Where is retail going?
There have been a lot of articles written in the last few weeks about the death of malls. I have written about this in the past. I believe the merging of ecommerce and brick and mortar commerce will be in the future. The balance will change but an evolution is beginning to take place right now.
It is pretty easy to purchase anything you need online. Groceries, books, cars, clothing, etc. There are a few things that you actually have to go into a store for. Getting your haircut is one although you can probably get someone to come to your house. Manicure and pedicures is another although there are more than a few apps for nail color but not a good foot soak. Is it important to go to get a store for your kid to try on their first pair of shoes? You don’t have to go out to see a movie and my guess is soon enough we will be able to watch first run films online. You can order in food and even have a chef come cook for you. You get the point.
I can continue on but the gist is that technology has allowed us the ability to basically do anything without having to leave the comfort of our lives. We no longer have to build hours into our day to run the basic errands when they can all be taken care of with a click.
There is still the importance of human contact. There is something to be said for getting out more. What is retail going to look like in 2020? Let’s take a look at the mall for one. Huge massive structures where people used to shop for sport are empty. Pushed out not only by ecommerce but the overwhelming sameness of chains. There is nothing unique about each structure except one might have a bunch of higher end stores than another. You could go to one of these malls, close your eyes and be anywhere in the US.
Real estate is expensive. More malls will convert into communities that are a mixture of residential homes, art installations, movie houses, pop-up stores and and they will have to become creative to get you to go (unless of course you live there).
When you take your kid to Stride-Rite why isn’t there another shop in the store where you can get their hair cut too? Why isn’t there a fresh baked cookie bar? How do you make these brick and mortar stores unique with editions that can only be seen and purchased in store? Why isn’t there a fantastic coffee bar in every retail store or even a wine tasting area? Should there be a merger or a bunch of stores that together make a most interesting go to place?
There are many concept shops being rolled out. Most are long standing but they are on to something. When we were in Europe this past September every city we went to had a new one and many of them were geared towards men not women. Fascinating.
Lots of conversations taking place around the future of retail. It will be fun to watch and it will be even more fun to be involved in it after all the beginnings of my career started in retail.
Comments (Archived):
Another big change I see in retail is the addition of personal preference models and better customer service. One size no longer fits all… it never really did, but we went with it anyhow because we had to. Whether online, or in person, we are going to see a shift in helping customers get what THEY want, not what they are ‘told’ to want. Those outlets that do that will win. I think we are on the brink of an exciting time as a consumer.
Absolutely. Technology can make that happen
I’ve seen this change that you mention happen in my own hometown mall over the past few years. Now it holds the Farmer’s Market, includes a cooking school, childrens museum, and an aveda institute. It was always a small mall, but as an example, definitely supports your predictions! http://www.universitymallnc.com
very cool.
I once spent some time looking at an investment in Wet Seal (it looked cheap, was curious, passed, and it just filed for bankruptcy). I asked the CEO why people sought out Wet Seal and he said, they don’t. They go to a mall and there are 2-3 stores they know are at that mall, and while at the mall, they walk by a Wet Seal and hopefully they come in and buy something. On the web, the likelihood of that happening (browsing by a crummy retailer, stopping by, and buying something) is as close to zero as it can be. This is bad and good, depending on who you are. Its overwhelmingly good for consumers b/c a product, to differentiate itself and acquire customers in the vastness of the web, has to be amazing. And it bad if you’re a me-too product or service b/c you can’t rely on people walking by. And so the “Wet Seal” brands of the world need to step it up.
They go to a mall and there are 2-3 stores they know are at that mall, and while at the mall, they walk by a Wet Seal and hopefully they come in and buy something.Exactly. More or less same as the point that I made in my other comment “you are paying for traffic instead of paying for advertising”.The same thing actually occurs with newspapers in a way. People were trapped in the paper reading it and were exposed to ads on the pages and those ads were guaranteed exposure to certain businesses that in no way can easily duplicate that now.
