Retail: Re-Imagined
Summit Reimagined: The Future of Memphis is NOW!
Cushman & Wakefield
Garrick H. Brown Vice President, Retail Intelligence [email protected] Consumer Consumer Evolution Evolution
Source: Cushman & Wakefield Research What Gets Shoppers to Show Up… The three driving forces behind bricks and mortar retail
Amazon: The 4,000 Pound Gorilla
What was the original value proposition of eCommerce to the consumer? Value Convenience What is it today? Convenience
Value Experience
Source: Cushman & Wakefield Research The Evolution of the Third Place… The third place fills a deep and abiding human NEED…
The Father of the American Mall
Viktor Gruen
First Place: “Good design equals good Home profits. The more beautiful the displays and surroundings, the longer consumers want to stay in a shop. The more time a shopper Third Place: spends in a store, the more they Second Place: will spend.” Where we Work Commune
Source: Cushman & Wakefield Research Look Familiar? Understand Live/Work/Play is a Product of Environment
Technology is Redefining ALL
Technology itself is changing at a breakneck pace.
Live And it is changing how we want to experience live/work/play.
But retailers, landlords, developers and investors had Work Play better be students not just of technology but of psychology, anthropology and culture if they want to have a hope of truly understanding the consumer impacts.
Source: Cushman & Wakefield Research Live/Work/Blur… The real impact of technology
Beneath the New Urbanism
Walkability and urban Live Work/Life Balance as a preferences are really about time Major Concern: management and quality of life issues in a society that gives 41% Millennials plenty of lip service to live/work 29% Gen-X balance, but in fact undermines it at every turn. Work Play 20% Baby Boomers
If the underlying premise of technology being about making your life better, has it made yours?
Do you work less because of your devices?
No, we didn’t think so.
Source: Sanford Health News, Cushman & Wakefield Research 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 Amenities Arm Race Other product types need retail more than ever before
The “Halo Effect”
Amenity Retail Retail Personal Needs Drug Stores Grocery Stores Personal Services Restaurants Bars Office Multifamily Hospitality Food Halls Entertainment Medical Retail Health/Fitness Clubs Large Format Omni Small Format Niche But can you build the density? Go big or go home.
Source: Cushman & Wakefield Research Retail Retail Evolution Evolution
Source: Cushman & Wakefield Research eCommerce to newCommerce How online keeps evolving…
1995 - 2000 2001 - 2009 2010 - Present 2015 - Present 2017 - ?
The Early Days Pure Play The Age of Amazon Omnichannel Age newCommerce Age Years Desktop Desktop Desktop Desktop Desktop Mobile Mobile Mobile Initial Launch of Mobile Tablets Tablets Tablets eCommerce ? Post Tech Wreck Ramp Up of Amazon Distribution Amazon Dominance Rise (and Fall) New Pure Play Internet Strategy: Speed to Continues Seamless Integration of of Early Players eCommerce Consumer over Tax Omnichannel (now Retailers Still Building a GIVEN for Retail Distribution Strategy: Amazon Dominance eCommerce Survival) Tax Advantages Infrastructure over Speed Retailers Rush to Build eGroceries eCommerce Emergence of Bricks Infrastructure to Clicks Movement ePharma
Source: Cushman & Wakefield Research What is Happening with American Retail? Don’t you know there a “retail apocalypse” under way?
The Mainstreaming of Doom
There are real challenges, but the perception is becoming worse than the reality.
Unfortunately those perceptions will contribute to the reality by harming healthier retailer and REIT values.
Bloomberg launched an online interactive game in February 2018 where the goal is to save a dying mall.
Source: Cushman & Wakefield Research So Why the Gloom? Is US retail really doomed? Consumer Confidence
February reading of 130.8 was the highest in 17 years!
Source: Cushman & Wakefield Research Structural Issues in Retail What’s really driving today’s wave of consolidation? Recent positive economics are helpful, but won’t save many troubled retailers. 1. Over-retailed marketplace.
2. Acceleration of eCommerce.
3. Race to the Bottom Discounting (Rise of Off-Price) • The rise of off-price, growth of dollar stores, discounters, etc.
4. Shifting Consumer Spending Patterns. • Millennials spending less than previous generations. • Millennials spending differently (experience over stuff).
Source: Cushman & Wakefield Research eCommerce Acceleration Impact on Store Closures Closures rising due to eCommerce, but other factors as well… 14,000 16.0% What’s Really Happening (it’s not just about Amazon)? 12,000 14.0% Convergence of Four Factors: 12.0% 10,000 1. Acceleration of 10.0% newCommerce 8,000 2. Over Retailed Marketplace 8.0% 3. Race to the Bottom 6,000 Discounting (Rise of Off- 6.0% Price) 4. Shifting Consumer Patterns 4,000 4.0% (Millennials Spending Differently than Past Generations) 2,000 2.0%
0 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 (F) 2019 (F) 2020 (F) Major Chain Closures Forecast Major Chain Closures eCommerce % of Total Retail Sales
Source: Company filings, Department of Commerce, Cushman & Wakefield Research Closed Square Footage 2008-2018F
Source: Clarion Partners, Cushman & Wakefield Research What’s Up With Pharma? Will this be the next category disrupted? Walgreen’s + Rite Aid (Half)
Albertson’s + Rite Aid (the Other Half) DEAL DEAD What Next for Rite Aid?
