A Facelift Can Put Bricks And Mortars Ahead of The Game

Retailers May Be Neglecting Their Strongest Competitive Advantage

Digital technology has transformed our industry – some might say disrupted it – along with just about everything else in contemporary life. Retailers, over the last few years, have risen to the challenge of their online competitors with major investments in omnichannel. But have all those dollars poured into online come at the expense of the retailer’s biggest asset: the bricks-and-mortar store? This provocative question was recently raised by Antony Karabus, CEO of Hilco Retail Consulting, in a recent article in Women’s Wear Daily. He gave us cause for some thought.

Investing in Bricks: Is a Retail Real Estate Trend Emerging?

Karabus maintains that bricks-and-mortar retailers “consistently underestimate the enormous advantage they have relative to their ecommerce counterparts, in particular their physical brand assets.” A bricks-and-mortar store, he goes on to say, satisfies the consumer’s innate desire to interact with merchandise in an inviting environment. Yet, according to a survey of the CEOs and CFOs of top retailers conducted by Hilco, only 20 percent are investing capital in their stores. Forty percent of the stores in Hilco’s study, in fact, had not been remodeled in a decade.

The vast majority of retail sales still occur in stores rather than online. The most recent statistics from the U.S. Commerce Department show online sales accounting for 6.8 percent of total third-quarter retail sales. Online is growing at a steady pace, but Forrester Research projects that by 2018, it will still represent only 11 percent of total annual sales. Still, leading retailers remain fixated on tech – perhaps at the expense of their physical brand, which is the chief driver of revenue.

An Experience Technology Can’t Match…Yet

Steve Barr, U.S. Retail and Consumer Leader at PricewaterhouseCoopers, echoes Karabus’ views on the overlooked value of bricks. “There are reasons people are still going to the store – it’s accessible, people can see and feel the product, try on merchandise, see what a room set looks like. It’s a very visual experience that can’t be replicated through even the best online tools,” he told Retail Dive earlier this year. He added this caveat: “Retailers are going to need to adapt the physical store to stay relevant and compete with online retailers.”

Levin’s President Matthew Harding agrees that while a strong online presence is vital, retailers can’t afford to ignore their physical stores. “As a leading retail real estate company, we’re naturally concerned about the physical appearances of the tenants in the centers we manage. The look of a store is a valid concern for any retailer. Many of ours are doing an outstanding job. A good example is ShopRite. They’ve created high-quality environments for grocery buyers. Pier 1 Imports is another good example. I’ve seen some great interior and exterior remodeling of their stores. They’re driving more traffic because of their fresh, new look. Shoppers are drawn to novelty.”

Retailers Who Find the Right Balance Will Own the Future

Bricks and clicks need to be brought into balance, according to Karabus, who insists that success will come from serving customers “consistently at all touch points (online and in-store) however and whenever they want to interact with a retailer.” Bring stores up to meet the expectation of today’s savvy consumers, he urges. Merchants who do so will reap dividends. “The prize,” he predicts, “will be huge when retailers find the right balance of capital spending.”

RECon 2015 Takeaway: Retail Real Estate is on the Rise Again

Keen Appetites for Value-Added Investment Set the Tone for Annual Las Vegas Gathering

With 35,000-plus attendees thronging last months ICSC RECon event in Las Vegas, it seems safe to say that commercial retail real estate is roaring back from the Great Recession in a big way. Its not just the number of attendees that impressed us but the amount of new blood among them and the intense deal-making mood that pervaded the convention center.

Solid Retail Fundamentals Are Driving the Market on Multiple Levels

Yes, weve seen more attendees at past RECons (the record is 50,000), but weve never seen one of these shows with more capital aggressively chasing deals. Frothy would be a good word to describe the acquisition-oriented activity. The big institutional investors, many of whom we advise, were in a bullish state of mind and on the hunt for high quality, core retail assets as well as core plus and value-added retail properties. In addition to dominant grocery anchored centers, power centers and properties that feature category leading brands and credit tenants are in strong demand.

Ground up development was also drawing its own healthy slice of investor attention. For the first time since the slump began, there is a pipeline of significant development money, which is good news for the construction management team at Levin. Behind all this investor interest is the growing strength of retail fundamentals, particularly in the top-tier markets, which are typically the under retailed, high barrier to entry markets as well as the growth markets.

