Who else will file for Bankruptcy in 2018?
We are sitting in the middle of changing times. Technology has fueled the start-up world from mid-90’s until now. There was a bit of a misstep during the mortgage crisis but the ones that survived came back stronger than ever with plenty of new companies in every vertical planting seeds. Many of these companies have changed the way we live our lives. One of them is Amazon.
Toys R Us announced this past week that they are closing 180 or more stores. Physically those stores have a huge amount of space. What happens to those spaces? What happens to the people who own those properties that have leveraged them over the years because the rent is paying for the loans they took against the properties?
This was bound to happen. Amazon has changed the way we shop for everything. The long tail of Amazon is that new brands have sprouted up and they understand that they need to sell directly to the consumer without having a brick and mortar space. Brick and mortar is an added bonus as the brand grows but it is not the end all be all.
On the other hand, because of technology, there is a burgeoning reaction to the digital age where people want to engage with the old world ways from being a bartender to opening up a barbershop to becoming a cobbler to making furniture or even crafting new beers.
I have walked through empty open-air malls in LA and wonder about what to do with this real estate because clearly, these stores will go out of business at this rate. To mourn for the Toys R Us is worthless, they had a nice 75-year run, and that is something that any company would love to have. Perhaps they just didn’t see the future coming because there is no doubt that we will see more companies of a different era close their doors and go bankrupt in 2018.
How will malls become the new meccas again? So many ideas. What comes next is the opportunity that excites me.
Comments (Archived):
A company we invested in Megalytics.net does credit risk analysis for CRE. They also do tenant monitoring. If any mall operators want to find out who is on the ropes and who is healthy, give them a call. Donna, the CEO and founder can also do data analysis and predict what sort of operation would do well based on location, who lives there, and other stores in the area.Amazon is a tough competitor, but most CRE people use their gut to decide who to lease to. They also take whoever can pay the lease rather than taking a probability based look at the data which validates their gut feel.Megalytics is a game changer for this business.
Have been looking into this recently. Some trends…high end malls are actually doing relatively well. Digital remains priority but there’s been recent articles on the importance of brick&mortar, they’ll still be around, but just a smaller footprint. Malls/retail need to incentivize people to continue to come to the stores….i.e. Urban Outfitters acquired a Philly pizza chain.
Interesting acquisition.
One of the things I noticed is that stores that are still around have shifted from being large warehouse style stores to more ‘lifestyle’ stores. The online experience is super convenient, but they are in the business of selling me products, not an experience. I notice that furniture stores are starting to get this, where there’s less of an emphasis on having inventory and more on seeing the lifestyle these sets enable (Restoration Hardware, Pottery Barn). Apple does this as well, focusing on what the products do in your life as opposed to just selling you a product.This is happening even in toys. The Lego store has inventory, but the big focus on really showcasing the constructed sets and even have big bins for kids to pick out their own legos. Same thing with American Girl dolls: the store is really designed to show kids how these dolls interact with their world and give the ‘American Girl’ experience. Walking into an aisle at Target can’t hold a candle to that sort of shopping experience.Another big benefit of this model: real estate. Toys R’ Us is huge, and every square foot costs a monthly fee. If I can figure out how to sell an experience, I can cut down on my real estate significantly, and even upgrade my location without significantly increasing costs. The downside is that I may be understocked (as I don’t have enough space), so it will be interesting to see if people adjust to the ‘shop here, we’ll ship it home’ type model.
I keep thinking about Chelsea Market (which I do seriously love) and Columbus Circle.Very different. Both to my knowledge quite successful.Don’t have any data on the Oculus but I use it as well.
We need more shop-in-shops and / or experience-based shopping, not monolithic “anchor” stores.