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Where Is Retail Real Estate in the Cycle?

Dec 13, 2019

The Baruch College Zicklin School of Business recently hosted the 3rd Annual Baruch/ICSC Joint Conference on retail real estate and the future of the industry. The discussions focused on one key question: Is retail real estate a dying industry?

The morning started off with an industry overview by Leslie M. Fox, Senior Vice President of Membership & Strategy of the International Council of Shopping Center (ICSC). Although in early 2019 many thought we were headed toward a retail apocalypse, statistics gathered from an ICSC study show that pure online retail currently made up only 6% of retail purchases, confirming that the retail disaster many industry experts once predicted was not on the horizon. Instead, we are in the phase of a “retail renaissance.” Brands are reinventing their businesses and shifting away from traditional product displays to create innovative store experiences in order to adapt to new market and consumer behaviors. Leslie presented research from the study showing that consumers, and more specifically millennials, are spending more of their money on health and wellness, as well as food and beverage. Millennials placed more importance on experiences rather than material items; they would rather visit a new restaurant with friends and family than purchase of a new pair of shoes.

Daniel B. Hurwitz, Chair of ICSC and Founder & CEO of Raider Hill Advisors, in a fireside chat with Edmund Mander, Editor-in-Chief from Shopping Centers Today, suggested that positive and tangible consumer experiences lead to higher levels of brand loyalty. This poses a challenge for online retailers who do not have physical stores that allow a direct connection with consumers. Because of this disconnect, digital brands such as Warby Parker have been opening physical stores to complement their online brand. The ICSC study showed evidence that physical retail stores actually increase traffic to a retailer’s website. Hurwitz stressed the importance of merchants being nimble and staying in touch with local consumers in order to effectively incentivize shopping.

The morning continued with a panel discussion titled: “Where Is Retail Real Estate in the Cycle?” to dive deeper into the concept of a retail renaissance with a focus on open-air shopping centers. The panel was moderated by James M. Taylor Jr., CEO and President of Brixmor Property Group, and included the following panelists who are at the forefront of retail: Andrea Drasites, Managing Director of The Blackstone Group; Conor Flynn, CEO of Kimco Realty Co.; Benjamin Schall, President and CEO of Seritage Growth Properties; and Joseph Tichar, President and COO of Raider Hill Advisors.

Flynn discussed the need for shopping centers to focus on top consumer demands, which are value and convenience. Shopping centers should be easily accessible so that consumers do not need to go out of their way to shop. Drasites commented on creating routines for consumers to become repeat shoppers, as well as offering a proper mix of stores to drive more traffic. One example cited showed the success of placing a grocery store next to a TJ Maxx and coffee shop in a location near the highway. Taylor added that there needs to be better shopping centers, not necessarily more shopping centers, alluding to a retail renaissance and leasing spaces to brands that provide more attractive consumer experiences.

Flynn was able to affirm and expanded on reinvesting and making retail more valuable. Drasites noted that New York’s Kips Bay neighborhood was a great example of reinvesting. The area was once considered less valuable and was filled with NYU students. The key to attracting consumers beyond local students was bringing in a Target. The new Target was able to increase value and consumer spending, while increasing demand to reside in the area. Flynn also discussed one of Kimco’s strategies to add value to marginal empty spaces in its shopping centers: Increase shopping at the existing stores in the center. Kimco allows select entrepreneurs to use one of their empty stores rent free for a couple of years to test out their idea in hopes that it will take off and the entrepreneur will rent one of Kimco’s spaces in the future. However, even if the idea does ultimately not take off, putting a new local brand in the area will create a sense of curiosity among consumers, driving them to come visit the shopping center.

The panel ended with Taylor asking the panelists about the use of data in their businesses. Panelists heavily rely on data to make decisions on new deals, to measure returns, and as a leasing tool to tell a story to a potential retailer who may sign a lease in the center (i.e., here are the consumers in the area and here is how they can benefit fit the company and its revenues).

The conference and its speakers provided the audience with informative perspectives on where retail real estate is heading as it continues to evolve.

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