ICSC CenterBuild

Retail Update

November 2017

Garrick H. Brown Vice President of Retail Research, the Americas

[email protected] Agenda

Notes from the “Retail Apocalypse”

Myths and Realities in the Age of newCommerce

• What is really happening, and why?

• How this trend will play out in 2018 and beyond?

• The good, the bad and the really, really ugly… (Who is growing, who is shrinking and who is dying?) Is it Really? Major Retailer Bankruptcies Through November 2017

Aerosoles Major Retailer Bankruptcies Alfred Angelo BCBG Max Azria 40.0 Bob’s/Eastern Mountain Central Grocers 35.0 Gander Mountain Gordman’s 30.0 Gymboree HHGregg 25.0 Limited Marbles: The Brain Store 20.0 MC Sports Papaya Clothing 15.0 Payless Perfumania 10.0 RadioShack/General Wireless Romano’s Macaroni Grill 5.0 Rue 21 Toys R Us 0.0 Traffic Shoes 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 True Religion Vanity Major Chain Bankruptcies Forecast Total Vitamin World Wet Seal Source: Cushman & Wakefield Research Major Chain Store Closures Have surpassed great recession levels

What’s Really Happening (it’s not Major Chain Store Closures just about Amazon)? 14,000 Convergence of Four Factors:

12,000 1. Acceleration of newCommerce 2. Over Retailed Marketplace 10,000 3. Race to the Bottom Discounting (Rise of Off-Price) 4. Shifting Consumer Patterns 8,000 (Millennials Spending Differently than Past 6,000 Generations)

4,000

2,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Major Chain Closures Forecast Major Chain Closures

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Abercrombie & Apparel 60 X X Fitch 4 – 7K SF Aeropostale Apparel 154 X X 2 – 4K SF Aerosoles Shoes 74 X X X X 2 – 4K SF Alfred Angelo Apparel 64 X X X 2 – 4K SF American Apparel 110 X X X Apparel 2 – 4K SF Applebee’s Restaurant 105 - 135 X X X X Casual 2 – 5K SF Ascena Retail Apparel 400 X X Group 4 – 8K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street BCBG Max Azria Apparel 120 X X 1 – 4K SF Bebe Apparel 180 X X 2 – 5K SF *Bed, Bath & Home 15 X X X X Beyond 20 – 40K SF Benny’s Dollar 31 X X X Stores 2 – 5K SF Best Buy Consumer 20 – 40 X X Electronics 25 – 40K SF

*Bed, Bath & Beyond is reportedly simultaneously opening 30 new stores.

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Bloomin Brands Restaurant 43 – 60 X X X X Casual 3 – 6K SF Bob’s/Eastern Sporting 95 X X X Mountain Goods 6 – 24K SF Book World Media 45 X X X Books 2 – 10K SF Charlotte Rousse Apparel 5 – 10 X X 2 – 5K SF Chico’s Apparel 50 X X 3 – 5K SF Children’s Place Apparel 100 X X 2 – 5K SF Country Curtains Home 20 X X X X 3 – 4K SF Crocs Shoes 160 X X X 1 – 4K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Cub Foods Grocery 10 X X 25 – 70K SF Dillard’s Department 2 – 5 X Stores 100 – 200K Famous Shoes 30 X X X Footwear 5 – 8K SF Family Christian Books 240 X X X 2 – 4K SF Finish Line Shoes 150 X X 3 – 5K SF *Footlocker/Lady Shoes 100 X X X Footlocker 2 – 4K SF Fresh Market Grocery 13 X X Organic 20 – 35K SF

*Footlocker/Lady Footlocker is reportedly simultaneously opening 90 new stores.

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street GameStop Video 190 X X X X Games 1 – 3K SF Gander Sporting 162 X X Mountain Goods 40 – 60K SF *Gap/Banana Apparel 200 X X X Republic 8 – 12K GNC Misc.. 100 X X X X X 1 – 3K SF Gordman’s Dept. 101 (50 to X X Stage Stores) Guess Apparel 50 X X 3 – 5K SF

*While closing underperforming Gap and Banana Republic stores, the Gap is ramping up growth of their Old Navy and Athleta concepts.

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Gymboree Apparel 350 X X 2 – 5K SF Hancock Fabrics Misc.. 255 X X 10 – 17K SF HH Gregg Electronic 220 X X 30 – 50K SF *Hibbett Sports Sporting 25 - 35 X X Goods 5 – 6K SF **IHOP Restaurant 20 - 25 X X X Casual 2 – 5K SF J Crew Apparel 50 X X 2 – 5K SF JC Penney Department 140 X Store 100 – 200K

