Making Deals to Re-imagine Retail

Earlier this month was the annual International Council of Shopping Centers (ICSC) New York Deal Making conference where real estate, retail and retail-tech companies convene to make deals, network and learn from each other. Filled with back-to-back 30-minute meetings for 2+ days, executives and founders split their time between making deals and strategic planning for retail’s resurgence. From multi-million dollar renovations, to technological innovations, to a re-think of how to capture today’s over stimulated and hyper connected consumer while monetizing place making - here are some key trends that filled air:

(photo courtesy itsaboutdubai.com)

The Dubai Effect 

Known for their leadership in developing some of the world’s swankiest and highest trafficked malls, it’s no secret developers and brands have taken a cue on the direction seen in the Dubai's retail market. Anchored with the non-traditional shopping center tenants, the region’s top malls are constructed with everything from one of the world's largest indoor aquariums to an indoor ski slope, and have seen outsized returns on their investments as a result of their ability to deliver true place making at their locations. And with concrete evidence on the financial impact that making bets on entertainment and options beyond traditional retail have had on their properties, developers and mall operators having been doubling down on investing in change.

While we have seen a slow down in the number of new developments in the U.S. market, we have seen a surge in investments toward re-imagining and re-developing existing properties in well positioned geographic locations to ensure they are better equipped for creating destinations with an omni-offerings that deliver upon the expectations of today's consumers. Tapping into the west coast market we have seen a $500 million investment in the LA market by Westfield for the redevelopment of the Beverly Center, on the east coast Boston’s Seaport has been reimagined with One Seaport – a mixed use project spanning 1.5million square feet, and Related Companies has been doubling down with the strategy multi-use strategy as seen with Columbus Circle and their soon to be open Hudson Yards. 

Multi-use development is focusing on enhancing the experience from the inside and out with sidewalk activations, recreation of more “green space”, community building and enhanced amenities. Once positioned as malls, we are seeing a birth of “mini-towns” living within the shopping center property developments themselves. We are seeing developers spending millions to buy back under performing spaces from troubled retailers, like Sears and JC Penny and reinvesting.

(photo via the revelist)

The Population Shift 

Demographic shifts are creating unique pressures for the retail world. It’s an ongoing conversation that’s really starting to take shape as baby boomers and older Gen X are being eclipsed by millenials and Gen Z shoppers that have different interests, desires and shopping habits. According the U.S. Census Bureau retail has seen a loss of 21M consumers from 2000 to today due to the percentage drop in spending by Baby Boomers and Gen X shoppers.

Today’s millennial and Gen Z consumers, hyper connected digital natives, are craving human interactions but don't want "to be sold to". Every second they are exposed to options and ads but what they crave is to create their own footprint of the things they have discovered in life, and to have the opportunity to experience and share the things they feel passionate about. They are forcing retailers and malls to re-program how they are spoken to by brands and gravitate to those they can believe in, and those that make them feel like they are part of something bigger. 

The 4X Mandate

The 4X mandate is the belief that if you can capture an audience to stay longer, you can garner mindshare and develop deeper relationships that will eventually lead to 4X in spending. So leasing agents and brands are tasked with a harder challenge to curate environments that will not only drive traffic, but also get customers to stay longer. Food halls and celebrity chef partnerships (for example Eataly, Capital One Café and Time Out Market) have proven to be an effective remedy to driving foot traffic and creating a sense of conversation, place making and #foodporn moments, but properties are still challenged beyond food that to keep customers dwelling longer and shopping more. 

We are seeing a rethink on how developers and mall operators are partnering with brands to bring fresh offerings and new concepts that drive longer dwell times into their properties with lower barriers to entry with programmatic pop-up stores and revolving storefront concepts like IRL (in real life) at GGP's Water Tower Place.

Some of the leading categories of growing interest to foster the 4X mission include wellness as seen with Equinox as an anchor at the soon to be open Hudson Yards, health anchors with developers opening locations with the likes of CVS and upscale entertainment partnerships with upscale movie theaters like iPic. This mixed experience mentality isn’t limited to developers as we continue to see retailers themselves investing on re-formatting spaces to deliver higher touch experiences and impactful approaches to customer service. Ulta stores now offer in-store salon where consumers can purchase products affiliated with services and discover new products; Sephora offers beauty classes and Peloton offers in-store rides; although companies like Restoration Hardware are thinking outside the box opening hotels and most recently has added in-store restaurants to its Chicago store that’s so popular that 80% of the seats are reserved by 11:30 a.m.

image via Field-Test.co (a subsidiary of The Lionesque Group)

The Emergence of The Smart(er) Stores

With such a seismic shift in the retail environment, developers and retailers alike are clamoring for data that helps both alike and deliver better experiences for shoppers. Challenged by shoppers that are more digitally savvy than ever before, both are innovating and trying new approaches to reach consumers in their exact moment of need or impulse. There is a stronger realization of the need for destinations to provide what customers want, when they want it and how they want it - a just-in-time, personalized customer experience.

Creating new, unique experiences is also no longer optional whether its a temporary pop-ups store or a permanent location. Consumers who have access to information at their fingertips expect highly educated store concierges that know what they want before they do, endless aisle options via augmented reality or connected in-store screens, and smart interactive displays that can can offer personalized recommendations based on a customers history, personal style and latest trends. They expect aha moments and to be surprised and delighted.

It’s a transitional time where developers and operators are grappled with a changing environment due to the constant evolution of technology reshaping consumer behavior and expectations. The Question still remains to show who within the industry will be forward thinking enough to see the fruits of their multi-million dollar, multi-year investments rise above today's rapidly changing tide.