CVS + Aetna
Amazon + JP Morgan + Berkshire Hathaway
Source: Cushman & Wakefield Research Major Retailer Bankruptcies 2017 thru 2019: Major retailer bankruptcies match Great Recession Pace!
Major Retailer Bankruptcies The bankruptcy and liquidation of Payless will likely be the 40 largest single retail bankruptcy 35 this year in terms of unit counts.
30 A number of other challenged
25 retailers will declare bankruptcy in 2019, but most of those that 20 we are tracking currently at highest risk are chains below the 15 400 unit threshold.
10 However, strategic closures of 5 underperforming stores by healthier chains will increase in 0 2019 as retailers gear up for 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 declining economics. Major Chain Bankruptcies Forecast Total
Source: Cushman & Wakefield Research Bankruptcies…the Hits Keep on Coming… Remember, this is while AT THE TOP OF THE ECONOMIC CYCLE
2017 2018 2019 (So Far…)
Aerosoles Payless Charlotte Olympia Brookstone Beauty Brands Alfred Angelo Perfumania Agaci National Stores Innovative Mattress Solutions BCBG Max Azria RadioShack/General Bon Ton Gump’s Gymboree Bob’s/Eastern Wireless Kiko USA Real Mex ShopKo Mountain Romano’s Macaroni Walking Company Mattress Firm Charlotte Rousse Central Grocers Grill Claire’s Sears FullBeauty Brands Charming Charlie Rue 21 Southeastern David’s Bridal Things Remembered Gander Mountain Sheikh Shoes Grocers Taco Bueno Payless Gordman’s Sports Zone Nine West Gymboree Styles for Less Rockport HHGregg Toys R Us Bertucci’s Limited Traffic Shoes Samuels Jewelers Marbles: The Brain True Religion Store Vanity MC Sports Vitamin World Papaya Clothing Wet Seal
Source: Cushman & Wakefield Research and Moody’s Analytics Source: QIC, Cushman & Wakefield Research Retail and eCommerce Have Evolved… Our financial models from Wall Street to Private Equity HAVE NOT
The Wall Street Influence
Overly aggressive growth
Retail destruction via “efficiencies”
Leveraged buyouts
Destructive financial models
What happens when the spreadsheet jockeys destroy their own spreadsheets in search of nickels and dimes, as opposed ? to long-term dollars?
Source: Cushman & Wakefield Research Danger Zone Bankruptcies will persist in 2018 and beyond
2019/2020 Bankruptcy Watch 99 Cents Only Potential Vulnerabilities Ahead Academy Sports Apparel & Department Stores Eddie Bauer (Everest) Factory 2 U (National) 6,000 Fred’s Fresh Market, The 4,878 5,000 GameStop Guitar Center 4,000 Hot Topic Hudson’s Bay JC Penney 3,000 J. Crew Lands’ End 2,000 1,667 Neiman Marcus PetSmart Pier 1 1,000 554 575 364 400 300 Rite Aid 86 187 Savers (Evergreen) 0 Spencer’s Gifts (SSH) Fossil Forever 21 Ascena Tailored Neiman The New J Crew Le Chateau Calceus (Cole Brands Marcus Sears Haan, Tom's Spirit Stores (SSH) Shoes, et al) Value Village (Evergreen) Steak ‘n’ Shake (Biglari) Number of Units Vince
Source: Cushman & Wakefield Research and Moody’s Analytics The Problem for These Retailers? It’s leveraged buyout debt… not relevance or eCommerce
Over the past 20 years, we Albertson’s Belk Guitar Center increasingly saw private equity groups borrow money to acquire JoAnn Fabrics Shopko 99 Cents Only retailers and then put that debt on the retailer balance sheets. This risky practice, known as Chuck E. Cheese Staples GNC leveraged buyouts, is creating issues for many relevant retailers Pep Boys PetSmart Calceus (Cole Haan) today.
Hudson’s Bay Company Petco J. Crew Many of the latest bankruptcies (Toys R Us, etc.) have come Hot Topic Talbots Lands’ End about from this practice.