If you ever need a great example of this “new” retail concept – Assembly Square in Boston/Sommerville, MA. Caters to millennials with new apartments to rent above restaurants and (interestingly) outlet stores with foodtrucks ever week, an art market on weekends, and a permanent container beer garden.Totally agree with Stuart (below). I think the most interesting part about this retail shift is that we saw more of the bigger name brands compete by converging on products or merchandising similarly. I think the pendulum is swinging and agree with your point Joanne that the bigger shift to come is retailers competing on exclusive products. The consumer is certainly looking for it and we have the ability to provide it!
I need to get up to Boston and check that out.
Definitely. I don’t know how well the apartments are selling (didn’t look at pricing) but certainly around the holidays the place was ridiculous. And it’s been a long-coming urban development project in conjunction with T extension. But the retailer mix is really interesting as well – a Saks off fifth and then the rest is mainly active wear outlets. Sign of the times – your either dressing up or working out 🙂
Interesting on the trends in retail. One of my big hypotheses for real estate of both big box stores and malls is of companies taking them over for headquarters and/or incubators and small business hubs. Simply put its economics and cost (at least in my theory). There are something in the order of 20 – 40k buildings for retail over 100,000 square feet (think walmarts, home depots, grocery stores etc.) and around 1,000-1,500 malls that are between 500,000 and 2 million square feet. As these start to decline due to the overexpansion that has occurred, companies can purchase them for between $20-$30 per square foot (an example in Ashtabula ohio were I have family is it was purchased for $6 !! per square foot). In your big cities office space goes for between $25-50 per year, and in new York san fran $100 per year per square foot is not heard of. I understand that living in flyover country (ohio) the economics are a little different than the coasts, but even there similar cost differences will exist. I probably already have bored with the comment so I won’t go into more laborious detail, but I think retail (malls/big box stores and I guess now that I think of it strip malls) will be insanely deflationary on office retail space which will be huge for new business creation, particularly small to medium size ones who don’t have venure funding and balk at signing a 4-5 year lease for $100,000’s of dollars.
That makes total sense. How great would it be to take over an old mall with food trucks, art installations and start-up companies?
I think pretty great. Obviously the one catch is most of the current owners of these malls didn’t invest hoping to lose money. they will go kicking and screaming (and trying to get explicit and implicit government bailouts) before eventually reaching bankruptcy then selling. Honestly reminds me a lot of the short sale issue in the residential market… which hasn’t really been done that efficiently.
Can and will happen (and probably has) but won’t be widespread. The “startup mania” will lose steam at some time. That is to the point where something like that will be viable to do.Even if you add housing I don’t think that gives the critical mass needed to support the center. Actually, they tried this years ago where I am now. Housing and shops. Problem was not enough housing to support the shops. And the place was “out of sight out of mind”. I noticed it the first time I got my hair cut their at the high end salon that opened.Location and traffic matters for retail barring some big force that floats the boat. That’s why people can and do pay such high rents in NYC. It’s not rent it’s guaranteed delivery of walk by traffic. That is customers and easy accessibility.For example if you are going to open some retail store and you can pay $2500 per month rent in location “a” and $6000 per month rent in location “b” then the question is only how many extra customers will walk by for that extra $3500 per month? [1] There is a reason that people who know what they are doing (major chains and good operators) pay high rent it’s because the location brings them business. Newbie operators often make the mistake of going for the cheap rent obviously in some cases it’s because it’s all they can pay. That said there are always outlier examples.[1] Which also means you save money on marketing and advertising. Arbitrary numbers obviously.
will be insanely deflationary on office retail spaceJust from observation traditional office retail space is located in cities where the transportation is good. Malls are suburbs (typically) and while there are buses that go there they aren’t as good as the stuff that runs in cities. So people need to commute with cars. One of the first things I noticed operating a business out of a city (where both buses and the subway were a block away in the city) was how much harder (for many reasons) it was to get help. In the city it was simple plenty of young people (and this was years ago not now) that could take the subway to work. Also lower class people (for lack of a better way to put it) that would take a subway from the wrong side of the tracks and get to work. Living with their parents in a crappy part of town. In suburbs didn’t happen they don’t have cars and it could take 2 hours to get to work by public transportation. Big eye opener. Was nice for me though very close to home and no rush hour traffic.
