ULI Washington News

Retailing for the New Consumer – Finding the Right Fit Panel Recap

By Debbie Kaufmann
April 18, 2012

Janis Schiff, Partner, Holland & Knight
Grant Ehat, Principal, JBG Rosenfeld
Michael Ewing, Principal, Williams Jackson Ewing
David Schwarz, President & CEO, David M. Schwarz Architects

This panel focused on the evolution of retail real estate and its progression over the past several decades from malls to urban centers; from large national chains to the rebirth of local, entrepreneurial retailers; from traditional shopping centers to entertainment areas that can fulfill multiple needs, such as shopping, dining, exercising, and working, all in the same place.

The panelists all agreed that, particularly in large urban areas like NY, DC, SF, and Chicago, there is a return to independent, unique specialty stores that are created both by locals and some large chains that are branching out to reach various demographic groups.  With the internet cutting into retailers’ revenue, there has been consolidation because while retailers are successful with online sales, they still need to create a relationship with their customers so that a store, where people can “feel and touch” merchandise and become familiar with the retailer’s personality, is critical; retailers must “combine their stores with the internet experience” .  Take Apple as an example; their products can be purchased online, but the stores are always mobbed.  And while many retailers are downsizing their footprints, “sticks and bricks won’t go away”, says David Schwarz.

Flexibility is important, as people’s lives have become so busy.  In addition, Americans have a short attention span, and they’ve become lazy, so retailers must capture their attention and maintain it.  Mixed use developments that allow people to accomplish numerous tasks, and that also provide entertainment and a positive feeling, enable this to happen and are therefore seeing a strong growth pattern.

The majority of growth is coming from food – from grocery stores to small, boutique stores; from department stores that now carry food items to remain competitive (think Walmart, Target, Costco); and restaurants – particularly in urban markets, many restaurateurs are opening multiple restaurants with different and unique concepts, and stores and restaurants are opening on the ground floors of highrise apartment buildings to attract the types of tenants that the developers wish to rent to.

What are their thoughts about what retail will be like five years from now? Grant Ehat believes there will be smaller and more urban formats that provide people with the experience they seek.  David agrees – but also predicts that stores will maintain a strong online presence while building their brand, which is done best in “sticks and bricks” environments vs. the internet, so a symbiotic relationship is required for customers that shop both at a retailer’s store and their online site.  And Michael Ewing sees that the luxury market will continue to expand with stores in outlet centers, which are moving closer to urban areas and experiencing major successes as one of the few types of developments that have continued to expand. These new trends, however, are more challenging for 2nd and 3rd tier cities.

Other significant trends are seen in the ethnic diversity that continues to grow in the U.S.  Lincoln Road in Miami is now one of the two most popular pedestrian shopping areas in the world, along with the Ramblas in Barcelona, Spain —  this trendy area used to be a crime-ridden street that is now 50% food, 50% retail, and 100% popular.  Latino people, in particular, enjoy being outside, shopping, eating and drinking in a community that provides a party-like, attractive, enjoyable atmosphere.  And due to the diverse demographics, these areas enjoy a wide range of offerings, for example, traditional grocery stores along with Asian/Hispanic/Indian markets — there is room for all.

Michael pointed out that many malls will transition into different types of properties, such as open-air centers, and very few will remain traditional mall; the panel predicts the death of all but “super fortress” malls, such as Tysons Corner Center and King of Prussia Mall, which Michael believes will remain intact at least for the next generation.

Regarding generational differences – retailers must remain flexible and come up with concepts that will please the Gen X and Gen Y folks, as well as baby boomers, ethnic groups, and older seniors; all of these groups have buying power.  Retailers must fully understand their customers, and if they tailor to just one group, they will encounter difficulties.  Americans are by nature aspirational – they aspire to wealth and youth – so that those older groups want to feel younger; the younger groups want to appear wealthy.  80% of J Crew’s sales, for example, are from 16 products that are purchased primarily by 18-35 year old customers – but J Crew still brings in significant profits from selling their khaki slacks to 80-year-old consumers.

In developing new, or renovating existing, mixed-use properties, retail is an important component of the mix.  The developer must attract all ages, demographics, and income levels, providing something unique and exciting.  The retail won’t drive the project, but it will drive the interest and cache, for example, by providing “hot” restaurants and shops that will attract tenants.  Clearly, the retail must add to the economic success of the project and add “rent” to the bottom line.  David cited that it is difficult to build mixed use projects without sufficient density, and accessibility is important, as well as a humane environment that relates to people and is humanly scalable – such as an area that promotes strolling, community and neighborhood, that makes people feel good.   All tenants must have a presence, and a mix of unique stores and restaurants and a mix of local and independent entrepreneurs, along with a chain or two, help ensure that the property will become a destination.

Shopping has become a form of entertainment, as is a positive dining experience.  With regards to the outdated strip centers, vacant malls and grocery stores that are frequently found in 2nd and 3rd tier cities, developers should be open and flexible for finding new uses for these properties.  For example, they might be renovated to become churches, schools, sports venues, or other quasi-public spaces.  The same goes for outmoded office buildings, many of which are currently being transformed into apartment buildings in Dallas.  These old and outdated properties can be restored to be mixed-use environments because of their existing infrastructure – if the developer is innovative, keeps in mind demographic populations ranging from young to old and of varying ethnic backgrounds, the panelists agree that there are some great opportunities out there, especially with some of the older, more historic properties, to become the types of mixed-use developments discussed throughout this panel – entertaining, fulfilling, convenient, attractive, and popular.

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