The Fresh Market Academy Sports Neiman Marcus
Source: Cushman & Wakefield Research and Moody’s Analytics Major Chain Store Closures 2017 and 2018: Both surpassed great recession levels
What’s Really Happening (it’s not just Major Chain Store Closures 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 Generations) 6,000
4,000
2,000
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Major Chain Closures Forecast Major Chain Closures
Source: Cushman & Wakefield Research Top Retail Chains in Growth Mode 2018/2019: Announced new store openings
More of Same in 2018/2019 Major Chain Openings 2018/2019
Carter's/OshKosh Top Expansion Categories:
Tim Horton's* Beauty/Cosmetics Chick Fil-A* Cellular Stores Domino's Pizza* Clicks to Bricks Chipotle Coffee Jersey Mike's Subs Discount Grocery Jersey Mike's Dollar Stores
Orangetheory Fitness Fast Food
Circle K* Fast Fashion Financial Services Dollar Tree* Fitness/Health Clubs AT&T Off-Price Apparel 0 200 400 600 800 1000 1200 Super Stores (but often in smaller 2018 Planned New Stores sizes—Target)
Source: Cushman & Wakefield Research Race to the Bottom Dollar stores are growing at an unprecedented rate…
Dollar Dazed Approximate Store Count 99 Cents Only 2013 v. 2017 The top five dollar store chains have added approximately 6,500 new stores over the last four Five Below years.
That equates to a new dollar Dollarama store opening somewhere in the United States nearly every four and a half hours for four years Dollar General straight!
In 2017 alone, roughly 1,700 new Dollar Tree (includes Family Dollar) dollar stores opened in the USA.
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 YE 2013 YE 2017
Source: Cushman & Wakefield Research Amazon/Whole Foods Has Some Catching Up to Do 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 But will the expansion push be next five years… Whole Foods Or Amazon Go!
Source: Kantar Worldpanel, Statista, Cushman & Wakefield Research The New The New Retail Retail
Source: Cushman & Wakefield Research IT’S ALL ABOUT MILLENNIALS!
MILLENNIAL VALUES: Millennial Generation Born Between 1980 → 1999 • Experiences Over “Stuff” ARE THE LARGEST CONSUMER GROUP
• Authenticity! Uniqueness! Choice! Variety! 100
• Intimacy in Shopping Experience! 80 60 • Curated Retail - NOT COMMODITY!
40 MILLIONS • Non-Conformist! 20 0 • Cool is a Value! Generation Z Generation X Greatest Generation
59% of Millennials Look for Physical Store Presence When Buying Online. The Millennial Consumer Don’t worry… they usually don’t bite Cool is a Millennial Ethos
Cool IS Experience
Cool is not frivolous.
Woe to the retailer or landlord that underestimates the power of cool.
Tolerant Societies = Creative Societies = Innovative Societies = Cool Cities Economically Dominant Cities
Source: Cushman & Wakefield Research Social and Macro Economic Factors Driving Shift The new consumer paradigm…
Evolution Across the Ages
Technology + Macro Economics
From To Driving shifts across all generational consumer groups, with Millennials leading the charge.
Stuff Experience Individual Community Conformity Personalization New New Quantity Quality Buying Creating Owning Using
Source: Callison RTKL, Cushman & Wakefield Research Food Halls ON FIRE! Food Halls: the shared economy for restaurants
Food Halls in the U.S. 450 400 350 300 250 200 Projected Existing 150 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Cushman & Wakefield Research Eataly… Hybrid, Single Proprietor Themed Food Halls Prepared & artisanal options…
What’s Next?
Would an Eataly type concept work for…
Japanese Cuisine?
Chinese Cuisine?
Mexican Cuisine?
American Cuisine?
French Cuisine?
Etc., Etc., Etc.?
YES, YES and YES
Source: Cushman & Wakefield Research WeWork to WeMrkt… The sharing economy for convenience stores?
WeMrkt
WeWork opened first WeMrkt at 205 Hudson in New York in Summer 2018.
The stores carry food, beverages, office supplies, apparel and products from WeWork members.
The plan currently is to add 500 stores nationally over “the next few years.”
We believe this timetable will prove to be over a five year period beginning in 2019.
Source: Cushman & Wakefield Research Coworking at the Shopping Center The sharing economy for convenience stores?
CoWorking On the Way CoWorking at the Mall Industrious + Macerich Water Tower Place Chicago The future of retail is mixed use.
Coworking office space is leading the way.
In July 2018, Macerich inked a deal with coworking provider Industrious to add space in multiple malls around the country, beginning with the opening of a 33,000 square foot coworking facility in a former Barney’s Store at Scottsdale Fashion Square.
BeSpoke, Westfield WeWork + Lord & Taylor San Francisco Centre
Source: Cushman & Wakefield Research 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: Brewers Association of America, Cushman & Wakefield Research Zauo NYC… Fish For Your Own Meal Heighten the experience
Family Friendly Japanese Dining
Zauo has 13 locations in Japan. Opened in October in Manhattan’s Chelsea neighborhood.
Restaurant features three pools stocked with striped bass, fluke, flounder and rainbow trout.
Family
Source: Cushman & Wakefield Research The Shed Farm-to-fork local food creation on display
Food Creation as Show
Demonstration Kitchens Open Kitchens Food Preparation as Theater
=
Experience Generators
Food tourism isn’t just about major markets
Source: Cushman & Wakefield Research Elevated Chain Experience From Starbucks to Taco Bell and beyond…
Value Chains + Experience Starbucks Roastery, Shanghai Keeping in mind the Convenience, Value + Experience nature of retail, fast food and value players already have their niches…
McDonald’s Tech Initiative Elevated concepts can lead to new consumers and/or revitalize tired brands…
Taco Bell Cantina KFC “Big Chicken”, Marietta, GA
Source: Cushman & Wakefield Research Operation Lifestyle, Destination High Street Luxury Retail & Food
Upscale Chains + Experience Gucci Cafe, Shanghai Rise of experience also means luxury brands which already offer an experience need to up their game.
