Retail Resilience: Adaptation Nation

  • December 15, 2019 at 5:03 PM EST
  • By Eric Rapkin, Jerry Reichelscheimer and Theresa McLaughlin, Akerman
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Constant connectivity and convenient consumption have transformed not only how we shop, but why we shop with certain retailers. Our wants and needs and how we fulfill them are now part of a larger consumer conversation to be shared. As humans, we have adapted to new modes of digital discourse with every click, swipe and post, naturally selecting the sellers and makers delivering more instantaneous gratification. Many traditional retailers slow to respond to these changes have seen their market share slip away to online competitors.

In the last two years, retailers have closed more than 250 million square feet of store space and more than 7,500 stores are expected to shutter before the end of 2019. Even brick-and-mortar juggernauts are contracting and scrambling to reorganize and reposition in an effort to survive. S&P analysts state that about 12 of the approximately 136 retailers it rates would default this year, compared with only three defaults a year historically.

The widespread closing of apparel chains and anchor department stores is causing landlords to rethink their tenant mix and to bring in tenants that will generate foot traffic to maintain a healthy ecosystem. Previously shunned by mall landlords, gyms and high-end movie theaters are now welcomed to the party. Restaurants with celebrity chefs are highly sought after to draw in well-heeled customers who will patronize other stores. Carefully curated and themed food halls are reoccupying vacant retail spaces in class-A malls across the country. The trend shows no signs of slowing. A new report by commercial real estate services firm Cushman & Wakefield predicts there will be nearly 450 food halls open across the country by the end of 2020; that’s a jump from 120 in 2016. 

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Necessity Is The Mother Of Reinvention

With this sea of change comes opportunity for both landlords and retailers alike. Healthy consumer spending continues to buoy a delicate U.S. economy and a new wave of young, scrappy and hungry retailers are reinventing the sector with an omnichannel approach that is increasingly personalized and leverages technology to heighten the customer experience. 

A recent study published by the International Council of Shopping Centers (ICSC) explores the halo effect, described as the increase in sales of brick-and-mortar stores after an online purchase at the same retailer and vice versa. When a consumer spends $100 online and visits a physical store within 15 days of that purchase, they spend an additional $131, according to ICSC. This amount increases to an additional $167 from in-store to online. The long-term increase in incremental purchases reinforces the need for retailers to maintain a physical presence to maximize customer engagement and build brand awareness.

Thriving retailers are developing and deepening brand loyalty with customers of all vintages through authentic interactions supported by new tech. New and emerging technologies are helping forward-thinking retailers harness big data to provide customers with more personalized shopping experiences.

Central to why retail is experiencing a renaissance are a cadre of disruptors bringing new tricks to this old dog. Retailers also are leveraging smartphones, storing our habits, shopping interests and browsing histories with every purchase. They give highly accurate location data without compromising personally identifiable information (PII) and allow fluid integration with the systems designed to gather and process data. With smartphones, retailers can better understand their customers while they are in the store without stepping on their privacy.

Facial recognition software, another retail-tech enhancement, delivers in-store ads that are targeted to customers as they shop. Opt-in apps track the shopper’s buying journey while in the store so that retailers can harvest data and personalize marketing campaigns based on consumer habits. Brands can now see how many shoppers interact with their products, for how long, and how this compares to the competition on display. This data collection has the potential to reshape everything from in-store organization to vast, omnichannel innovation, creating ripple effects across both the retail and industrial sectors and impacting everything from supply chain management to manufacturing automation. 

The hybridization of the retail experience also involves a core change in how projects are being developed. Retail shopping centers can no longer be limited to retail and dining venues but must expand to include uses that catch the eyes and interest of both Millennials (Gen Y) and Centennials (Gen Z). The younger generations, like earlier generations before them, want to gather in a “town square.” A generation ago it was the retail mall. Today that mall needs to not only include retail, but also entertainment venues and basic life services. We are seeing a shift where now someone wants to buy a pair of sneakers, get something to eat, go to the gym, visit a dentist and go to an entertainment venue all in the same place and during one trip.

A prime example of this transformation is the American Dream Meadowlands center in northern New Jersey which is opening in different stages, starting with the first two in October and December. Previously identified as the retail shopping center “Xanadu” that ran into financial problems at the start of the Great Recession, the unopened center floundered until it was acquired by Triple Five Group. It contains a theme park and a water park, in addition to the yet-to-open retail tenants.

Similarly, Akerman recently negotiated new leases for a retail center on the Manhattan/Bronx border which expanded the uses of the shopping center from primarily retail to include dental and eyeglass services and a managed care operation. Where we go from here depends on what future generations will be looking for.

Culture Of Connectivity   

Our desire for personal connectivity also is changing the way we work and live. One growing national trend disrupting both the retail and office sectors is the rise of co-working spaces. The conversion of malls and other vacant buildings into shared- as well as whole-company office space is breathing new life into failing retail environments.

Co-working companies like WeWork continue to expand across the country, creating instant networking hubs and much-needed foot traffic for stores and restaurants left vulnerable by big-box closures. The highest concentration of co-working spaces in retail nationally is in malls, according to a recent study by Jones Lang LaSalle. The same study predicted that co-working space in retail would grow at an annual rate of 25% through 2023.

In Los Angeles, Google is once again reimagining the workplace by leasing the once-dying Westside Pavilion mall, which will be redeveloped into a 584,000 square-foot first-of-its-kind conversion from shopping mall to creative office space. The project is slated for completion in 2022 and could serve as a model for other investors and developers looking to revitalize their retail portfolios.

In addition to connectivity, convenience and efficiency also are driving the need for people to live, work, shop and play within close proximity. Mixed-use developers are responding to this need by building amenity-filled condominium, loft and apartment residential communities to include office, retail and entertainment spaces.

We are an adaptation nation. Embracing change to remain relevant will continue to be the mantra of savvy business owners and managers.

Eric Rapkin is chair of Akerman’s national real estate practice group. He can be reached at eric.rapkin@akerman.com. Jerry Reichelscheimer is chair of Akerman’s retail leasing and development practice. He can be reached at jerry.reich@akerman.com. Theresa McLaughlin is retail real estate partner at Akerman. She can be reached at theresa.mclaughlin@akerman.com.

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