ICSC 2017 Forecast: The Reports of the Death of Retail Have Been Greatly Exaggerated. Experiential Retailing on the Rise with Restaurants and Fitness Leading the Pack.

Ravid Law Group presents our annual survey of the top real estate brokers throughout the country following the ICSC convention in Las Vegas. Each year, our experts demonstrate remarkable clairvoyance as they predict the changing market with incredible accuracy. Last year was no exception as we reported, “This year, our experts picked up where they left off with a growing number of them expressing cause for concern about where the retail sector is heading. High prices, omni-channel, and the upcoming elections were familiar themes contributing to this uncertainty.” This year’s interviews produced a consistent theme among our experts that retail is dramatically changing (but not dying)- from traditional retailing to “experiential” retailing, with a heavy emphasis on restaurants and fitness, to help combat the “Amazon effect” of consumers simply purchasing goods online and staying home and away from malls.

Jay Luchs, Vice Chairman Newmark Grubb Knight Frank: “Last year this time, we were discussing retail being in an odd place with rents being too high, not as many tenants as before, and the need to mix lifestyle such as food and fitness near retail to keep an area vibrant. This past year we saw the manifestation of what we predicted a year ago. Today’s reality is that retailers are not paying the rents that they were so boldly paying before on new deals, and landlords have realized that the tenants aren’t just posturing about rents being too high and that they really just can’t afford those rents. We are now in a place where a correction is happening right in front of our eyes whether some people in the industry want to admit it or not.  Internet sales continue to grow for brands who are selling directly to consumers online. Bricks and mortar has slowed down to such a pace that it was the topic of conversation at every meeting at ICSC RECon. With all that said, we believe that this reality check is needed, it will not be the end of the world, and in the long run will bring about great new brands that we’ve never heard of. We’ve seen many companies that have been around a long time go under this year, either closing all of their stores to sell online only, or just closing all of their stores entirely.  And for those brands, that is a sad tragedy and not easy to hear about. Going forward though, there will be other brands that grow at a healthy pace, having learned from mistakes others have made before them. These brands will hopefully grow in a smart way, in the right cities, the right locations, the right rents, the right sizes, and the right customers. Our biggest advice to both landlords and tenants is to keep things interesting and mix up the traditional stores with food and beverage, fitness, and up and coming new brands, because to survive going forward when there’s a head to head battle with the internet, what’s going to keep the bricks and mortar and retail landscape healthy is uniqueness, giving people reason to walk around and leave their homes.”

Robin Klein, President/Founder of Fashion Retail Group, Inc.: “Another year has passed and what has changed? Well, the narrative is still here and continues to heat up: “ecommerce continues to impact bricks and mortar.” Technology has an impact on everything. It impacts how we live, yet masses have not moved out of their homes; it impacts where we work, yet telecommuting has not made office space obsolete; so why the constant dialogue that bricks and mortar will soon be dead?

The reality part of our shopping experience will not shift 100% to virtual. But then again the successful retailers and brands will take advantage of balancing the omni-channel experience, and in all channels the focus should be #1 on client service. From VIP shopping programs to freshness of merchandise, one goes hand in hand with the other. “Experiential shopping” is not going to matter if what the client is seeking is not available. If the client is not satisfied they can go elsewhere with one step or one click, and they will.

We will continue to see new brands emerge in the bricks and mortar environment, but we also believe GLA will constrict. Whether you want to say we are overbuilt or under-demolished, the result is the same. Everyone will continue to weigh cost vs. return: that business narrative will not (and should not) change.

Our industry has always been dynamic. This is just another opportunity to embrace change and keep our clients engaged.”

John Auber, President of the Auber Group: “In general we continue to see a consolidation with selective growth. Traffic and sales are down while promotional activity is up. This year, there was significant talk of a correction, the marketplace being over retailed, a concern about more closings, and questions about what will happen to those spaces and centers that do close.