RECon, As Usual, Reveals Retail Real Estate Trends: Mixed Use, Hot Markets, New Retail restaurant and Entertainment Concepts and Smaller Footprints for Big Box Tenants

Trend watchers always like to keep a sharp eye on gatherings like RECon, scanning the scene for the next big thing. The 2015 event yielded some hints about new industry directions, most of which have been evolving for some time. The biggest driver of change in retail; online shopping, is now a firmly entrenched consumer habit and retailers and retail real estate owners and managers continue to struggle to pry people away from their screens and back into bricks-and-mortar venues. So we see both new retail development and renovations to existing shopping centers that include new restaurant and entertainment concepts, cinemas, and event spaces joining the line-up of traditional retail stores. Mixed-use development is also a focus. Experimentation is the name of the game here, as developers search for the right mix of retail, restaurants, entertainment, residential and/or office uses, and tackle the subtle nuances of pedestrian traffic patterns and tenant positioning. Success in mix use, many are finding, depends on the dynamics of the individual market and thats not something that lends itself to a template or formula.

The retail real estate sector is nothing if not dynamic, and change tends to involve responses to new trends. Wal-Mart and Target, for example, are adjusting to unique environments, particularly the dense urban markets as well as to continued competition from the extreme discount grocers and dollar stores with smaller footprints and new concepts. Expect to see the continued rollout of The Wal-Mart Express convenience stores and The Neighborhood Markets, with emphasis on groceries.

All in all, RECon 2015 was a testament to the resiliency of our industry and a cause for optimism. We are on a roll!

Curation: The Future of Retail (And The Past)

A Trend Goes from Bricks to Clicks Then Back to Bricks Again

A few years ago, The Motley Fool, the online stock advisor, proclaimed that “the future of retail is curation.” True, but it’s also its past. The pioneering department stores launched in the late 19th century were all about curation – selecting market-oriented merchandise and organizing mammoth inventories into designated areas (departments) where shoppers could easily browse items that matched their budgets and tastes. Departments were the retail real estate trend of the day, enhancing the shopping experience by organizing the goods formerly found in multiple stores under one roof and presenting them in a shopper-friendly manner. On the opening day of its Herald Square store, Macy’s was not unlike today’s Amazon, featuring a slogan that was all about size – “A Place Where Almost Anything Can Be Bought.”

Online Merchants: New Masters of the Curation Universe

With the largest selection of goods in the world today, Amazon and its merchant partners continue to refine curation online with algorithms that deliver systematized suggestions based on individual consumption patterns. These formulas guide buyers through a staggering selection of items. The goal is to “drive consumer choices and offer new ways to spend money,” says Netflix, another master of online curation. Netflix, along with Zappos (an Amazon company), Wayfair, and furniture.com are among the leaders of the online pack, mining masses of data and matching it with tailored choices to smooth the online shopping experience.

It’s not all algorithms though. Beyond mathematical formulas, online is also the home of celebrity tastemakers and influencers who lend their star quality to collections they appear to have curated on sites like ShoeDazzle and Overstock.com – all chosen to fit their fans’ shopping profiles. And then there’s social commerce, which brings social media into the shopping mix. Glance, a product of Zappos Labs, is a curated fashion platform that lets shoppers “heart” their favorites and share the word about their buys with their Pinterest, Facebook and Twitter communities. Niche online marketers, like Nasty Gal, which evolved from an eBay store, are natural curators with merchandise so sharply targeted that tech may not even be needed to serve up a selection.

Keeping up with the Curators

So what’s a bricks-and-mortar retailer to do when facing celebrity-curated collections and ever-improving product recommendation technologies? Just as the bricks-and-mortars have achieved success online, they’re also rising to the challenge of 21st-century curation. They’re turning sales staff into in-person curators. Well-trained and well-equipped with tablets that connect to a digitized inventory and supply chain, associates on the selling floor are turning browsers into buyers. Employees at Leica, a camera retailer in Manhattan, use a mobile-inventory-centric retail system to present shoppers with products that match their needs. Leica’s system also allows sales staff to do check outs from their iPads (a la the Apple Stores) – for a bricks-and-mortar version of one-click purchasing. That’s a retail real estate trend worth watching.

Struggling Sears is approaching curation in a more traditional but still creative way.