* Hibbett Sports is reportedly simultaneously opening 50 – 60 new stores. Source: Cushman & Wakefield Research * IHOP is reportedly simultaneously opening 80 – 95 new stores. Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Jos A Banks Apparel 85 X X X X 3 – 5K SF Kings Variety Grocery 19 X X 40 – 80K SF Kohl’s Department 18 X X Store 70 – 90K SF The Limited Apparel 250 X X X 1 – 5K SF Lucy Apparel 44 X X 1 – 3K SF Macy’s Department 100 X X Store 180 – 200K Marsh Grocery 18 X X Supermarkets 50 – 125K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street MC Sports Sporting 66 X X X 12 – 45K SF Michael Kors Apparel 100 X X X 2 – 5K Naturalizer Shoes 7 X X X 1 – 4K SF Neiman Marcus Off Price 10 X X X Last Call Apparel 15 – 30K SF New York & Co Apparel 30 X X 2 – 5K SF Office Depot Office 100 X X 20 – 40K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Papaya Clothing Apparel 10 – 80? X X 2 – 4K SF Payless Shoe Shoe 700 X X X X X Source 2 – 4K SF Perfumania Beauty 65 X Fragrances 1 – 2K SF Portrait Misc. 63 X X X Innovations 1 – 2K SF RadioShack Electronic 1,000 X X X X 1 – 4K SF Ralph Lauren Apparel 23 X X 2 – 5K SF Regis Beauty 25 X X X X X Salons 1 – 4K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Romano’s Restaurant 37 -93 X X Macaroni Grill Casual 2 – 5K SF Rue21 Apparel 400 X X X 2 – 5K SF Save A Lot Grocery 13 X X 20 – 65K SF Sears/Kmart Dept./ 430 X X X Discount 80 – 160K Stage Dept. 20 (+ adding X X 50 Gordman’s) Staples Office 70 X X X 25 – 45K SF Teavana Misc.. 379 X X X 1 – 3K SF

Source: Cushman & Wakefield Research Announced Major Chain Closures Announced retail closures for 2017 & beyond/typical CRE space usage

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Toys R Toys 200 – 400? X X X Us/Babies R Us 10 – 40K SF Traffic Shoes Shoes 12 X X 2 – 4K SF True Religion Apparel 27 X X X 2 – 6K SF Vanity Apparel 140 X X 2 – 4K SF Vitamin World Health 51 X X Vitamin 1 – 3K SF Walgreen’s Drug Store 860 X X X 15 – 20K SF Wet Seal Apparel 171 X X 2 – 4K SF

Source: Cushman & Wakefield Research Top Retail Chains in Contraction Mode Announced bricks-and-mortar closure plans

Closures at Record Levels Top 20 Major Chain Closures 2017

JC Penney Top Contraction Categories: Finish Line Aeropostale Crocs Consumer Electronics Gander Mountain Wet Seal Apparel bebe Gamestop Department Stores Gap/Banana Republic Consumer Electronics hhGregg Family Christian Media (Books, Video, Music, The Limited Etc.) Hancock Fabrics Gymboree Office Supplies Ascena Retail (various banners) Sporting Goods rue21 Sears/Kmart Payless Walgreens RadioShack 0 200 400 600 800 1,000 1,200 Announced Major Chain Openings 2017

Source: Cushman & Wakefield Research Top Retail Chains in Growth Mode Announced bricks-and-mortar expansion plans

Value, Value, Value Top 20 Major Chain Openings 2017 Dollarama Top Expansion Categories: Sephora Wendy's Walmart Dollar Stores Athleta & Old Navy (the Gap) Tractor Supply Discount Grocery Sally Beauty H&M (All Banners) Off-Price Apparel Ross Beauty/Cosmetics Lidl ULTA Super Stores (but often in Five Below smaller sizes—Target) Retro Fitness TJX (all banners) Fitness/Health Clubs AutoZone Fast Food McDonald's Starbucks Coffee Aldi Dollar Tree Fast Fashion Dollar General Clicks to Bricks 0 200 400 600 800 1,000 1,200 Announced Major Chain Openings 2017