Iconic brands are about a lifestyle beyond their hard goods…
Source: Callison RTKL, Cushman & Wakefield Research Lifestyle, Lifestyle, Lifestyle Retail & Hospitality
Upscale Chains + Experience West Elm Hotels Casa Camper, Berlin Indianapolis Rise of experience also means Savannah luxury brands which already offer Oakland an experience need to up their Detroit game. Minneapolis Portland Iconic brands are about a lifestyle beyond their hard goods…
Parachute Hotel Los Angeles Restoration Hardware Hotel Manhattan
Source: Cushman & Wakefield Research Exclusivity: From to Speakeasies to Members Clubs Irony: the rise of exclusive concepts seems to be democratic in its appeal
Not Just for the Elite Anymore
The Violet Hour Midnight Cowboy Club 75 Wicker Park, Chicago Austin, TX at Rockefeller Plaza, NYC PDT NYC
The Gibson Noble Experiment Wilson & Wilson Private Detective Agency Washington, DC San Diego, CA San Francisco, CA Room 13 Source: Cushman & Wakefield Research Chicago Rag & Bone + Jack’s Stir Brew Coffee Former meatpacking warehouse turned retail + coffee hybrid
Store Within Micro Store
Cross Brand Leveraging
Upside: Synergies driving greater traffic.
Downside: Inevitable decline in space use. Stores serving double or triple duty…
Winners: Best in class real estate
Losers: Class B- and below
Source: Callison RTKL, Cushman & Wakefield Research Mash-Ups Everywhere: Capital One Cafe Would you like a decaf with that credit card?
Hybrid Concepts
Capital One Café is more than just a rethinking of financial services retail space.
It is a focus on “linger-able space.”
Source: Cushman & Wakefield Research Birchbox + Walgreens… 9,800 Locations? Strategic partnerships on steroids…
Store Within Drug Stores
One third of US citizens (over 125 million) are members of Walgreen’s Balance Rewards Club.
Will cosmetics prove the right hedge against the inevitable entry of Amazon into the space?
Drug stores will need to boost shopping experiences to not face same malaise as other eCommerce disrupted retail categories.
Partnerships and store within stores are easiest way.
Source: Cushman & Wakefield Research Cosmetics as Savior JC Penney: Store within store and vulture strategies..
Store Within Stores
Arguably, JC Penney partnership with Sephora for store within store concepts is what kept the lights on in the post Ron Johnson era.
New vulture strategies (picking up market share from failed or failing chains) include:
Appliances Toys
Look for more retailers to adopt this strategy to benefit from other retail failures. Addition by subtraction. Source: Cushman & Wakefield Research Even Zombies have a Pop Up Toys R Us will be back this Christmas
Zombie Store Within Stores
This holiday shopping season will see 600 Geoffrey’s Toy Box pop up stores within Kroger grocery locations nationally.
The pop-up concept comes from the group that bought TrU intellectual property rights out of bankruptcy and that are reviving the dead brand… zombie retailers.
Source: Cushman & Wakefield Research Pop-Up Permanence For at least the next decade, these are permanent part of the landscape…
Pop Up Stores Account for $10 The Real Story About Pop Ups Billion Annually in Sales Upside: New outlet for experiences, happenings and ability for What do Consumers Want? retailers to “test-run” locations.
39% A Fun Experience Downside: 39% Unique Products/Services Symptom of erosion of 36% Localized Assortments permanent tenant base, reflecting weaker landlord 34% Optimal Pricing bargaining positions. 33% Convenience
Winners: Consumers and Retailers
Losers: Landlords
Source: Pop Up Republic, Cushman & Wakefield Research Permanent Pop-Ups Mish Mash a Smash
Store Within Stores
Fourpost Studio Shop Cube
Launching in November 2018 At two largest malls in North America: Edmonton Mall Mall of America
Pop-up concepts from local to luxury, from high street to incubator…
Source: Cushman & Wakefield Research Neiman Marcus & Rent the Runway San Francisco, CA
If You Can’t Beat ‘Em, Partner
Neiman Marcus renting clothes?!
3,000 SF boutiques to offer assortment of clothing and accessories that consumers can rent.
Rent the Runway stylists will also help consumers select other items from Neiman Marcus that shoppers can buy to perfect a look.
Rent the Runway sales system- wide estimated to be as high as $100 Million.
Source: Callison RTKL, Cushman & Wakefield Research Moncler: House of Genius Concept Stores: Art Meets Fashion
Exclusivity + Art
Tokyo (Aayoma District) and New York (SoHo)
Interactive Spaces Customized Layouts Curated Limited Edition Goods Based on Local Urban Surroundings
Think Art Gallery as Luxury Store
Source: Cushman & Wakefield Research Samsung 837 New York, NY
Marketing not Sales
40,000 square foot space carries no inventory.
