-year surveys, about one-third of tenants (32.9 percent and 30.9 percent) were unsure of whether their efforts were making a positive impact,” said Melissa Sievwright, vice president of marketing. “The number shrank to less than a quarter (24.4 percent) in the 2017 Outlook Survey, indicating that tenants are beginning to see more measurable results.

“This is very good news in an environment requiring retailers to continually reinvent themselves,” she added. “We anticipate continued changes as our tenants strive to establish the best mix of services and incentives, and elevate and personalize the shopping experience to draw customers into their stores.”

Levin Retail Tenants Report Positive Seasonal Outlook, Robust Hiring Plans

Our Annual Pre-Holiday Survey Confirms Digital Marketing Momentum

Results of Levin Management Corporation’s (LMC’s) annual Pre-Holiday Survey of our retail tenants are in and the news is more than good, with respondents reporting robust hiring plans and continued digital marketing momentum. The poll of tenants within our 95-property, 13 million-square-foot portfolio explores year-to-date performance and expectations for the critical holiday shopping season. As regional leaders in commercial real estate leasing we not only welcome these findings, but look forward to more positive retail trends ahead.

Poll Respondents Expect both Sales and Seasonal Hiring to Rise
An impressive 83.2 percent of our survey respondents project holiday sales to be at the same or a higher level than last year. A full 45.0 percent plan to add seasonal staff – well above the average 29.8 percent reporting seasonal hiring in our prior five Pre-Holiday polls (2011-2015).

LMC President Matthew K. Harding, says strong year-to-date performance is behind retail tenant optimism. In fact, 64.3 percent of survey participants reported year-to-date sales at the same or higher volume than at this time in 2015 – compared to the 2011-2015 polling average of 57.9 percent.

LMC Survey Results Mirror Findings of National Studies
LMC tenants are not alone in their optimistic outlook. The National Retail Federation (NRF) expects sales in November and December (excluding autos, gas and restaurant sales) to reach $655.8 billion – an increase of 3.6 percent over 2015. This compares to a 10-year average of 2.5 percent. Similar studies by the International Council of Shopping Centers (ICSC), Kantar Retail and Deloitte project holiday sales to increase by 3.3, 3.8 and 3.6-4.0 percent, respectively. Further, ICSC reports 91 percent of consumers plan to holiday shop at physical stores.

Survey Respondents Predict Early Holiday Shopping Surge
LMC tenants expect their customers to shop early this year. A full 24.0 percent said they anticipate their sales will peak prior to Thanksgiving. Another 23.5 percent expect their sales peak during the Thanksgiving/Black Friday weekend. The balance of respondents’ expectations for peak sales are spread among early December (12.3 percent), mid-December (18.1 percent) and the weekend before Christmas (16.2 percent). Only 5.9 percent expect their peak sales to fall between the Christmas and New Year’s holidays.

Tech-Stacked Marketing Will Rule 2016 Holiday Shopping Season
Technology-centered marketing remains an ongoing priority, say our survey respondents. The Pre-Holiday survey asked those whose companies are embracing mobile apps, social media, email, texting and other platforms to compare their amount of digital marketing year over year. A full 94.0 percent reported they will incorporate the same or more tech-centered marketing this holiday season.

“This is smart planning,” noted Melissa Sievwright, LMC’s vice president of marketing. “Deloitte forecasts that digital interactions – consumers’ use of digital devices such as smartphones, tablets, and desktop and laptop computers – will influence 67 percent of brick-and-mortar sales during the 2016 holiday season. In turn, our tenants recognize the importance of reaching their customers via digital platforms – both prior to and during store visits.”

Email and Social Media are Top Promotional Channels. In-Store Promotions Include Digital Coupons, Loyalty Programs and Discounts
Survey participants who are actively using technology to reach shoppers outside their stores favor email (74.7 percent) and social media (73.1 percent). Other top channels include text messaging (30.6 percent), banner and other internet advertising (30.6 percent), and digital ads targeted to mobile devices (25.3 percent). For in-store reach, popular tools include digital coupons, discounts, loyalty points and/or rapid payment (73.8 percent); free Wi-Fi (37.8 percent); post-sale online surveys (35.4 percent); and electronic receipts (29.9 percent).

Social Media is Strong Element in Digital Marketing Equation
Facebook reports the holiday season brings more posts, shares and comments than any other time of the year. Deloitte notes that social platforms – such as Facebook and Pinterest – are “shaping what people think a great shopping experience is – a fast, highly-curated assortment with access to visuals, information, and buying sources.”