Three pilot stores are hosting “Connected Solutions” – an online and in-store collection that demonstrates how connected electronic smart goods can make for better living. Sear’s in-store sales centers feature a full range of branded devices in the fitness, home, automotive, and mobile categories. The entertaining, interactive environment and tightly edited collection of products helps tech-shy consumers get comfortable with the latest gadgets.

New Tech Innovations for In-Store may be the Next Retail Real Estate Trend

Sophisticated data-capture is the online retailer’s key to providing tailored product recommendations. Tech innovations are now ready to deliver similar insights for the bricks-and-mortar world. Nomi, the largest player in physical analytics, is extending web analytics into the real world with a platform that gathers insights into shopper behavior via mobile. Mobile identification and facial recognition software, and heat mapping technologies are providing information that will enable merchants to offer an individualized experience that’s not so far from the one shoppers have come to expect online. That’s the kind of experience Rowland H. Macy would have loved.

 

 

 

 

 

Annual Post-Holiday Survey: Seasonal Cap Positive Year

Retailers Ramping Up Staffing and Tech-Related Marketing for 2015

The results of our annual Post-Holiday Retail Sentiment Survey are in and the news is good. Participating store managers in our 95-property, 13.0 million-square-foot shopping center portfolio reported a healthy rise in both yearly and holiday sales and traffic. Optimistic as a result of 2014’s performance, they’re also ramping up staffing and planning to put more technology into their marketing mixes in anticipation of continued momentum. That’s a retail real estate trend we like.

Our Research Mirrors NRF and ICSC Polls, But with Sales and Traffic Higher

Mirroring findings of the National Retail Federation (NRF) and the International Council of Shopping Centers (ICSC), 63.6 percent of our survey respondents reported 2014 holiday sales at the same or higher levels than 2013’s. Last year, only 51.2 percent reported sales at the same or higher level year over year. The NRF reported a smaller rise of 4.0 percent in total holiday retail sales, which include November and December sales, while ICSC reported a 3.6 percent increase.

An impressive, though slightly smaller, percentage (60.0 percent) of our survey respondents also reported the same or higher traffic to their stores this year compared to the 2013 holiday season. That said, retail analytics firm RetailNext Inc. reported a 7.1 percent year-over-year decline in traffic at brick-and-mortar stores during December.

What accounts for the more robust numbers from our managers? Our survey is conducted at the grassroots level and involves a regional mix of local, regional and national retailers, while many larger, national studies focus on ‘big picture’ corporate earnings or only major retail organizations. That differentiates our study, which sometimes counters what others report – like in the case of holiday traffic. This different approach gives a picture of what merchants are seeing at the ground level, in realtime.

Retailers Expectations Met or Exceeded by 2014 Holiday Shopping Season

Since our survey measures the sentiment of retailers along with sales and traffic, expectations are an important element. And 2014 scored well. According to our participants, the 2014 holiday season met expectations (44.4 percent) or exceeded them (24.4 percent). For context, last year only 13.4 percent of respondents said that their holiday season was better than they thought it would be.

Two Holiday Sales Peaks Are Emerging as a Retail Real Estate Trend

Seasonal sales peaked earlier for a larger percentage of our responding managers this year. For 15.9 percent, sales spiked before Thanksgiving, and for 19.3 percent they peaked during the Thanksgiving/Black Friday weekend (compared to 12.8 percent and 15.4 percent, respectively, in 2013). That percentage dropped off in early December and then surged, with 26.1 percent reporting a peak during the weekend before Christmas.

Retailers have been promoting the Black Friday sales push earlier and for longer, which has extended that buying period to include more and more of November. The slowdown early in December and spike just before Christmas likely reflect emerging patterns in online shopping, with consumers returning to physical stores as the holiday nears and shipping deadlines become tight. RetailNext’s study supports this observation, citing December’s “bookend” performance for brick-and-mortar stores.

Holiday Staffing Levels Expected to Stick

While some sources reported a drop in seasonal retail hiring in 2014 (including consulting firm Challenger, Gray & Christmas, Inc., which reported a 4.0 percent drop), a significantly larger percentage of our survey respondents hired temporary workers during the holiday season – 43.3 percent vs. 33.7 percent in 2013.

