01 Jun 5 Takeaways from 2017 ICSC RECon
It’s been a tumultuous year so far, to say the least. As anyone with an eye on the industry can attest, news of bankruptcies and store closures have been mitigated by reports of innovative retail experiments and bold, ambitious developments. It’s safe to say that the one certainty at the 2017 iteration of ICSC RECon, the annual mega Real Estate Convention in Las Vegas, was uncertainty. We can all agree that the industry is in the midst of a major shake up. This year, as in other years, members of our executive team, Amie and Robert, navigated a whirlwind of introductions, meetings and late-night parties. We wheeled and dealed, but also took the opportunity to reflect upon and engage in conversation about the current state of the industry. As is becoming tradition, we’re summing up the end of the four day extravaganza with 5 all-too-important takeaways.
But first a reminder! Last year, we emphasized experiential retail, mixed-use developments, tech innovations, omnichannel strategy and proximity to the East and West coasts as key takeaways. As you’ll see, some of these trends no longer hold sway, while others are more applicable than ever.
1. Survival of the Fittest
It’s been a year of extremes. The breadth and depth of store closings have continued at a dizzying pace, so much so that it’s honestly been hard to keep up. According to a report by WWD, a staggering number of 2,880 closures have been announced so far in 2017. At the current pace, an estimated 8,640 retail stores will close by year end.¹ In comparison, there were a total of 6,163 closures in 2008, at the height of the Great Recession. As can be extrapolated, the spate of closures has grave ramifications for shopping centers across the country as tenants are forced to vacate their lease. On the other hand, business has never been better for some. As we’ve touched upon on the blog, shopping malls with a grade of A+ and A++ represent a whopping 44% of the market share, despite consisting of only 10% of properties. Developers like Westfield Corporation, a longtime client of ours, has invested billions of dollars to build out and revamp their properties-and to great success. Westfield World Trade Center, anyone? Similarly, next generation retailers like BlueMercury are expanding at a current rate that is reminiscent of earlier times. What does this mean for the industry? Well, it’s a dog-eat-dog world out there and the competition has just gotten tougher. According to Robert Taubman, “three studies suggest that 200 to 300 assets represent 75 to 80 percent of the entire sector. I could easily see the top 300 malls 10 years from now representing 90 percent.”²
2. Be Fast & Nimble
Call it the new world order. Gone are the days of big-box stores and 10-year leases. The new retail landscape is built upon a smaller footprint and short-term leases. In this economy, the pop-up reigns supreme–and it’s easy to see why. Brands can rely on a temporary pop-up shop to gauge customer interest and build hype, while monetizing on a physical retail space without the costs associated with a more permanent build-out. Moreover, beyond the individual storefront, shopping centers are restructuring their units by redemising large units, once home to department stores, into smaller ones. A case in point is Seritage Growth Properties’ strategy to capitalize upon former Sears locations through redevelopment. The property is divided for tenants with smaller footprints, with Sears staking out a portion of their former digs as needed, while new tenants breath a mix of fresh air into the center.
3. Diversify, Diversify, Diversity
Yes, it’s true, millennials (and everyone else for that matter) are looking for experiences. With omnichannel losing steam and the big payoffs of tech investment seemingly immaterial, the key to experiential retail for shopping center developers is not so much to wow, but to go bold with the tenant roster. In a climate with apparel sales stagnant or down, consumers aren’t just looking for new threads, but rather a broad range of services. In a perfect confluence of forces, the qualities most prized by the current demographic–amenities, convenience and interconnectivity–are those touted by developers as they seek to fill vacant space with grocery stores, restaurants and bars, fitness centers, movie theaters and even apartment complexes. Mixed-use has never been more in.
4. Do or Dine
As we identified in the item above, apparel is no longer the big ticket item for commercial developers. While it may be entirely hyperbolic and premature to announce the imminent demise of department stores, the truth is that the industry has identified a new anchor, the elevated dining hall. No longer quite simply a “food court,” today’s version can only be described by buzzwords: gourmet, farm-to-table, fresh, sustainable, authentic and diverse. Head to any of the A+ and A++ shopping malls and the main attraction isn’t the Saks, but rather dining halls like Urban Space, marketplaces such as Eataly, or elevated and/or hard-to-come-by restaurants such as Din Tai Fung. Eat your heart out, America.
5. The Death of Retail? Not Quite.
Our last takeaway? Brick and mortar retail isn’t going anywhere. Yes, physical stores have been closing at an alarming rate and yes, e-commerce (especially Amazon) has fundamentally changed the way that we shop. However, at the end of the day, there is a tactility and physicality to shopping in person that can’t be experienced otherwise. Even (once-) pure e-commerce players are getting in on the action, with a diverse subsection–Farfetch, Bonobos, Everlane, M. Gemi and Warby Parker, etc.–opening pop-ups, showrooms or flagships across the country. Physical retail is going extinct, it’s just changing with the times.
¹ Edelson, Sharon. “Shopping Centers: Adaptation of the Fittest.” WWD, May 22, 2017.
² Edelson, Sharon. “ReCon: Challenges, Perceptions and Expectations in Las Vegas.” WWD, May 31, 2017.