Among survey respondents, Facebook is by far the most popular social media platform, used by 89.9 percent of those who incorporate social media into their marketing efforts. Other popular outlets included Instagram (40.5 percent), Twitter (33.3 percent), Google+ (27.4 percent) and Pinterest (10.1 percent).

“Social is a vital part of the digital marketing equation,” Sievwright said. “Our tenants are using these channels to announce in-store sales and experiences, and for post-event coverage. Instagram and Pinterest, since they are so visual, are popular choices.” An emerging retail trend to watch: live broadcasts from events on Facebook’s Livestream and Twitter’s Periscope.

For the first time, survey participants were asked whether they are enhancing their social media presence with paid options. Of respondents who use social media for marketing, 37.5 percent indicated they are leveraging opportunities like Facebook’s sponsored content or ads.

Our Retail Sentiment research will continue in 2017. In January, we’ll be gauging retailers’ outlooks for 2017, and in June, we’ll report mid-year progress and explore technology issues.

Retail Real Estate Trend: Non-Traditional Tenants Go A-List

Web-Proof Services Are Attracting Landlord Interest as Some Retailers Falter

Last month I served on a panel at ICSC’s PA/NJ/DE Conference and Dealmaking event in Atlantic City. My group’s discussion focused on non-traditional tenants and their growing popularity in commercial retail leasing. On the four-person panel, I was the sole spokesman for the landlord side, with the rest of the members representing non-traditional tenants who lease space (or want to lease) in shopping centers. As might be expected, they were all attracted by the visibility, convenience and traffic a popular shopping center offers. They want to be where the customers are. No surprise there.

At Levin, we have many non-traditional tenants under lease – fitness centers, health services, day care providers, gaming centers, and, of course, restaurants. Not long ago, like most managers in the business of commercial retail leasing, we were reluctant to go with tenants other than more traditional retailers. That’s changed big time. I’d like to tell you why non-traditionals are now on our A-list.

Behind the Trend #1: Non-Traditional Tenants Are Amazon-Proof
While many retailers are struggling against branded online stores and behemoths like Amazon, service businesses face no web-based competition at all. WebMD can’t stitch up a cut. YouTube videos are no substitute for a Nautilus circuit or Spin class. You can’t leave your toddler with babytv.com while you work. You get the point. Services and experiences can’t be provided by the Internet (at least not yet). We in commercial retail leasing like that. We’re looking for tenants that are fiscally solid and likely to stay that way.

Behind the Trend #2: Service Businesses Drive Traffic
In our era of the time-starved lifestyle, people look to consolidate as many of their errands and activities as possible. A shopping center that offers the opportunity to combine a fitness session with grocery shopping and a prescription refill will draw traffic, benefitting multiple tenants and attracting new ones. Our grocery tenants, for example, report a substantial flow of customers from their fitness center neighbors. That’s a win-win-win for the tenants, landlord and shoppers.

Behind the Trend #3: Long Leases and Solid Financials
Non-traditional tenants typically seek longer leases, often because of the higher construction costs due to the more extensive build-outs they initially require. They also tend to be stronger financially and have better credit than many of today’s retailers. Both these qualities make them a highly desirable addition to the tenant mix.

Non-Traditionals Do Pose Some Challenges in Retail Leasing
Since nothing’s perfect, we have to consider the challenges that these businesses – appealing as they are – present. The most common is parking. A fitness center user, for example, may tie up two hours of parking space per visit. We’re always very careful to assure that there’s adequate parking before any new lease is signed. Another roadblock may be image. Some specialized medical centers, for example, can seem out of place among the existing mix of restaurants, boutiques and entertainment providers. We’re sensitive about overall image and have declined some prospective tenants that weren’t a good “fit.”

At Levin-Managed Properties Non-Traditionals Are Here to Stay
Our portfolio has many fitness centers, which are now considered mainstream uses in today’s shopping centers. Levin-managed properties are home to most of the major national brands, including Blink, Crunch, LA Fitness, Leisure, Snap and Planet Fitness.

More health services are coming on board with us. We just signed a lease for 2,500 square feet at our Mayfair Shopping Center (Commack, NY) with GoHealth, a walk-in clinic. This medical services model is growing rapidly, with a third of the new establishments situated in shopping centers. We expect to see more of them as Levin tenants in the near future. Physical therapy services are interested in shopping center space, too. A Kessler rehab is located in our Aldrich Plaza (Howell, NJ).

Daycare (Apple Hill Academy and C2 Education Center), postal services and even a vet, along with restaurants and the popular gaming chain Dave & Buster’s evidence Levin’s interest in cultivating this new segment in commercial retail leasing. Non-traditional tenants meet the needs of today’s consumers – and even boost business for our traditional retailers. A combination that works quite well