Even more encouraging, 62.0 percent of those say they intend to retain some of those positions in 2015. That’s a big jump over last year, when only 40.5 percent said that they would transition seasonal workers to permanent staff. And while the percentage is down year-over-year, nearly one third (31.5 percent) of survey respondents anticipate their companies will open new stores in 2015. We see this as really good news, especially in light of January announcements of store closings and layoffs by Macy’s, JC Penny and other large retailers. It’s good news for commercial retail leasing too!

Use of Tech in Marketing Is a Retail Trend Thats Here to Stay

In recent Retail Sentiment Surveys, we’ve closely tracked our tenants’ growing use of technology in marketing, and the trend appears to continue unabated. For the holidays, 74.2 percent of survey respondents incorporated technology such as mobile apps, social media, email and text message marketing into their promotional mix. Among those respondents, 63.2 percent said they believe the efforts bolstered holiday sales performance. Additionally, 44.9 percent of all respondents indicated they will add or enhance marketing efforts involving technology in the coming year.

Technology innovations are entrenched in how the retail industry does business, and our survey pool reflects this. Our respondents are seeing direct benefits, especially in social media, mobile apps and email. It is encouraging to hear how these new tools are making a difference.

Several third-party reports support our findings. The Consumer Electronics Association indicated more than half of shoppers who use mobile devices prefer to look up information while shopping, rather than talk to store employees. And BDO recently found that 84 percent of retailers are using social media, with this platform projected to comprise an average of 19 percent of their marketing efforts this year.

2014: All Around It was a Very Good Year

The U.S. Census Bureau announced a 4.0 percent rise in retail sales in 2014. Over half of our survey respondents (51.7 percent) reported 2014 sales levels above or the same as 2013, a slight uptick from the 2013 post-holiday survey, when just under half (49.4 percent) reported the same or higher sales year over year.

Levin’s retailers feel good about what 2015 will bring. A full 67.0 percent of respondents are optimistic about the coming year’s potential. And it’s important to note that this percentage is higher than the average for the prior three years (65.1 percent).

Retailers have reason to be positive. Overall indicators for the retail industry point to further positive momentum. Gas prices are down. Unemployment is down. And consumer confidence and spending are rising. We expect continued steady growth in the near term, and our tenants appear to mirror this sentiment.

Levin’s next retail sentiment survey will be conducted in late May and early June, gauging mid-year performance. Watch for the results here on our blog.

Will Falling Gas Prices Pump New Life Into Retail Sales?

Retail Trend Watchers Predict Upcoming Surge in Consumer Spending

Across the U.S., drivers are doing the happy dance at the gas pump. And they’ve got cause for celebration. Between September 25, 2014 and January 5, 2015, the average price of gas fell every single day, dropping nearly a full dollar from July levels and delivering a reported total savings of $50 billion to consumers in the fourth quarter of last year. But where will all those dollars go? Retailers have high hopes for a first-quarter surge and the retail real estate industry is optimistic about what’s next.

Retail sales for November, just four months into the gas price decline, saw a gain of 0.4 percent. December brought some good news with non-store holiday sales (indicator of online purchases) growing 6.8 percent according to the National Retail Federation. Restaurants and bars enjoyed a gain of 0.8 percent over their November performance, while food and beverage stores, pharmacies and other health and personal care stores reaped higher sales. Full year figures for consumer spending show retail sales rising 4 percent for the year. Considering the massive savings in energy, some wonder if the numbers could have been higher.

Steve Barr, retail and consumer sector leader at PricewaterhouseCoopers, suggests that the picture might have been even better except for the “the conflicted consumer” factor. These are the cautious shoppers who may still have been struggling to balance cost of living expenses with recent gas savings. But with the added factor of the strengthening national economy and continued low energy costs, this conflicted consumer may soon feel much less conflict.

Consumer Confidence Is Gaining Traction Fueling Retailers Optimism

“It’s a no-brainer. It’s going to be a better year for the consumer in 2015,” predicts Paula Campbell Roberts, consumer analyst at Morgan Stanley, citing the $80 billion dollars in savings from lower gas prices projected for Q1 of 2015. Terry Lundgren, Macy’s CEO and Chairman, agrees. Addressing the National Retail Federation earlier this month, he said, “I think we’re in a place right now where consumption can return back to what we’ve seen in the past.” So with an additional $550 to $750 in their wallets during the coming year, Americans may be about to go on a long-delayed shopping spree.