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street 99 Ranch Grocery 5 X X 25 – 50K SF Academy Sports Sporting 6 X X Goods 85 – 100K SF ALDI Grocery 400 (900 by X X 2022) 15 – 25K SF Allen Edmonds Shoes 10 X x X 2 – 4K SF Anthropologie Apparel 10 X X X 4 – 9K SF Athleta/Old Navy Apparel 240 X X X 4 – 17K SF AutoZone Automotive 200 X X X 3 – 7K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Bargain Hunt Dollar 30 X X X 20 – 25K SF Blink Fitness Health Club 50 X X X X X X 14 – 20k SF Bed, Bath & Home 30 X X X X Beyond 20 – 40K SF Burlington Off-Price 30 X Apparel 45 – 80K SF Cabela’s Sporting 50 X Goods 2 – 4K SF Carter’s Apparel 5 X X X Children’s 50 – 75K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Cheesecake Restaurant 5 – 10 X X Factory Casual 5 – 10K SF Chuy’s Restaurant 10 – 15 X X X X X Fast Casual Citi Trends Apparel 10 – 20 X X X X 2 – 4K SF Costco Discount 30 X X 125 – 150K CVS Drug Store 50 – 70 X X X X X 14 – 18K SF Dick’s Sporting Sporting 43 X X Goods Goods 40 – 80K SF Dogtopia Pet 20 X X X Supplies 6 – 9K SF Dollar General Dollar 1,000 X X X 5 – 10K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Dollar Tree Dollar 650 X X X 7 – 10K SF Dollarama Dollar 60 – 70 X X X 5 – 10K SF DSW Shoes 20 X X X 20 – 30K SF Fallas Discount Discount 20 – 25 X Stores 13 – 17K SF Five Below Dollar 100 X X X 5 – 10K SF Footlocker/Lady Shoes 90 X X X Footlocker 2 – 4K SF Fred’s Drug Store 20 – 40 X X X 12 – 18K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Free People Apparel 12 X X X 4 – 8K SF H&M (All Apparel 100 X X X Banners) 4 – 15K SF Habit Burger Restaurant 30 – 40 X X X X X X Fast Casual 2 – 4K Hammer & Nails Beauty 50 X X X X X X 1 – 2K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Hibbett Sports Sporting 50 - 60 X X Goods 5 – 6K SF Home Depot Home DIY 5 – 10 X 100 – 150K Hobby Lobby Misc.. 60 X X X 40 – 90K SF Huddle House Restaurant 35 X X Casual 2 – 4K SF IHOP Restaurant 80 - 95 X X X Casual 2 – 5K SF J. Jill Apparel 15 X X 2 – 5K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Kirkland’s Home 40 X X Furnishings 6 – 12K SF Kroger Grocery 35 X X 40 – 80K SF LA Fitness Health Club 30 – 40 X X 34 – 42K SF Lidl Grocery 100 X X X 15 – 25K SF Lululemon Apparel 40 – 50 X X X 2 – 4K SF Macy’s Off-Price 30 – 40 X X Backstage Apparel 25 – 40K SF Marshall’s Off-Price 35 – 50 X X Apparel 25 – 35K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street McDonald’s Restaurant 200 X X X X X X Fast Food 2 – 5K SF Natural Grocers Misc.. 20 X X 1 – 3K SF Nordstrom Rack Off-Price 25 – 35 X X X Apparel 25 – 35K SF Orchard Supply Home DIY 8 – 16 X X Hardware 25 – 28K SF Off Broadway Shoes 4 – 8 X X 18 – 20K SF Ollie’s Bargain Discount 30 – 35 X X Market 25 – 35K SF O’Reilly Automotive 210 X X X Automotive 7 -12K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Party City Misc.. 25 – 30 X X X 10 – 15K SF PetSense Pets 30 X X X X 4 – 6K SF Pollo Loco Restaurant 20 – 30 X X X X X X Fast Casual 2 -5k SF Publix Grocery 15 -20 X X 40 – 80K Rack Room Shoes 20 – 30 X X 4 – 6K SF Retro Fitness Health Club 125 X X X X X 12 – 15K SF Ross Dress for Off-Price 100 X X X Less Apparel 15 – 35K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Sally Beauty Beauty 100 X X X X X Systems Salons 1 – 4K SF Sephora Beauty 70 X X X Cosmetics 3 – 7K SF Shoe Carnival Shoes 20 X X 5 – 10K SF Soft Home 17 X X Surroundings 4 – 6K SF Sportsman’s Sporting 8 -12 X Warehouse Goods 15 – 65K SF Sprouts Farmer’s Grocery 30 X X Markets 25 – 35K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street Sprint Cellular 40 X X X X X X Store 1 – 3K SF Starbucks Restaurant 400 X X X X X X Coffee 2 – 4K SF Target Super Store 32 X X X X X 30 – 50K SF Texas Restaurant 25 – 30 X X X X X Roadhouse Casual 3 – 6K SF Tim Horton’s Restaurant 105 X X X X X X Coffee 1 – 3K SF TJ Maxx Off-Price 40 – 50 X X X Apparel 25 – 35K SF TJX HomeGoods Home 80 X X X 30 – 50K SF

Source: Cushman & Wakefield Research Announced Major Chain Openings Not everyone is shrinking…

Retailer Type # Stores Urban Cool Mall & Power & Neighborhood Strip Avg Size High Streets Lifestyle Regional & Community Street TJX AS OF YET Home 5 X X X UNNAMED NEW 30 – 40K SF CONCEPT Tractor Supply Misc.. 100 X X X 15 – 20K SF ULTA Beauty 100 X X X X Cosmetics 10 – 30K SF Urban Outfitters Apparel 4 X X X 4 – 10K SF Walmart Super Store 89 X X X 40 – 125K Wendy’s Restaurant 75 X X X X X X Fast Food 2 – 4K SF

Source: Cushman & Wakefield Research The News Isn’t All Bleak Some categories and/or concepts are simply on fire!

