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Presentation Title The Amenitization of Retail Urban Land Institute October 10, 2018 Cushman & Wakefield Garrick H. Brown Vice President, Retail Intelligence [email protected] 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 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 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 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 Second Third Place: shopper spends in a store, the more they will spend.” Place: 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, Work Play developers and investors had 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 What Technology is Really Doing… Live/Work/Play Imbalances Driving Amenities Arms Race Technology is Redefining ALL Technology itself is changing Live at a breakneck pace. And it is changing how we want to experience live/work/play. Work Play But retailers, landlords, developers and investors had 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 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 Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research Retail Rebound Underway? Recent positive developments… All of these will help retailers Positive Signs for Retail Real Estate? in 2018. But will these factors help slow closures and 1. Great underlying consumer fundamentals; will they improve in bankruptcies heading into 2018? 2018? • Unemployment • Wage growth • Consumer Confidence 2. Strongest holiday season since the Great Recession (+5.5%). 3. Trump tax cuts • Corporate impact • Consumer impact 4. Did a landlord action just slow a strategic closure (Simon v. Starbucks)? 5. U.S. Supreme Court decision on collection of internet sales taxes? 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 Discounting (Rise of Off- 6,000 6.0% Price) 4. Shifting Consumer 4,000 Patterns (Millennials 4.0% 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 eCommerce/Retail Real Estate Disruption Meter as of Q2 2018 Retail Real Estate Disruption Meter Cumulative eCommerce Impact on Retail Real Alcohol/Package Goods Stores Estate by Category: 2018 Amusement Concepts *Apparel (Luxury) No/Minor Disruption *Apparel (Mid-Price) *Apparel (Off-Price) Modest Disruption Art Galleries Arts & Crafts Stores Disruption Auto Parts Auto Sales Major Disruption Automotive Repair & Service Devastating Impact Bakeries Bars, Pubs & Nightclubs Bicycle Stores & Repair *Apparel includes all categories, as Boating & Boat Supplies well as accessories. Book Stores Bridal Shops Cameras & Video Equipment Car Audio Cellular Stores & Cellular Repair 0.0 1.0 2.0 3.0 4.0 5.0 Source: Cushman & Wakefield Research eCommerce/Retail Real Estate Disruption Meter as of Q2 2018 Retail Real Estate Disruption Meter Cumulative eCommerce Impact on Retail Real Childcare/Learning Centers Estate by Category: 2018 Computer Repair Consumer Electronics No/Minor Disruption Convenience Stores/Gas Stations Department Stores Modest Disruption Dollar Stores Disruption Drug Stores Dry Cleaning/Tailoring Major Disruption Entertainment Concepts Devastating Impact Eye Care/Optical Stores Farm Supply/Ranch Stores Film Developing Financial Services (Insurance/Tax) Financial Services (Lending/C.C.) Financial Services (Banking) Food Specialty Retail Formalwear 0.0 1.0 2.0 3.0 4.0 5.0 Source: Cushman & Wakefield Research eCommerce/Retail Real Estate Disruption Meter as of Q2 2018 Retail Real Estate Disruption Meter Cumulative eCommerce Impact on Retail Real Garden Stores Estate by Category: 2018 Gift Shops/Cards/Stationary Stores Grocery Stores No/Minor Disruption Hair & Nail Salons Hardware Stores (Small Format) Modest Disruption Health & Beauty (Cosmetics, Etc.) Health Clubs (Gyms, Etc.) Disruption Home Improvement/DIY Mega Stores Jewelry Stores Major Disruption Laundromat Devastating Impact Luggage Stores Medical Retail Music Stores—Instruments Music Stores—Records, DVDs & CDs Office Supplies Party Supplies Pawn Shops Pet Stores (Pets & Supplies) Pool & Spa Stores 0.0 1.0 2.0 3.0 4.0 5.0 Source: Cushman & Wakefield Research eCommerce/Retail Real Estate Disruption Meter as of Q2 2018 Retail Real Estate Disruption Meter Cumulative eCommerce Impact on Retail Real Portrait Studios Estate by Category: 2018 Restaurants (All Types) Shipping, Packing & Postal Stores No/Minor Disruption Shoe Repair Shoe Stores Modest Disruption Sign & Banner Stores Spas (Day Spa, Massage Concepts, Etc.) Disruption Sporting Goods Superstores/Category Killers Major Disruption Tattoo Parlors Devastating Impact Theaters Thrift Shops/Consignment Shops Tire Stores Tobacco, Cigarettes, Vape Shops Toy Stores Travel Agencies Video Game Stores Video Rental Stores Warehouse Club Stores 0 1 2 3 4 5 Source: 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: Major retailer bankruptcies 2017 2018 Aerosoles Charlotte Olympia Major Retailer Bankruptcies Alfred Angelo Agaci BCBG Max Azria Bon Ton 40 Bob’s/Eastern Mountain Kiko USA Central Grocers Walking Company 35 Charming Charlie Claire’s Gander Mountain Southeastern Grocers Gordman’s Nine West 30 Gymboree Bertucci’s HHGregg Brookstone 25 Limited National Stores Marbles: The Brain Store Gump’s 20 MC Sports Real Mex Papaya Clothing Mattress Firm Payless 15 Perfumania RadioShack/General Wireless 10 Romano’s Macaroni Grill Rue 21 Sheikh Shoes 5 Sports Zone Toys R Us 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 Danger Zone Bankruptcies will persist in 2018 and beyond 2018 Bankruptcy Watch 99 Cents Only Potential Vulnerabilities Ahead Academy
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