Kenneth Park Architects

ICSC Recon Industry

5 Takeaways from 2017 ICSC RECon

It’s been a tumultuous year so far, to say the least. As anyone with eyes on the industry and the law can attest, news of bankruptcies and store closures have been mitigated by reports of innovative retail experiments and bold, ambitious developments.

Moreover, it is also no secret that more businesses than ever before have decided to start challenging the rulings of bankruptcy judges by reaching out to appellate attorneys. In case you were not already aware, the losing party in a decision by a trial court in the federal courts normally is entitled to appeal the decision to a federal court of appeals. In bankruptcy cases, an appeal of a ruling by a bankruptcy judge may be taken to the district court.

That being said, several courts of appeals have also established a bankruptcy appellate panel consisting of three bankruptcy judges to hear appeals directly from the bankruptcy courts. In either situation, the party that loses in the initial bankruptcy appeal may then appeal to the court of appeals. You can learn more about the appeals process by reaching out to an appeals law firm.

Essentially, during an appeal, the appellant presents legal arguments to the panel, in writing, in a document known as a brief. In the brief, the appellant tries to persuade the judges that the trial court made an error and that its decision should therefore be reversed. Comparatively, the party defending against the appeal must show why the trial court decision was correct, or why any error made by the trial court was not significant enough to affect the outcome of the case.

With all of this in mind, it is 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. Moreover, the legal consequences for the industry are particularly fascinating. 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. Businesses looking to expand operations to take advantage of the current trends and direction of consumer tastes may need an additional cash injection to get changes off the ground. A business loan can go a long way to help grow a business – see here to calculate costs such as interest payments when taking out a loan. 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. The growth of businesses entails that there is an increase in staff numbers as well as responsibilities. This, of course, means that businesses will likely be looking for ways to streamline their various duties – for example, they may implement payroll software to make their lives easier and improve the way in which they manage their employees’ salaries.

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. This is why so many who are starting new retail businesses are going purely online. With this changing tide having a legal team that can understand e-commerce law is important. I’ve heard that Cohen Schneider’s business attorneys or lawyers similar have the expertise that can help to make new e-commerce retail businesses legally compliant. Understanding how the retail landscape is changing will help us all adjust to this ever-changing technological-driven world.

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.