Current & future retail & shopping center trends

Part 14

By Jorge Lizan

Managing Director of Lizan Retail Advisors (LRA)

As part of a series of articles on The Future of Retail and Shopping Centers, I was fortunate to interview some of the clearest minds on today's retail world whose have shared with me extraordinary insights on how retail will evolve in the coming years and decades and how this will shape the shopping center of the future.

In this installment we interviewed Andrew Strenk, Ph.D.? Managing Director of Strategic Planning Concepts International LLC in Tustin, CA USA.  Dr. Strenk brings twenty five years of real estate strategic planning and trend analysis to his projects. He is a summa cum laude graduate of the University of Southern California, with a Bachelor of Arts degree in history. He has a master’s degree in Eastern European history from the Universitat Wuerzburg in Germany and a doctorate degree in modern European political history from the University of Southern California. Following his graduation, he spent five years teaching history at USC before moving to the private sector. His exposure to México began as a member of the U.S. Olympic swimming team at the 1967 Pre-Olympics and the 1968 Olympic Games in México City, where he represented the USA in swimming as a member of the 4x200 freestyle relay team. Since then, he has worked with a large number of developers and retailers in Mexico, the USA and Europe in crafting real estate strategies.

This is what he told us:

The world of retail is changing very rapidly and that we expect more changes in the next five years than we saw in the last fifty, we are not sure about other trends.  Some trends will have "legs" and survive and some will prove to be fads.  Others just sort of fade.  Various and sundry retail formats have had their moments of popularity (power centers, entertainment centers, festival marketplaces, lifestyle centers, town centers, etc., now we have box parks, niche centers and concept centers....but through the trial and error process, the industry has learned that certain formats work really well under certain conditions and not so well under other conditions.  None of these formats are a "universal cure" for a particular site in a particular market.

Lifestyle shopping centers seem to be a fad in much of Latin America now, but most of these projects are lifestyle centers only in their name and the imagination of their developer and/or owner.  Technically lifestyle centers can represent any lifestyle so that a Walmart center is in fact representative of a certain lifestyle (speed and convenience and discount prices)...but the classic definition of is of an open-air, modestly sized, pedestrian-oriented project with very strong representation by the fast fashion sector and the food and beverage (F&B) sector.   The implication was always that there was some sense of intimacy and  "fun" ambiance.  It is difficult for a super regional project or a mega mall to meet these customer aspirations, because the sheer size and the distances involved in traversing the project tend to defeat the customers' enthusiasm for a fun experience.  In general, lifestyle centers also do not have a unitary design but flourish with a lot of visual variety.  Originally they were the "anti-mall," not just a smaller version of the same thing.   We expect, having said this, to see both more, and better quality, lifestyle centers in Latin America.

Mixed use projects are also somewhat of a a fad now in much of Latin America.  However, mixed-use is not well suited for every site and every market and a thorough assessment of the site and the market are necessary before embarking on what is a complicated, complex, often frustrating and time-consuming development format.  It might seem simple, when viewed from a distance, to simply stack different uses on top of each other and put them all on top of a retail podium of some type.  However, most mixed-use projects fail to meet their objectives.  They are difficult to design.  They are difficult to finance.  They are difficult to build.  They are difficult to operate.  There is virtually no part of the process that is simple.  Each additional real estate use multiplies the complications.  In particular, access, circulation, deliveries, drop off zones, egress, ingress, parking, trash pick up and vertical transportation areas where many projects run into serious challenges.  Too often, the developer is forced by financial demands of investors to add density or additional uses that a market can not support.  The land price is irrelevant to these discussions....if there is no, or only a limited market, that is the market.  A developer can not grow wallets and purses to infinity in order to meet the needs of spreadsheets.  Again, we expected to see new mixed-use projects, but they will be more sophisticated and better quality, as developers learn from the experiences of their first wave of projects. 

Regional fashion malls remain a favorite across much of Latin America.  They are big.  They are glamorous.  They bring the developer a lot of attention from his (or her) peer group.  However, we do not expect many of these to be built, going forward, because they are expensive to develop and the whole chemistry between department stores and mall stores has been upended. 

We expect new forms of entertainment, as technology brings us new inventions and many shopping centers seek new ways of attracting more customers.  This includes bigger multiplexes with more technology, more food and beverage options and more creative mixing of food and beverage options.  

It seems that pop up stores may be here to stay and that we will see more and more of them, because they make economic sense, they are a great way to test out new product and they provide visual variety for shopping centers in addition to providing "something new."   They are a sort of "lab" for experimentation and they do not cost that much to do.   We see this trend expanding.

It seems that we will be seeing more temporary stores (similar to popups but in conventional in-line spaces).  Likewise, they provide a sense of newness and change, while filling dead space....but we see this trend as more of a pre-determined leasing strategy than as a "last resort".  Typically in the past, temporary stores often were a kind of emergency response to either a sudden vacancy.  Or they were fixed to Halloween, Christmas or some holiday or celebration.  We see a broadening of the type and focus of these stores.   This also looks to be a trend that will endure.  