Food Halls in the U.S. 300

250

200

150 Projected Existing 100

50

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Cushman & Wakefield Research Cool Streets Millennial-driven up-and-coming alternative urban neighborhoods still hot The Evolution of Cool Streets Edgy Cool Bodegas, Bars & Funky Local… Cheap Rents EDGY UP AND COOL COMING Up and Coming Boutiques, More Restaurants Arrive… Rents Climbing Prime Hipness Funky Local Priced Out, Cool National Concepts Arriving… GONE MAINSTREAM Rents Climbing Still Cool, But Going Whole Foods Arrives Mainstream Rents Climbing

STILL Gone Mainstream Creatives Moving On, PRIME COOL, HIPNESS Replaced by More BUT… Affluent Crowd. Pottery Barn!

Source: Cushman & Wakefield Research Cool Street Contenders Privately-held hipster brands can take chances the big chains can’t—and they’re connecting with Millennials!

Source: Cushman & Wakefield Research Global Hipster Style Independents are gaining ground globally

•French English Japanese Tretorn Poys & Pirls Dune London Sasquatchfabrics CMMN SWDN Pigalle Palace Skateboards Bed J.W. Ford Polar Skate Co AMI Lazy Oak Freak’s Store German Club 75 Grind London Magic Stick Entertainment ACRONYM Maison Kitsune a number of names* Wacko Maria PB 0110 Monsieur Lacenaire Satta GUILTY PARTIES Simon Freund KENZO Nasir Mazhar Scandinavian Boulezar Helas A Cold Wall Acne Studios Hien Le Carven Maharishi Eytys Mykita Etudes Studio Cassette Playa L’Homme Rouge Frisur Andrea Crews Goods by Goodhood Wood Wood A Kind of Guise Cote & Ciel Roundel London Armoire d’Homme Kostas Murkidis Vetements Garbstore Rascals Beastin Magenta Nigel Cabourn Cottweiler Norse Projects Ucon Acrobatics Wemoto Source: Cushman & Wakefield Research Rise of the Indies Many of the hottest new brands are former pure play eCommerce

Source: Cushman & Wakefield Research Clicks to Bricks Brand embassies, returns savings driving more pure play growth in physical space

50

40

30

20

10

0

Existing Stores YE 2016 Estimated New Stores 2017

Source: Cushman & Wakefield Research Entertain Us! Millennials spend more on experience than “stuff” Golf/Sports/Arcade Entertainment Themes Athletics Space BarCades/Mixed (Dave & Aquatic Parks Buster’s, Punch Bowl Social, etc.) Trampoline Rooms TopGolf Indoor Rock Climbing Miniature Golf Indoor Skydiving Glow Golf Velodromes (Indoor Cycling Tracks) Ping Pong (Susan Sarandon) Bowling Alleys (Lucky Strike, etc.) Culture/Performing Arts Space Duck Pin Bowling Art Galleries Indoor Go Cart Tracks Museum Space Indoor Shooting Galleries (Real Live Theater Space Guns Optional) Dinner Theaters Cirque Space Nouveau Theaters Stand Up Comedy Clubs IMAX Live Music Venues Restaurant/Theaters Bar/Theaters Float Rooms/Sensory Deprivation Children Themed Theaters Source: Cushman & Wakefield Research Hipster/Art House Theaters Craft Brewing Explosion Trend is still not mature nationally STATES WITH 100+ BREWERIES Microbreweries Brewpubs Planned

MASSACHUSETTS 75 29 39 Craft Breweries in the United States MINNESOTA 74 35 42 INDIANA 54 69 25 6,000 WISCONSIN 73 62 27 5,000 MICHIGAN 87 51 33 4,000 VIRGINIA 117 44 63 3,000 OHIO 100 73 47 2,000 ILLINOIS 99 74 44 1,000 NORTH CAROLINA 133 56 55 0 TEXAS 134 58 105 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FLORIDA 141 51 76 Brewpubs Microbreweries Regional Breweries PENNSYLVANIA 84 116 62 OREGON 133 93 26 NEW YORK 170 91 80 WASHINGTON 227 88 52 COLORADO 199 121 67 CALIFORNIA 388 204 156

Source: Cushman & Wakefield Research What About the “Retail Apocalypse?”

Source: Cushman & Wakefield Research US eCommerce Total Share of Retail Stronger growth ahead due to ePharma & eGroceries What’s Really Happening (it’s not just about 13.0% 12.0% Amazon)? 12.0%

11.0% Convergence of Four 9.1% Factors: 10.0% Q3 17 9.0% 1. Acceleration of % of Total Retail Sales Retail Total of % 8.0% newCommerce 7.0% 2. Over Retailed Marketplace 6.0% 3. Race to the Bottom 5.0% 4.2% Discounting (Rise of Off- 4.0% Price) 4. Shifting Consumer 3.0% Patterns (Millennials Spending Differently than Past Generations)

Source: Cushman & Wakefield Research and Moody’s Analytics From eCommerce to newCommerce How online keeps evolving…

1995 - 2000 2001 - 2009 2010 - Present 2015 - Present 2017 - ?