Cultural center for visitors to experience products.
Technology driven programming to tap into people’s passions; art, music, sports, wellness, entertainment, food, fashion and technology.
GEARING UP TO DO 40 STORES NATIONALLY!
Source: Cushman & Wakefield Research Nike Concept Store Los Angeles, CA
Brands Boosting Experience
Look for more iconic brands to boost their direct to consumer retail presence.
Brands like Nike are reducing their wholesale presence while opening more experiential concept stores to boost the shopping experience.
Protection of brand equity means elevating the shopping experience and escaping the destructive cycle of race to the bottom discounting.
Source: Cushman & Wakefield Research REI Co-Op Flagship Concept Store Washington, DC
Design: Part of the Experience
The challenge?
Higher tenant improvement costs, further driving bifurcation in the experiential space between have and have nots.
Source: Callison RTKL, Cushman & Wakefield Research Lululemon Hub Seventeen Toronto, New York and coming soon to a major market near you
Retail + “Life Space”
The Lululemon Hub Seventeen concept features programmed space for wellness, entertainment and events. Stores are wired for free WiFi and offer expansive areas for shoppers to work, socialize and linger
Source: Callison RTKL, Cushman & Wakefield Research Menassaince Dude’s are upping their game…
Saks Fifth Avenue Men’s Store Men’s Apparel Bifurcation Manhattan While mid-price, commodity apparel is on the decline (to the benefit of value or upscale, Nordstrom Men Store experiential brands) across the Manhattan board, this trend is arguably sharpest in men’s apparel…
Lululemon The Local
Lululemon: The Local
Source: Cushman & Wakefield Research Clicks to Bricks: Brand Embassies Clicks to Bricks
The newCommerce Era When eCommerce retailers open physical stores, they experience a 45% Seamless Integration of 37% 36% significant increase in web traffic. Omnichannel (now a GIVEN for Retail Survival) Average Established Established Retailers Retailers
Apparel Department Home When eCommerce retailers close physical stores, they experience a 10% 8% 16% significant decrease in web traffic.
Source: ICSC, Cushman & Wakefield Research Clicks to Bricks Brand embassies, returns savings driving more pure play growth in physical space
800 700 600 Amazon Go! Birchbox/Walgreen’s… 500 Wayfair? Holiday pop-up in Boston and kicking tires for permanent stores… 400 300 200 100 0
Store Count Planned New Stores 2019
Source: Cushman & Wakefield Research Amazon: Go! 3,000 Stores?
Checkout-Free Shopping
Look for this technology to have a massive impact on the value sector where customer service has traditionally been secondary to price and selection (the Sam Walton model).
Keep in mind that one of the reasons for the struggles of mid- priced, commodity retailers was the adoption of the Sam Walton model—which has worked for value concepts, but which degraded the experience for those brands. Experiential retail starts with customer service.
Source: Cushman & Wakefield Research Entertain Us! Millennials spend more on experience than “stuff” Golf/Sports/Arcade Entertainment Themes Athletics Space BarCades/Mixed (Dave & Buster’s, Aquatic Parks Punch Bowl Social, etc.) Trampoline Rooms TopGolf/Miniature Golf/Glow Golf Indoor Rock Climbing Baseball/Batting Cage Bars Indoor Skydiving Axe Throwing Bars 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 Guns Live Theater Space Optional) Dinner Theaters Event Centers Cirque Space e-Sports Facilities Stand Up Comedy Clubs Live Music Venues Experiential Theaters/Dine-In Theaters IMAX Float Rooms/Sensory Deprivation Restaurant/Theaters Rage Rooms Bar/Theaters Escape Rooms Children Themed Theaters Hipster/Art House Theaters Source: Cushman & Wakefield Research It’s All About the Experiences! Be “Creactive”
Cirque du Soleil - Creactive
Cirque du Soleil will open its first “family entertainment centre” in September 2019 in an unnamed Toronto mall.
The new concept, called Creactive, will offer a range of acrobatic, artistic and other Cirque du Soleil-inspired recreational activities, such as bungee jumping, wire and trampolines, mask design, juggling, circus track activities, dance, and more.
Source: Cushman & Wakefield Research Virtual Reality Experiences/Theme Parks The Void, IMAX VR Center, HTC’s Viveland and others on the way…
Coming to a Mall Near You
The Void typically uses between 5,000 and 10,000 SF. Plans currently call for as many as 50 new locations through the end of 2019.
Virtual reality gaming options are tied into major Hollywood releases. Current adventures include Star Wars and Ghostbusters themes.
HTC’s Viveland expects to open as many as 5,000 global VRcades over the next decade, starting with 1,000 Viveland units in China.
Source: Cushman & Wakefield Research Meow Wolf Immersive Experience: Art Meets Entertainment
Art Collective Goes Retail
Meow Wolf is a Santa Fe, New Mexico-based arts collective (Game of Thrones author George R.R. Martin is a backer) that is going bricks and mortar with an ever evolving, interactive arts experience in a number of major US cities…
Source: Cushman & Wakefield Research Brandless Can a dollar store be an experience? Can it be Cool?
