Shopping Center Business

MAY 2016

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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VALUE CREATION 226 • SHOPPING CENTER BUSINESS • May 2016 I n light of retail industry disruption and demographic shifts, implement- ing a viable tenant mix in urban retail properties has become a moving target now more than before. The critical piece to solving the merchandise mix puzzle involves shifting focus from not only selling and distributing products but to also providing experiences. As such, ex- perience has become the key value driver and determinant of success for urban re- tail properties. Retailers are evolving to meet changing consumer patterns driven by e-commerce, smartphones and the demographic shift led by the millennial and baby boomer generations. It is critical for brick-and- mortar retail to play an internet-resistant role to promote and foster experiential human interaction. From our work with institutional inves- tors and developers in Los Angeles and San Diego, we have developed strategic considerations to identify, understand and address trends in this new experien- tial world of retail. We can draw upon lessons learned from acquiring and pro- gramming urban retail properties and mixed-use developments. MULTI-GENERATIONAL DEMAND FOR EXPERIENCE The retail industry has been working to attract, engage and retain millennial shoppers by focusing on location, shop- ping experience and connectivity. As the 18-hour live-work-play lifestyle becomes mainstream in major metros throughout the country, millennials want to get out- side of their residences and away from their workstations to spend time in social gathering areas. Their elder counterparts are no different in preferring places that are entertaining, walkable and connected. This was evident in a recent acquisition of a retail complex in Downtown Santa Monica, where 85 percent of the tenants provided dining experiences that includ- ed a mix of fast casual, sit-down, gourmet market and coffee that served the entire demographic age spectrum. RETAILER EXPERIENCE PER SQUARE FOOT Tenant sales per square foot no longer provide the entire story of a retail store's health and performance. In his book "The Retail Revival," retail futurist Doug Stephens introduces the term "experience per square foot" to measure store health and productivity in lieu of sales from the retailer's standpoint. This is because stores are increasingly becoming physical channels for experiencing the brand, mer- chandise or food offering in addition to accessing products that can be purchased online. In contrast, as real estate practitioners we employ sales per square foot as the most tangible and quantifiable metric for tenant performance. The better term may be "property experi- ence per square foot" to assess retail prop- erty performance and positioning together with sales. MEASURING PROPERTY EXPERIENCE PER SQUARE FOOT Take a look at the allocation of non- food to food and lifestyle-oriented mer- chandisers in your centers. Compare them to retailers that engage shoppers in physical sampling such as Trunk Club, Bonobos and REI or retailers who lever- age social interaction such as Tom's and Lululemon. Are your retailer experiences support- ing and ideally driving customer traffic and sales? Is this experiential offering syn- ergistic with the other retail tenants? This metric qualitatively evaluates prospective tenants by asking, what is the experiential offering and is it working with customers? What is the retailer's brand story and does it effectively drive sales both in the store and online? MAKING EXPERIENCE WORK For retail property owners and develop- ers, it is critical to ensure the physical space and location can be coupled with an expe- riential merchandise, food or lifestyle of- fering. Here are some recommendations: The Brand Story on Social Media. Social media can be leveraged to gain deeper understanding of the customer mindset and preferences for a given re- tailer. Instagram, Facebook, Twitter and, increasingly, Snapchat provide useful in- sights into a retailer's brand story, and merchandise offering. Social media can also help to source new e-tailers and track their product offerings and social media Road To Retail Value Creation Is Experience Experience is playing into creating a great tenant mix, and a strong project. Babak Ziai Ziai As the 18-hour live-work-play lifestyle becomes mainstream in major metros throughout the country, millennials want to get outside of their residences and away from their workstations to spend time in social gathering areas. Their elder counterparts are no different in preferring places that are entertaining, walkable and connected.

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