The Early Days Pure Play The Age of Omnichannel newCommerce Years Amazon Age Age Desktop Desktop Desktop Desktop Desktop Initial Launch of Mobile Mobile Mobile Mobile eCommerce Tablets Tablets Tablets Post Tech Wreck Ramp ? Rise (and Fall) Up of New Pure Play Amazon Distribution Amazon Dominance of Early Players Internet eCommerce Strategy: Speed to Continues Seamless Integration Consumer over Tax of Omnichannel (now Distribution Strategy: Retailers Still Building a GIVEN for Retail Tax Advantages Amazon Dominance eCommerce Survival) over Speed Infrastructure Retailers Rush to Build eGroceries eCommerce Emergence of Bricks Infrastructure to Clicks Movement ePharma

Source: Cushman & Wakefield Research From eCommerce to newCommerce eCommerce GAFO numbers demonstrate bricks-and-mortar challenges

$330,000 40.0% Retail Sales: GAFO, ($Mil.) eCommerce Share $320,000 35.0%

$310,000 30.0%

$300,000 25.0%

$290,000 20.0%

$280,000 15.0%

$270,000 10.0%

$260,000 5.0%

2011 Q2-11 Q3-11 Q4-11 2012 Q2-12 Q3-12 Q4-12 2013 Q2-13 Q3-13 Q4-13 2014 Q2-14 Q3-14 Q4-14 2015 Q2-15 Q3-15 Q4-15 2016 Q2-16 Q3-16 Q4-16 2017 Q2-17

Source: US Commerce Department, Cushman & Wakefield Research Jeff Bezos Vs. the World Guess who is winning so far? As robust as eCommerce growth continues to be… 55% Total Retail Sales Amazon continues to 45% eCommerce Sales outperform even those numbers… Amazon Sales 35% Amazon accounted for 43%

25% of all USA eCommerce sales in 2016…

15% Amazon sales surged 33.7% in Q3 2017. 5%

-5%

Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 -15%

Source: US Commerce Department, Company Reports/SEC Filings/ Cushman & Wakefield Research Amazon/Whole Foods Amazon didn’t buy a grocery chain; they bought 462 eGrocery fulfillment centers

Online Grocery Market Share 2016 eGroceries has only just begun in the USA USA Amazon’s $13.7B purchase Netherlands of Whole Foods means Spain disruption for grocers, not so much for landlords Czech Republic

China Traditional grocers need to ramp up eGrocery efforts… Taiwan

France Likely scenario for 2018: Blue Apron, HelloFresh or United Kingdom other “Meal Kit” operator is

Japan acquired by traditional grocery chain to accelerate South Korea eGrocery rollouts…

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% Online Grocery Market Share 2016

Source: Kantar Worldpanel, Statista, Cushman & Wakefield Research Look for Strong Growth from Amazon/Whole Foods But still just in denser urban and suburban locales 2016: 52.1% of all USA eGrocery sales came from just eight states…

Or, more specifically, dense urban markets within those eight states… OH PA NY IL 3.3%3.9% 13.8% 4.3% NJ CA 3.9% Final Mile still rules 12.3% TX 5.3% FL 5.3%

Source: IBISWORLD, Cushman & Wakefield Research Amazon/Whole Foods Has Some Catching Up to Do Combined grocery market share in 2016 was roughly 3% Look for aggressive growth from Amazon/Whole Foods likely to begin 2H 2018.

We anticipate that as many as 500 new stores in different formats may be opened in the next five years…

Source: Kantar Worldpanel, Statista, Cushman & Wakefield Research What’s Next for Amazon? Furniture and Pharma both on the horizon… FURNITURE & PHARMA

Source: Cushman & Wakefield Research Walmart Innovations… Looking to catch up; leveraging competitive advantages to compete w/Amazon

Build the most compelling complement to the physical store network

• Q2 2017 online revenues reported up 60% • Scan and Go

• 67 million SKUs online; up 30% from Q1 2017 • Curb-side services

• Online grocery in 900 locations • Uber and other pilot partners

• Easy re-order • Store associate private delivery

• Click and collect discounts • Jet influences in reshaping strategy • In-store technology – The 100 Towers • Latch-key delivery

Source: Company filings, Retail Info Systems, Chain Store Age And What’s Going on Here? Is Walmart going upscale? + + + + ?

Source: Cushman & Wakefield Research 2018: the Year of M&A Mania? Undervalued concepts ripe for acquisition… Will we see the emergence of a retail duopoly?