Home Item Hipster Thrift
All Items $3 or less… Popups opening in NYC and LA…
Source: Cushman & Wakefield Research The Mall of the Future… Will offer dinner, movies… and a colonoscopy!
But Not Necessarily in that Order!
eCommerce is driving out retailers…
But Boomers are aging!
Here come the doctors!
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 Up and Coming Boutiques, More EDGY UP AND COOL COMING Restaurants Arrive… Rents Climbing Prime Hipness Funky Local Priced Out, Cool National Concepts Arriving… Rents Climbing GONE MAINSTREAM Still Cool, But Going Whole Foods Arrives Mainstream Rents Climbing Gone Mainstream Creatives Moving On, STILL Replaced by More PRIME COOL, HIPNESS Affluent Crowd. Pottery BUT… Barn!
Source: Cushman & Wakefield Research But Haven’t We Always Had “Cool” Neighborhoods? What’s Different This Time?
“Cool” is a Millennial value, heavily impacting decisions on where to live and shop. As a result, the timeline of the evolution of these neighborhoods has sped up considerably…
• 2000 to 2014 Transformation of Brooklyn’s Williamsburg neighborhood from “challenged” to “edgy cool” to “mainstream cool” • 2010 to 2015 Transformation of Chicago’s Fulton neighborhood from “challenged” to “edgy cool” to “mainstream cool” • 2014 to Present Transformation of Downtown Los Angeles’ Arts District neighborhood from “challenged” to “edgy cool” to… Cool Streets: Rise of the 18 Hour City Urbanism Not Just A Primary Market Trend
Stability Ratio (Current Economic Volatility / Historic Employment Volatility. <1 = More Stable Than Historic 2.5
Austin Stability 2 G Salt Lake Orlando r City Dallas o 1.5 Nashville Charlotte San Antonio w Denver t Tampa Atlanta Seattle 1 h Indianapolis Orange County Miami DC
(Five Year Annual Change) Year (Five USA
0.5 Brooklyn Los Angeles Employment Growth % Projection Growth Employment
0 0 0.2 0.4 0.6 0.8 1 1.2
Source: ULI/PwC Emerging Trends 2019 The Upstarts Challenger brands active on the Cool Streets
EDGY UP AND COOL COMING
PRIME HIPNESS
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 The Next Cool Street Wave? Foreign brands…
•French •English •Japanese •German •Australian Poys & Pirls Dune London Sasquatchfabrics ACRONYM T2’s Pigalle Palace Skateboards Bed J.W. Ford PB 0110 Scanlan Theodore AMI Lazy Oak Freak’s Store Simon Freund Bluestone Lane Café EDGY UP AND Club 75 GrindCOOL London Magic StickCOMING Entertainment Boulezar Gumption Coffee Maison Kitsune a number of names* Wacko Maria Hien Le Ministry of Coffee Monsieur Lacenaire Satta GUILTY PARTIES Mykita Cotton On KENZO Nasir Mazhar Frisur Grace Loves Lace Helas A Cold Wall •Scandinavian A Kind of Guise Convict Carven Maharishi Acne Studios Kostas Murkidis Lovisa Etudes Studio Cassette Playa Eytys Beastin Andrea Crews Goods by Goodhood L’Homme Rouge Ucon Acrobatics Cote & Ciel Roundel London Wood Wood Wemoto Vetements Garbstore Armoire d’Homme Magenta Nigel Cabourn Rascals Cottweiler Norse Projects Tretorn PRIME CMMN SWDNHIPNESS Polar Skate Co
Source: Cushman & Wakefield Research Can Commodity be Cool? Maybe… but “authenticity” will be a challenge…
Cool Streets, “Survivable Class B Malls” May be the Strategy for Mid-Price Point Apparel Players Priced Out of Class A Malls… EDGY UP AND COOL COMING But Will They Connect With Millennials?
Cheap Rents Won’t Help if They Cannot Connect
PRIME HIPNESS
Source: Cushman & Wakefield Research Love, Bleecker Can you manufacture hip? Not easy, but YES!
Art, Commerce, Culture Collective
Brookfield & Skylight’s hip new venture…
Prabal Gurung 367/369 Bleecker
Slightly Alabama 350 Bleecker
Fleurotica & Bonberi 384 Bleecker
Skylight’s rotating gallery space 382 Bleecker
Source: Cushman & Wakefield Research Barneys & Bongs – This is How I Roll A Place Where a $3,000 Prada Dress Meets a $1,500 Weed Grinder
High Rollers
Barneys is partnering with cannabis brand Beboe to open its own upscale head shop aptly named “The High End.”
The store-within-a-store will offer marijuana accessories including gold rolling papers, leather ash trays, pipes, $450 bongs, $1,475 pot grinders, and storage boxes.
Simon Malls just inked a deal to bring 108 kiosks to their malls by end of 2019 from legal cannabis product producer Green Growth Brands.