The industry is going through a significant disruption. We believe key opportunities exist especially in the repositioning and recapturing of store space, and how retailing is done. The next decade is going to be all about efficiencies, service, experience, scalability, uniqueness, densification, and localization.Retail is changing, and technology is the accelerant on the fire. But change brings great opportunity. We believe that the landlord and tenant relationship needs to change from being adversarial to one of true partnership. Omni-channel retailing has proven to be the best means of getting goods to consumers. This can be applied for both the retailer as well as the retail center owner.  Technology will bring the tools for efficiencies and scalability to the process.  It will continue to be a key initiative for retailers and will accelerate the change in the retail landscape.”

Derrick Moore, Principal – Urban Retail Properties at Avison Young: “ICSC RECon opened to the remarks by tennis champion and fashion icon, Serena Williams. This was especially fitting for this year as Serena has remained at the top of her game and profession since turning pro at the young age and has continued to win and remain relevant in a very competitive industry. This of course seemed to be the topic du jour in the world of retail as retailers try to remain relevant to an ever changing consumer base that has seen some reduction of bricks and mortar demands by many, but not all, in the retail industry. There was lots of discussion about an “Amazon effect” that has seen some shopping relegated to a push of a button on one’s mobile device or tablet – decreasing the demand of some consumers to visit traditional malls or shopping centers, compared to the past. Restaurants seem to be the saving grace in many instances, as consumers flock to restaurant-anchored centers to enjoy the ultimate experience that only food and beverage can provide. Mall programming is now including an expansion of food offerings from additional full-service options to creative food halls often specializing in specific ethnic food offers. Will food rescue the retail industry? Only time will tell but we would bet long on food!”

Leslie J. Mayer, Executive Director of Retail Services at Cushman & Wakefield: “The retail and shopping center landscape is changing not just physically in the shapes of the developments and types of retailers in the centers, but also in the way consumers are using and relating to them.  Traditional anchors are a thing of the past and “specialty” is the new buzz word. Whether it be food halls, interactive experiences, fitness and beauty, schools, residential, or creative offices, mature projects- with central positioning and access to urban cores and transportation hubs- are being re-purposed to be seven days a week, one stops locations.

Retailers are reducing their footprints to create more efficient and interesting mousetraps and relying more on the online delivery options to compete with the “Frightful Five” of Amazon, Google, Facebook, Apple, and Microsoft. Alexa and the Echo Dot are now taking over where Siri leaves off. Data mining has made it very easy for companies to understand who their customers truly are and how to play to their needs, wants, and desires. The physical spaces are now just vehicles to deliver these experiences. Consumers expect value now and can demand lower prices. The thriving retailers today are often the discounters who are buying up the inventories of the overstocked or closing full price labels, such as TJ Maxx, Ross, Burlington, and F-21.  Ethnic markets and retailers are becoming more mainstream and appearing in more traditional centers while some powerful retailers and labels are abandoning the malls and venturing into uncharted territories, creating their own urban destinations, such as Nike and Footlocker.

Some REITs are considering the sale of less than prime market assets and are even contemplating privatizing. They are looking to Europe and Asia for new concepts to ignite and backfill some of the increasing large vacancies. The larger footprint and multi-unit retailers such as Target, Ulta, Sephora, and Costco will continue to find ways to be category killers and offer private label products at a discount.

Industrial spaces will be more desirable investments as well to supplement  the need for retailers to have proximate fulfillment centers especially as minimum wage increases will accelerate the use of  robots and automated systems.”

Michael Townsend, President, Townsend & Associates: “Enough about media reports that retail is dead. One only had to be in attendance at ICSC RECon to feel the optimism in the crowds of dealmakers from all corners of the globe. Are we experiencing some pain relative to further government regulations, e-commerce, labor costs, construction costs, and  occupancy costs?  Absolutely. Have we been through a few hundred years of retail cycles and reinventing the models? Most definitely. So long as we continue to push the envelopes of service, experience, and product, there will be customers. Let’s remember that the retail shop at all levels is a three party transaction. Owner, Merchant and Guest. We know that if you check off all three boxes then everyone can have a long term partnership and everyone wins.”

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