Source: Cushman & Wakefield Research The “Apocalypse” Story Isn’t Going Away Any Time Soon Next year likely to see peak closures Challenges Next Year: Major Chain Store Closures 14,000 Bankruptcies Likely Not to Reach 2017 Levels, but Still 12,000 Elevated…

10,000 Can Sears Survive Another Year? 8,000 Increased Department Store 6,000 Closures

4,000 Second Wave of Strategic Closures to Follow

2,000 Department Store Consolidation as Tenants

0 Exercise Co-Tenancy Clauses 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Major Chain Closures Forecast Major Chain Closures M&A Consolidations

Source: Cushman & Wakefield Research and Moody’s Analytics Danger Zone Bankruptcies will persist in 2018 and beyond Credit downgraded, late Potential Vulnerabilities Ahead payments, have sought Apparel & Department Stores restructuring or hired financial advisers or have issued “going 6,000 warning” concerns. 4,878 5,000

4,000 2018 Bankruptcy Watch Sears 3,000 2,710 Neiman Marcus 2,000 1,667 1,430 J. Crew 1,020 Vince 1,000 554 575 564 650 335 364 368 300 86 262 187 David’s Bridal 0 Nine West Claire’s Lands’ End Charming Charlie

Potential Vulnerabilities Ahead Bon-Ton 99 Cents Only

Source: Cushman & Wakefield Research and Moody’s Analytics Charlotte Russe Not A Good Combination… USA has most retail space per capita and lowest sales PSF

The Father of the American Mall Sales per Square Foot per Capita 30 $3,500 “I am often called the father of the shopping mall. I would like $3,000 25 to take this opportunity to disclaim paternity once and for $2,500 20 all. I refuse to pay alimony to those bastard developments. $2,000 They destroyed our cities…” 15 $1,500 Viktor Gruen 10 $1,000

5 $500

0 $0 USA Canada Australia UK France China Germany Square Footage per Capita Sales per Square Foot per Capita

Source: Turner Construction Cost Index, Cushman & Wakefield Research Over-Retailed, But Not All Retail is Suffering Neighborhood/Community and Strip Centers doing fine…

Shopping Center Total GLA Vacancy Vacancy Share of Malls and Power Centers Type (MSF) Rate Rate Retail have been most impacted Q3 2016 Q3 2017 Market by current wave of closures… Power Centers 754.5 4.8% 5.0% 7.1% But Malls only account for 8.4% of all USA retail and Shopping Centers 3,537.2 8.0% 7.8% 33.1% (Neighborhood, Power Centers account for Community, Strip) 7.1% of all USA retail. Malls (Lifestyle, 899.2 5.4% 6.2% 8.4% Regional Mall, Super Shopping Centers Regional Mall) (neighborhood, community and strip centers) have Specialty Centers 85.7 5.0% 4.9% >1.0% (Outlet, Airport, etc.) actually seen vacancy declines. Freestanding Retail 5,400.4 3.0% 3.2% 50.5% We estimate that the marketplace is over-retailed by roughly 1.5 Billion TOTAL RETAIL USA 10,676.0 4.8% 5.3% 100.0% Square Feet.

Source: Costar Group, Cushman & Wakefield Research Feeling Good in the Neighborhood Neighborhood/Community/Strip vacancy continues to slowly fall What’s Really Happening (it’s not just about 70.0 12% Amazon)? 60.0 10% Convergence of Four 50.0 Factors:

40.0 8% 1. Acceleration of Forecast 30.0 newCommerce 6% 2. Over Retailed 20.0 Marketplace 3. Race to the Bottom

Million Square Square Feet Million 10.0 4% Discounting (Rise of Off- Price)

0.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 (F) Q4 2017 (F) 2018 (F) 2019 (F) 2020 2% 4. Shifting Consumer (10.0) Patterns (Millennials Spending Differently (20.0) 0% than Past Generations)

Net Apsorption (MSF) New Construction (MSF) Overall Vacancy

Source: Costar Group, Cushman & Wakefield Research Power Centers More of a Question Mark Will traditional power center tenants re-tenant troubled malls? What’s Really Happening (it’s not just about 45.0 9% Amazon)? 40.0 8% 35.0 Convergence of Four 7% Factors: 30.0 6% 25.0 1. Acceleration of 20.0 5% newCommerce 2. Over Retailed 15.0 Forecast 4% Marketplace 10.0

3% 3. Race to the Bottom Million Square Square Feet Million 5.0 Discounting (Rise of Off- 2% Price)

0.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 (F) Q4 2017 (F) 2018 (F) 2019 (F) 2020 2007 4. Shifting Consumer 1% (5.0) Patterns (Millennials (10.0) 0% Spending Differently than Past Generations)

Net Apsorption (MSF) New Construction (MSF) Overall Vacancy

Source: Costar Group, Cushman & Wakefield Research Dollar-Dazed Race to the bottom has some winners What’s Really Happening Dollar General will open (it’s not just about 1,000 new stores in 2017. Amazon)?