Source: Cushman & Wakefield Research The Real The Real Estate Estate
Source: Cushman & Wakefield Research The Neighborhood/Community Center… Neighborhood/Community and Strip Centers doing fine…
Typical Anchors: Grocery Stores Outdoors Drug Stores Mostly Suburban
Neighborhood 30,000 to 125,000 SF Typical Inline Tenants: 3-mile trade area Restaurants Fast Food Community Coffee 125,000 to Juice 400,000 SF Dry Cleaning 6-mile trade area Laundromat Postal Services Dental/Medical Offices Financial Services Retail Boutiques
Source: Costar Group, Cushman & Wakefield Research The Power Center… Neighborhood/Community and Strip Centers: the Most newCommerce Resistant Product
Typical Anchors (Big Box): Superstores (w/Groceries) Outdoors Home Improvement/DIY Mostly Suburban Off-Price Apparel Power Consumer Electronics 250,000 to 600,000 SF Arts/Crafts 10-mile trade area Pet Supplies
Typical Inline Tenants: Restaurants Fast Food Coffee Juice Dry Cleaning Laundromat Postal Services Dental/Medical Offices Financial Services Retail Boutiques
Source: Costar Group, Cushman & Wakefield Research The Regional Mall – Reinvent or Die The Mall… When Americans think of retail, they think of malls
Typical Anchors (Big Box): Department Stores Mostly Enclosed Mostly Suburban
Regional Mall Typical Inline Tenants: 400,000 to 800,000 SF Apparel 15-mile trade area Accessories Shoes Super Regional Mall Jewelry 800,000 SF + Gift Shops/Gadgets 25-mile trade area Books Toys Restaurants Fast Food Coffee Juice Retail Boutiques
Source: Costar Group, Cushman & Wakefield Research ROI Performance Along Class Lines Mall performance gap between best and worst assets…
The Retailer Logic Behind this Gap: Class A If the goal is to reduce your physical footprint, while looking to boost your online sales… This inherently means that your Class C/D remaining physical locations are more important than ever before…
CHAINS STRATEGICALLY REDUCING THEIR FOOTPRINTS ARE LARGELY DOING SO IN CLASS B AND C MALLS—NOT CLASS A.
Source: MSCI Global, 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 70% of 200 all mall retail sales in 2016. 150 There are roughly 670 Class B 100 and C malls in the US, but they 50 only accounted for 28% of all 0 mall sales last year. A++ A+ A A- B+ B+ B- C+ C C- D Class D malls accounted for less A++ A+ A A- B+ B+ B- C+ C C- D than 0.2% of all mall sales last Approximate Share of Total Mall Value by Class year… 25.0 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 Top Performing Malls
Super Regional Malls, Sales Productivity by Mall Grade
Sales PSF Strengthening $1,200 Position
$1,000
$800 Weakening $600 Position
$400
$200
$0 A+++ A+ A A- B+ B B- C+ C C- D Sales PSF
Source: Green Street Advisors, Cushman & Wakefield Research What Does the Wave of Consolidation Mean?
42% of U.S. Malls are Class B+ and Above What Does That Mean for the Other 58%? Number of U.S. Malls 180 15% 160
140 13%
120 10% 10% 9% 10% 100 6% 9% 8% 80 7% 60
40 4%
20
0 A+++ A+ A A- B+ B B- C+ C C- D Number of U.S. Malls
Source: Green Street Advisors, Cushman & Wakefield Research Retail Investment USA Current Cap Rate Asking Ranges
10.0%
9.0%
Up 8.0% Up
7.0% Up Up Class A Up Class B 6.0% Holding Up Class C (so far) 5.0% Holding Holding (so far) 4.0% Holding Holding
3.0%
Malls & Power Centers Neighborhood & Outlet Centers Lifestyle Centers Community Centers
Source: Real Capital Analytics, Costar, Cushman & Wakefield Research Retail Investment 2018 Retail Volume Looks to Surpass Prior Year Total Annual Retail Transaction Volume $100 100%
$90 80% $80 60% $70 $60 40% $50 20%
$40 0% $30 -20%
$20 Transaction Totals (in billions) (in Totals Transaction
$10 $35.4 -40% $0 -60% 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2018 First Half Second Half Annual Change
It would be the first time in two years that retail transactions posted growth.