Pop up stores and temporary stores are driving a trend to more curated leasing, shorter lease terms and changes in the way that leasing is done.  Is this a change that will become widespread?  If so, it will radically change the industry...what is the value of a shopping center where all of the leases are short term (as at the Bikini Berlin project)?  Speaking of trends...the box park (reused and repurposed containers) might be a trend....at least in certain environments.  It represents a low cost, fast and relatively efficient way to develop a shopping center and could be applicable as a way of putting land to use while waiting for financing, entitlements and permits and final design drawings. 

Anchor department stores appear to be continuing to lose ground.  More and more, it is possible to design and develop shopping centers that do not need this classical store format.  It is very difficult for most department stores to compete with the fast fashion leaders in terms of assortment, selection, price or speed to market.  Most department stores surrendered any effort as personal service a long time ago.  So what is their advantage?  Their efforts to improve their supply chain logistics are impressive but they in general are still chasing the progress curve, not leading it, as the fast fashion specialty stores are.  What is the department store "value."?   Ever easier credit terms?  If a department store wants to become a bank, that is certainly allowed, and there is a niche for this activity....but then a department store chain should not be confused as to what its priorities are or what the value is that it is delivering to the marketplace.  Otherwise, that department store will fall off the endangered species list to the extinct list.  The energy devoted to structuring financial vehicles to provide credit are great, but the visually merchandising efforts of most department stores has taken a very subordinate role and left department stores looking relatively pathetic in contrast to their more nimble and innovative  competitors.     

There are more trends,  in the area of design....like double and triple height storefronts (the fast fashion leaders are leading the change).  This requirement will force the redesign of many shopping centers and a lot of creativity and innovation will be required to eliminate the existing bulkheads.  New materials, new textures, new finishes, new devices....all are going to impact design.  Those projects that are designed in advance to be able to change and to be flexible will gain an advantage. 

Trends are there in every sector of the industry.....the application of analytics to decision making is moving rapidly.  There are now apps that can apply hundreds of factors to the analysis of a market or a site.  This is leading to a greater understanding of a site and its market, and to some degree, of consumer behavior.  However, changes in consumer behavior remain difficult to predict in advance because such changes often revolve around items that have not yet been invented. 

Our view is that the retail industry has always been about change.  Only now, the pace is speeding up!   

 New technologies in retail:  Just beginning.

• POS evolution.  The shopping experience of tomorrow will not be like today, we expect the totally automated checkout to continue to spread and for POS equipment to become increasing sophisticated, complex and efficient, as well as less costly.... essentially following the trajectory of the computer. Consumers will also become more comfortable with using these POS interfaces....as they have adopted the use of ATMs, cell phones, smart phones, tablets and other devices.

• The science is there today, the logic is there, the pricing needs to become more affordable.  Current wearables are rather primitive compared to the next generation of items.
• Already in use and spreading rather rapidly, we need to think about what Beacons 2.0 or 3.0 will be doing.
• Augmented reality. If not already there, coming to a neighborhood near you, sooner or later.  This has a lot of implications in many areas.....customer experience, store design, visual merchandising, directory assistance, concierge services.....
• Long list...facial recognition software, for example, already in  use in some stores.  Body scanning software. 

The challenge of retail innovation.  Innovation and creativity are in demand, but in relatively short supply.

Omnichannel.  Omnichannel will be hugely more important than is currently the case, and will spread globally to saturate every market.  Those retailers  that do not move to a omnichannel platform will not be around much longer.  And those that do not do it well will also struggle.  Its great for the consumer, it gives them more choices, more flexibility and more convenience.  What's not to like about it?  If you are only an e-tailer or only bricks and mortar, you will suffer.  As supply chain logistics and infrastructure continue to spread and improve, omnichannel becomes more and more of an option for more and more customers.  

E-commerce. Fast.  Easy. Convenient.  Getting more comfortable.  Won't go away, but will not replace shopping and certainly won't replace eating and drinking.  However, this will be a part of the rapidly spreading omnichannel universe, but it won't be the entire sector of omnichannel retailing.  Bricks and mortar stores are not going away, they are just changing and they are becoming more interesting places to visit.  

Mobile payments.  Should continue to expand as security systems improve and the technology eliminates the current glitches.  

The future of shopping.  Shopping has been around for thousands of years, it is not going away, just changing.   The venues will look different.  The tenants will be different. The consumer has more choices, more formats, more experiences than every before....what's not to like as a consumer?  As for shopping center owners (and investors), there are only two types.....the quick and the dead.  Those owners who can innovate, create, renovate, change or improve will prosper.  Those who can't, won't.  Its like the bestselling book "Who Moved My Cheese?"    You can go out and find new cheese or sit and wait for the old cheese to reappear again. 

Jorge Lizan is Managing Director of Lizan Retail Advisors (LRA), an advisory firm specialized in the Global Retail Real Estate Industry. LRA helps retailers, developers and investors with international business development, through Market Strategy, Franchising, Market Planning, Tenant Representation and Advisory services. Before founding LRA, Jorge served as the Vice President of Business Development of the International Council of Shopping Center (ICSC).

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