This will be the fifth Convergence of Four consecutive year that Dollar Factors: General has opened at least 750 new stores. 1. Acceleration of newCommerce 2. Over Retailed Over the last five years, dollar Marketplace store chains have grown by 3. Race to the Bottom over 7,000 units in the USA. Discounting (Rise of Off- Price) That equates to a new dollar 4. Shifting Consumer store opening once every four Patterns (Millennials hours in the USA for five Spending Differently straight years. than Past Generations)

Source: Cushman & Wakefield Research It’s Never Been Better for Off-Price Department stores are just as challenged by off-price as online…

Projected Amazon Market Share Projected Clothing And Accessory of Clothing And Accessories Revenues In 2021

16% $ 62B $

8.2% %

6.6% BILLION $26B $23B

2016 2017 2021 AMAZON TJ MAXX MACY’S

Source: Cowen & Company, Cushman & Wakefield Research But What Does it Mean for Malls? Bifurcation in performance continues to widen… Closures Impacting the Weakest Properties, Not All Properties

If the goal is to reduce your physical footprint, while looking to boost your online sales… This inherently means that your remaining physical locations are more important than ever before…

Source: Cushman & Wakefield Research, Not All Malls are in Trouble It’s all about class… Class A and above malls Approximate Number of Malls by Class accounted for more than 200 70% of all mall retail sales in 150 2016. 100 There are roughly 670 Class 50 B and C malls in the US, but 0 they only accounted for 28% A++ A+ A A- B+ B+ B- C+ C C- D of all mall sales last year.

A++ A+ A A- B+ B+ B- C+ C C- D Class D malls accounted for Approximate Share of Total Mall Value by Class less than 0.2% of all mall 25.0 sales last year… 20.0 15.0 10.0 5.0 0.0 A++ A+ A A- B+ B+ B- C+ C C- D

A++ A+ A A- B+ B+ B- C+ C C- D

Source: Cushman & Wakefield Research, Fung Global, Green Street Advisors, Bloomberg Not All Malls are in Trouble It’s all about class… Death Spirals Will Sales PSF Accelerate in 2018 & Strengthening Beyond… $1,200 Position Number of US Malls 2007: $1,000 1,350 Average Sales PSF 2016: $480 PSF $800 If Below… Watch Out! Number of US Malls 2017:

Weakening 1,150 Position $600 Number of US Malls 2027: 850 $400

$200

$0 A+++ A+ A A- B+ B B- C+ C C- D Sales PSF

Source: Cushman & Wakefield Research, Fung Global, Green Street Advisors, Bloomberg Agenda

Do the Old Development Rules Still Apply?

Is it Still as Easy as Following the Rooftops?

• Where are the new rooftops? Urban Vs. Suburban?

• Demographic Shifts to Watch…

• The hourglass economy—Don’t get stuck in the middle…

• Upscale, discount or experiential—what it means by shopping center type? The Urban Growth Trend is Real Urban share of household growth

Demographic Shifts to Watch

Urban Areas More Than Doubled Their Usual Growth Rates from 2010 – 2015.

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research Though Suburban Still Captured Most the Growth Suburban share of household growth

Demographic Shifts to Watch

Despite urban surge, we are still a nation of suburbs… Rural populations, however, continue to dwindle.

Population Distribution 2015 Urban 15% Suburban 64% Rural 21%

2010 – 2015 Growth Capture Urban 21% Suburban 71% Rural 8%

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research Millennials and Empty Nesters Fueled Urban Growth Urban population growth by age

Demographic Shifts to Watch

Young and Old Fueled Urban Growth

It wasn’t just Millennials!

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research Millennials and Empty Nesters Fueled Urban Growth Urban population growth by age

Demographic Shifts to Watch

But Urban Growth Rate of 21% Expected to Fall to 15% Over Next Decade

Reasons: Costs Millennials Raising Families Boomer Population Declines

Generation Z Likely to be Urban Aspirational but Pricing Likely to be Issue

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research So Where Are the Rooftops Now? Here is where the old development rules still apply, with caveats..

Southeast Leads the Way

Florida and Texas continue to lead the nation in population growth…

Ground-up development, particularly of neighborhood/community centers, following patterns of growth…

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research Population Continues to Grow… Household formation and home ownership growth

12.5 Million More Households Household Formation by Home Ownership Growth by Year Born Year Born Between 2015 and 2025… 2000s 2000s 1990s 1990s 1980s 13.3 million losses from older 1970s 1980s generations offset by 25.8 1960s 1970s million gains in households 1950s 1960s 1940s (Millennials, Generation Z, 1930s 1950s etc.) 0 5 10 15 20 25 1940s 1930s 2025 Households (Millions) This should translate into 5.3 2015 Households (Millions) -5 0 5 10 million more homeowners by 2025…

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research Where are the Rooftops Going to Be? Projected household growth by region (millions) 2016 - 2025

Demographic Shifts to Watch

Most of the growth will be in the South

5.3 million more homeowners

7.2 million more renters

Wildcard: Impact of driverless cars…

Source: John Burns Real Estate Consulting, Cushman & Wakefield Research But Can You Build It?

In a High-Risk Environment, What Still Pencils?

• What’s happening with costs?

• The construction labor crisis…

• The coming wave of defaults… Crisis = opportunity, or does it? Costs Going Up, Up, Up! Can it even pencil?