I think it really depends if you are in a tier 1 city (new York, boston, la, san fran, seattle, chicago maybe a few more). Outside of those cities the downtowns of other what I would call tier 2 (Cleveland – where I am from, Columbus, Detroit, phoenix, even an Atlanta etc.. althought its maybe more tier 1), there are meaningful office spaces in the suburbs. So if you think all / most of the major innovation will come from the first cities I totally agree with the downtown likely being key. However the cost fundamentals are SO different in tier 2 cities (which still have great infrastructures, culture, arts, sports, great schools etc) that I view this as a very big disruptor and ability for scaling of future companies. Tough road to climb, but its really a fly-wheel effect that IF gets rolling the worst investment in the US will be tier 1 city real estate for 20 years.
For years I have seen strip malls turn into other things because the big central malls had taken their place. A New England Development Mall in Chestnut Hill, Ma. which had a Bendels, a Tiffany, an Escada shop and other stores along with some restaurants seemed to always be empty, because it was a “new” vertical mall like what was usual for Japan. You had to park in an underground garage or valet the car. For some reason this did not go over well in a Boston suburb. Now all the stores are gone and some have moved across the street, and this “former” mall has become a destination for a medical facility. I am not sure exactly what is there now. Originally, it was to be doctor’s offices but I have not been by lately to see what is there. Probably a stand alone feeder facility for one of the big Boston hospitals.I heard that the Somerville Mall is very “hot” right now, because it has some “outlet” stores not too far from Boston and Cambridge.As I was perusing some of the online sites on this cold morning I realized you really don’t have to go into a drugstore, a supermarket or even a discount store to purchase a cashmere sweater on sale.If you get lonely you can post on the gotham gal blog or on your twitter or facebook.Everything has certainly changed.
.In the stratification of retail space, enclosed malls are distinctly different than strip centers. Use the term “strip center” to mean anything which is not an enclosed mall.The operating expenses of enclosed malls (huge amounts of air conditioned/heated volumes of space, parking lots, security, etc) are enormous when compared to strip centers. They are 2X at least. These expenses are passed along prorata to the stores who then must accommodate them in their cost of goods sold.Given similar demographics and cross shopping indices, even big retailers are going to want to be in strip centers particularly when they are destination retailers (Neimans, Nordstrom) and they will have their own enclosed, multi-story parking garages to capture their customers.The future use of such facilities — former enclosed malls — is a very creative opportunity. In ATX, the Austin Community College has bought a huge mall and converted it into an educational facility. The parking is tremendous and it sits astride public transit — many enclosed malls will have been located with public transit as a consideration.Similar retail facilities have been bought by Travis County for administrative functions. Not malls, strip centers. Again, it is the location and the parking.In edge city context, malls are very well located to be acquired, demolished and converted to a higher and better land use. One thing to remember for municipalities is that enclosed malls generate massive property tax and sales tax revenue while alternative uses may not generate any sales tax revenue. It is a complex equation.JLMwww.themusingsofthebigredca…
One thing to remember for municipalities is that enclosed malls generate massive property tax and sales tax revenueAt least in PA and NJ (and many other places) sales tax is levied statewise (w/ exception of Phila city which tacks on I believe an extra 1%).As far as property tax even if it’s the same it would almost certainly take more city services for housing (or even office) than it would for retail (more police in theory, more schools unless 55+ all of that).We have a mall nearby and the township moved into a portion of it for their offices. I used to go there in person to pay property taxes and when I did the mall was empty. Always. Now I pay the property taxes by ACH so I don’t even need to visit anymore. One of the justifications for moving was they were told they could sell the old offices for $x dollars. Of course it’s still vacant and hasn’t been sold. Oops.In contrast, the “upscale” outdoor mall locally (not exactly a strip center a big complex and not enclosed) is always busy and does very well. All high end, located on a major road, even has an Apple Store. Also has restaurants and a small bit of housing.
Isn’t some of this only true for big cities, though?