CREJ - Retail Properties Quarterly - February 2018
The one constant in retail is change. Whether managing through fluid financial market cycles, the natural life and death cycles of specific retailers as shopping habits change, or adapting and repositioning a development project midconstruction to adjust to the market or tenant realities, change management always has been paramount in the retail development world. Reading the headlines today, one could easily surmise that bricks-and-mortar retail is rapidly on the decline (see Retail Apocalypse!) with the end not too far over the horizon. Sales of commodities such as electronics, office supplies and books are migrating online. Class B and C malls that primarily feature “middle ground” retailers that are neither luxury nor value oriented/ discount are under severe duress, and many, if not most, will be repositioned over the next five to 10 years and beyond. The department store model also is challenged with retailers like Sears and J.C. Penney Co. on a severe downturn. This could mean that a 1-million-square foot retail center might reposition to have that leasable retail area reduced and convert the balance to a mix of amenities that bolster the property and restore vibrancy to the center. While it is no secret that pressures from e-commerce, and particularly Amazon, along with other online shopping is impacting the physical store dynamic, we are strong believers that it will never replace well-designed, properly curated shopping centers. What e-commerce cannot offer is the human interaction and experiences that consumers crave. Our most successful centers here in Colorado focus on developing public community spaces and then activating those with year-round events. While great architecture creates the framework for these spaces, we focus on mature landscaping, a variety of water features and fountains, fireplaces and comfortable seating that are all accented by a comprehensive floral program. The real key is activation of the space. Programs such as summer concert series and farmers markets in the shopping center’s parks and plazas (with those spaces converting to ice rinks in the winter time) serve to draw the community as they embrace these events and make them their own. The goal here is experiential retail, creating the opportunity for the consumer to socialize, linger and thrive, and, ultimately, spend more time shopping. It is critical for retailers to focus on creating an experience that simply cannot be duplicated online. Omnichannel retail is a great example of retailers rolling out innovative technologies that add value to the in-store experience. Stores are deploying wireless beacons that send promotions to nearby shopper’s smartphones, along with augmented reality apps that allow customers to visualize clothing or how furniture might look in their home. These new tools add interactivity and fun to the physical store. To this end, as we look to our development pipeline here in Colorado, we are focused on creating active, vibrant, mixed-use development projects that incorporate 21st century technology today’s consumer expects and requires. Combining residential over the right mix of retail and adding an office component to help drive daytime demand for our restaurants is key to success. Retail uses that include grocery, theater, fitness, entertainment and food help to generate the traffic and recurrence of visits that will benefit the balance of the shopping center and are fairly well insulated from the e-commerce threat. One of our challenges with two of our existing centers here in Colorado is addressing the demise of the department store. Retailers, such as Macy’s and Sears, continue to downsize their portfolios to reduce overall store count. Developers across the country are dealing with this issue – when a department store closes, it creates co-tenancy issues for the inline shop tenants. However, the silver lining is that the location of these department stores typically is great real estate because they often are the dominant sites with great visibility and access within their centers. This aids the redevelopment and repositioning of these sites tremendously. A long-term view of replacing these large boxes with a mix of uses that enhances and supplements the existing tenant mix certainly will serve to enhance the strength of these centers going into the future. While it can be painful and capital intensive in the short term, performing these types of repositionings ultimately adds value for the center, the owner/developer and the community. Rather than buying into the media hype regarding the “retail apocalypse,” we view this as yet another transformation of the industry. Certainly, it is a formidable challenge, but out of change comes opportunity.