Turner Construction Turner Construction Cost Index Cost Index Index % Index % Q3 17 1044 5.6 Q3 17 1044 1.26

2016 989 4.7 Q2 17 1031 1.18

2015 943 4.5 Q1 17 1019 1.29

2014 902 4.4 Q4 16 1006 1.11

2013 864 4.1

2012 830 2.1

2011 812 1.6

2010 799 -4.0

2009 832 -8.4

2008 908 6.3

Source: Turner Construction Cost Index, Cushman & Wakefield Research Construction Labor Market Status Labor shortage a major problem…

Jobs Back, but Not Here Construction Share of Recovery Status Nonfarm Employment Male participation in workforce Net Construction Net Construction Job Losses Job Gains (2005): 73.3% 10-Year Average 2017Q2 % (GFC Peak to (GFC Trough to Trough) 17Q2) Male participation in workforce Midwest 4.2% 4.0% -392.9 228.4 -11.4% (2017): 69.2%

Mitigating factors: Northeast 3.9% 4.0% -209.1 194.3 -1.4%

Immigration policy South 5.5% 5.2% -756.6 466.0 -10.8% Opioid crisis West 5.5% 5.3% -837.4 506.8 -16.2%

U.S. 4.9% 4.7% -2,265.0 1,429.0 -10.8%

Source: Bureau of Labor Statistics (updated Sept 2017), Cushman & Wakefield Research Note: Jobs figures are in thousands Worsened by Hurricanes… The perfect labor storm…

Worsened by Hurricanes Estimated Cost ($ Billions) adjusted for inflation Harvey destroyed 30,000 Ivan (Sept 2004) homes in Houston—roughly same as existing residential pipeline…doubling demand. Ike (Sept 2008)

10,000 to 20,000 workers Andrew (Aug 1992 could be needed in Houston alone… Sandy (Oct 2012) After Katrina, construction Katrina (Aug 2005) worker wages increased 12% in Mississippi… that was Harvey (Sept 2017) before labor shortage…

0 20 40 60 80 100 120 140 160 180 200 This time around? Estimated Cost ($ Billions) adjusted for inflation

Source: National Oceanic and Atmospheric Administration, Chicago Tribune, Cushman & Wakefield Research Worsened by Hurricanes… The perfect labor storm…

Local Wages Already Up 40%+

Last Year Hourly Mean Wage; Texas: $14.62/hr. Florida: $14.00/hr.

Recent employment ads for construction help in; Houston: $21/hr. /($14.62) Florida Keys: $20/hr./$14.00)

Source: Bureau of Labor Statistics, Cushman & Wakefield Research USA New Construction by Product Type Historical and Forecast

Development Outlook Commercial Development in Major Markets 300 While retail development is down, office construction 250 remains robust and industrial is setting records…

200

150

100

50

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 (F) 2019 (F) 2020 (F) 2021 (F) Office (MSF) Industrial (MSF) Retail (MSF)

Source: Turner Construction Cost Index, Cushman & Wakefield Research Land & Development Costs are Up, But… Dead/dying malls will be had for pennies on the dollar

Retail Delinquencies to Soar

According to Trepp

Retail Delinquency Rate as of September 2017: 5.7%

We think that number will hit 10% over the next few years.

Source: Trepp, Cushman & Wakefield Research Can Dead Malls be Repositioned for eCommerce? The exception, not the rule

FedEx/Mesquite Mall

Mesquite Mall was one of the Dallas area’s first enclosed malls, built in 1959.

The mall lost ground to competitors through the 1980s and 1990s and was closed in 2001.

It was demolished in 2006.

FedEx just built a 334,000 square foot distribution center on the site.

Source: Cushman & Wakefield Research So Where Does This Leave Us? The story of retail development over the next decade will largely be a tale of mixed-use redevelopment

Challenges Opportunities Solutions Dead/Dying Malls—Mostly Suburban Population Growth to Redevelop Dead Suburban Malls Suburban Increase as Mixed-Use Lifestyle Centers w/Substantial Housing, Office, Medical and/or Hospitality Department Store/Apparel Explosion of Food Retail, Shift Centers Towards Consolidation Entertainment Retail, Experiential Entertainment Focus or Discount Concepts, Off-Price Apparel & Focus Discounter Demand Rising Power Center Vacancies Mixed-Use Works Here Too Mixed-Use Works Here Too

Source: Cushman & Wakefield Research The New Lifestyle Mixed-Use Food/Drink Heavy, Entertainment/Experientially Focused Open Air Centers

The Wharf Avalon Legacy West The Bloc

Washington, DC Alpharetta, GA Waco, TX Los Angeles (Downtown), CA Hoffman/Madison Marquette PGIM KDC/Columbia Ratkovich

Brickell City Centre City Point FIGat7th Phipps Plaza

Miami (Downtown), FL Brooklyn, NY Los Angeles (Downtown), CA Atlanta (Buckhead), GA Swire Properties Extell, et al Brookfield Simon There is No Room for Mediocrity in Retail Anymore Follow Viktor Gruen’s Original Vision

The Father of the American Mall

• You must give people a reason to come to your store or your “As art patrons, merchants shopping center in the age of newCommerce. can be to our time what the church and nobility were to the • If your shopping center is the center of your community, it will thrive. Middle Ages.”

• If it isn’t, then build a community around it. Viktor Gruen Get on My Mailing List!

[email protected]

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