Younger Demographic and Lower-to- Middle Income Households To Benefit Most

Households with lower-to-middle disposable incomes will feel the biggest economic boost from cheaper gasoline. This includes members of the large 18-34 demographic, who are inclined to spend even when their budgets are tight. This group may lead the anticipated retail spending surge. In a recent National Association of Convenience Stores Survey, a third of the 18-34 year old respondents said they would use their gas savings to make more discretionary purchases beginning in January.

Rising Wages and Employment Help Brighten the Retail Outlook

The American Automobile Association, whose Daily Fuel Gauge recently reported gasoline at $2.08 per gallon, predicts that low prices will remain stable for the first half of this year, with a moderate rise post-summer. The price-per-gallon is expected to remain under $3.00. That mid-year uptick in gas prices should be offset by rising wages and declining unemployment in a recovering national economy.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, sums it up. “Consumers real disposable cash flows are surging, confidence is high and rising and the labor market is recovering at an astonishing rate.” That’s good news all around, especially for retail real estate.

 

When Going Backward is Going Forward

melissa

Clicks-to-Mortar Continues as a Retail Real Estate Trend

When Bonobos’ founder Andy Dunn launched his online menswear business in 2007, he pronounced bricks-and-mortar stores officially dead. Within five years of predicting that retail real estate trend, Bonobos was offline as well as online with a unique take on bricks-and-mortar – Guideshops – plus branded boutiques in select Nordstrom stores. Other big e-commerce names like Warby Parker, Piperlime, Birchbox, Proper Cloth and even Etsy and eBay are now dabbling in the concept of offline venues.

Migration to Bricks-and-Mortar Sounds Like Good News for Retail Real Estate

The Los Angeles Times recently reported on the debuts of on-the-ground boutiques by some of the hippest names in online-only retailing. Among these are Nasty Gal, now in the Southland Mall in Hayward, Calif., and JustFab in the Glendale Galleria. Former exclusive onliners say the major drivers of this “reverse evolution” are their need to build brand awareness and the shopper’s need for a tactile impression of merchandise, something that can’t be duplicated online (at least not yet). Shopping is a social experience, especially among the coveted millennial demographic, they acknowledge, and a physical venue provides just that. And shoppers want to try before they buy –something that even the onliner’s promise of “free shipping both ways” can’t seem to overcome.

Clicks-to-bricks also delivers a positive financial impact. Dunn of Bonobos says that he cut his online marketing costs in half through his Guideshops and that the average in-store transaction ($360) was close to double that of Bonobos’ average online sale.

“Reverse Evolution” Results in a New Kind of Retail Real Estate Venue

Bricks-and-mortar descendants of e-commerce sites are anything but traditional stores and more hybrids of offline and online. This retail real estate trend is producing smaller “showroom” style shops (sometimes as small as 800 sq. ft.) with shallow, sample-based inventory. In-store purchases are often made via the retailer’s website to be delivered within 24 hours (for the almost-instant gratification consumers crave). Both sales associates and shoppers in these hybrids have access to multiple computers to browse additional options and features and place orders. Typically, the showroom stores closely reflect the branding of the retailer’s website – The Gap’s Piperlime, a fashion site featured on “Project Runway,” decks out its flagship SoHo showroom in the color palette and graphics of its website.

What’s Next for the Click-to-Mortar Retail Real Estate Trend?

Traditional retailers continue to strive for online success. E-commerce pioneers seek a footprint in the real world. What’s next? Will we see more online retailers launching not only in trendy neighborhoods like SoHo and LaBrea but in malls as well? One thing we can count on, it’s not going to be business as usual. What are your observations about this trend? Please share them with us below.

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About Melissa Sievwright

Melissa joined Levin’s marketing department in 2010 and was promoted three times in less than three years to her current management position as Assistant Vice President of Marketing. With a strong background in graphic design and marketing, she heads the company’s corporate branding efforts, implements promotional campaigns for select client properties, and supports the firm’s leasing team in marketing vacancies within the company’s shopping center portfolio. Her current “big picture” goal centers on helping Levin leverage opportunities resulting from the rapid evolution of online marketing and the increasing technological savvy of the commercial real estate community – to project an image that marries the firm’s rich traditions with its modern approach to doing business.