Source: Real Capital Analytics, Cushman & Wakefield Research Retail Investment Third Quarter 2018
➢ Year-Over-Year Retail Volume Up 90%
➢ Mall Sales Accounted for 40% of All Retail Sales
➢ Mall Sales Range from $8 PSF to $637 PSF
➢ Sales of Individual Assets Grew 8% YOY
➢ RCA CPPI for the Retail Sector Increased 1.8%
Source: Real Capital Analytics, Cushman & Wakefield Research Retail Investment Average Cap Rates Capitalization Rates by Property Type and Asset Class Property Type Asset Class Cap Rate Range
Mall A+ 4.00% - 4.50%
A 4.50% - 5.50%
A- 5.50% - 7.00%
B+ 7.50% - 9.00%
B 9.00% - 11.00%
B- 11.00% - 15.00%
C 15.00% - 25.00%
Neighborhood/Community Center A 5.50% - 6.50%
B 6.50% - 8.50%
C 8.50%+
Power Center 6.00% - 9.50%
Outlet Center 6.00% - 10.00%
Lifestyle Center 5.50% - 7.50%
Source: Cushman & Wakefield Retail Valuation Group Source: Cushman & Wakefield Valuation & Advisory – Retail Practice Walmart Is Redefining the One-Stop Shop Concept Turning Its Parking Lots Into “Town Centers”
“Reimagined Centers”
Restaurants Daycare Centers Health Clinics Bowling Alleys Food Trucks Bike Rental Stations Driving Ranges Fuel Stations Entertainment
A conceptual rendering for a proposed Walmart Town Center in Garland, Texas
Source: Statista, Cushman & Wakefield Research Parking Lots Opportunity in excess parking?! Oh yeah…
Source: 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 Reinventing Vacant Anchor Boxes Retail as Fulfillment Centers
Shopping Fulfillment Center
Case Equity Partners is introducing this hybrid retail and fulfillment concept that is expected to increase sales while reducing retailing costs and time to market.
This “all-encompassing suite” includes online fulfillment, drive- through pickup, regional distribution to other stores, store design and even operations.
Shoppers have access to a larger assortment of products that are in stock at all times, allowing them to touch and feel a product before making a purchase, thus reducing order and return cycles.
Source: Case Equity Partners, Cushman & Wakefield Research Challenges & Opportunities Yes, but you have to know what you are doing!
Type Challenges Opportunities Every property must be looked at individually for its fundamentals. Few available and most owners unwilling to sell. This property type still stable and will strengthen as Malls A Though risk is low, likely low cap rate may still not more Class C malls fail. be commensurate with risk. The financial health of current Many will require extensive repositioning and re- This might be where the most jewels in the rough are tenants, possible re-tenanting B tenanting. A lot of innovation and unconventional found. Some B malls are in great locations and were thinking will be required. either poorly tenanted or managed.. scenarios and an understanding of perceived risk vs. likely actual C Here is where the most damage will be done. There will be great opportunities for redevelopment or Tenanting these will require unconventional repositioning of properties once properties return to risk is required. tenants and means. Many will fail. lenders and can be had for dimes on the dollar or less. Malls, especially Class B, raiding the traditional With investors focusing on core and urban and retail Power A power center tenant pool to backfill vacancies already making many nervous, there may be some cap Due diligence is a must! could have an impact, but it will be minimal for rates here that are far higher than actual risk. Class A. If tenant pool diminishes, here is where it will be Depending on property, could be some solid value add The current landscape s B felt most. buys with high yields. increasingly becoming a buyer’s Weak already and getting weaker… Might make for good redevelopment plays or value add market. C acquisitions. Drug store disruption may eventually have impact, The most eCommerce resistant and resilient of the Neighborhood A but these will easily backfill. product types. Class A in secondary markets may provide best yields. Drug store disruption may eventually have impact, Largely a safe bet, look for good value adds to turn B B could be a bit of a challenge here. into A and even greater yield opportunities. Weak already. Not getting weaker, but will take Might make for good redevelopment plays or value add C significant investment to improve. acquisitions.
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 Suburban Population Growth to Redevelop Dead Suburban Malls as Increase Mixed-Use Lifestyle Centers w/Substantial Housing, Office, Medical and/or Hospitality Department Store/Apparel Explosion of Food Retail, Shift Centers Towards Entertainment Consolidation Entertainment Retail, Experiential Focus or Discount Focus Concepts, Off-Price Apparel & Discounter Demand Rising Power Center Vacancies Mixed-Use Works Here Too Mixed-Use Works Here Too
Source: Cushman & Wakefield Research The Amenitization of Retail What’s Really Happening?
• We will no longer need the same number of standalone retail Future of Malls? destinations. • But the number of retail properties “going away” will be far fewer While trophy and Class A malls than most anticipate. will continue to operate as standalone retail destinations, all • Embrace of mixed-use is the way out for struggling properties. mall classes will benefit from • Demand for retail as “the ultimate amenity” has never been higher, embracing Gruen’s initial vision particularly in urban environments. of malls being centers of the • Amenity retail is focused on strong brands, personal needs retail, food, community, as opposed to beverage and entertainment. merely retail marketplaces. • The “halo effect” of best in class retail is REAL. • Strong ground floor retail can allow landlords to charge more for rents above in urban settings. • Strong suburban retail will increasingly have this impact in those settings. • Mixed-use development and redevelopment will be the story of retail real estate for at least the next decade. 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 shopping “I am often called the father of center in the age of newCommerce. the shopping mall. I would like to take this opportunity to disclaim • If your shopping center is the center of your community, it will thrive. paternity once and for all. I refuse to pay alimony to those bastard developments. They • If it isn’t, then build a community around it. destroyed our cities…”
• In retail, change is NOT AN OPTION. It’s a job requirement. Viktor Gruen [email protected]
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