Shopping Center Business

MAY 2018

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

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RETAIL TRENDS 136 • SHOPPING CENTER BUSINESS • May 2018 W hen it comes to retail trends, few in the retail real estate in- dustry have their finger more on the pulse than Melina Cordero, head of retail research for CBRE. Cordero works with clients on both sides of the retailer and owner table, and works close- ly with CBRE's retail agents to study shifts among consumer demographics, changes in buying behavior, tenant site locations and other factors affecting retail real es- tate. Much of her time has been spent over the past few years studying the shift to omni-channel retailing and its affect on real estate. SCB recently caught up with Cordero to discuss what she is seeing in the market ahead of ICSC's RECon this month. SCB : What are the most notable trends you're seeing now that 2018 is well underway? CORDERO : There was definitely a more positive start to 2018 than 2017. That much is clear. 2017 was pretty dark in terms of headlines, fears and concerns about the whole sector. But a positive turnaround happened at the end of the year. That's partly what we saw through the holiday sales. Retail sales were up substantially in Q4. And 2018 has start- ed off very well. I think what we saw in 2017 was a bit of a culling of a lot of the retailers that just didn't have the financial and operational structure to compete in this new omni-channel environment. Those who made it through the hardest tests in 2017 are pushing forward. We will continue to see retailers invest in the omni-channel platforms, particularly via technology. This could be technology that is customer-facing, such as mobile apps and technologies in-store. But it also could be investment in technologies we don't see. Things that help with oper- ational efficiencies, supply chain manage- ment — there's a lot investment going on there because that's where the profits are going to be protected. Omni-channel's very expensive. The retailers that are able to push forward are having to make a lot of adjustments in their cost structures and operating models to survive. SCB : What else will retailers need to in- vest in? CORDERO : We're going to start seeing big retailers investing in their store formats. We'll see more rollouts of new store con- cepts and store format updates. There's a lot of investment on the part of retailers to be committed to the new environment. It's retail 2.0. SCB : What is driving them to recreate their stores? CORDERO : The whole retail environment is changing. Fundamentally changing. Omni-channel has created choice for consumers. Ten or 15 years ago, when we wanted to buy something, we had to go to the store. We didn't have a choice. The fact that we now have a choice changes the retailer's strategy. It means you can't let the retailer rely on customer needs to come to your store. You've got to now convince the consumer that coming to the store, making that drive, parking the car, spending the time is worth the effort. That's why we're seeing a lot of invest- ment in the physical stores, where you really need to create an experience for a customer that makes it worth their while to come in. It gives them something above and beyond what they would get by going to the website. When I say 'customer expe- rience,' I think a lot of times people think o v e r - t h e - t o p , p o m p - a n d - c i r - c u m s t a n c e , s h o w r o o m i n g — it's not nec- essarily that. Sometimes it's just really focus- ing on things like customer service, speedy checkouts and better training for store asso- ciates. All those little elements that create an experience that's pleasant to the consumer, that's what retailers today have to focus on. SCB : What are your clients asking you to investigate for them as the new trends? CORDERO : Food has been a trend that's been around for at least the past two years. Shopping centers have to shift their focus away from apparel and soft goods — which make up about 35 percent or more of a typical mall's GLA — toward the types of tenants that generate foot traffic. Ap- parel is one of those categories that a lot of people are buying online. But a catego- ry like food, services or gyms, those are not easily replaced online. Mall owners and landlords have to shift the tradition- al mall model from 75 percent soft goods and maybe 4 percent food to tenants that offer something that can't be replaced on- line. Food will continue to be an answer for that. SCB : What are the limits and challenges there? CORDERO : You can't have a 1 million- square-foot shopping center that's all Retailers Focus On Omni-Channeling CBRE's Melina Cordero provides insight into the trends affecting retail real estate in 2018. Interview by Randall Shearin Melina Cordero Head of Retail Research CBRE

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