Shopping Center Business

MAY 2018

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

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RETAILING 262 • SHOPPING CENTER BUSINESS • May 2018 D espite the hyperbolic head- line-grabbing hysteria ringing the death knell of stores, the retail in- dustry is very much alive. For as long as mankind breathes, we will need supplies. Humans are hardwired to shop. Consum- erism, as examined through the periscope of history, is really just an elevated form of our pre-civilization survival skills of hunt- ing and gathering. We collect, we acquire, we devour, we display. Understanding how we shop today re- quires reflecting on how we have shopped during other times in history; Only then can we begin to properly envision the shopping of tomorrow. In this context, it becomes clear that mankind will forever shop — shop until we drop, in this literal sense of the word. Rather than contrib- uting to the free fall of retail and helping perpetuate those misconceptions, per- haps we should pause and examine the evolution of retail to help preserve its future viability. IN THE BEGINNING Contrary to what an alien landing on our planet today might think, shopping centers are not part of the earth's crust. They grew over time. Historically, retail was limited to a set physical location. Ever been to Pompeii? Or the archeological Roman bazaar ruins in Jerusalem? There you see gathering and bartering places where our ancestors exchanged stories and goods. We left our homes — be they caves or rudimentary huts at the time — to meet up with others: to find love, source food, gain knowledge, and trade goods. For thousands of years, long before the modern mall was manufactured or credit cards invented, and eons before currency was systematized or transportation effi- ciencies made the entire world accessible, we walked and rode camels and found what we needed and exchanged what we had for what we desired. And all of our transactions occurred at a specific phys- ical place. Out-of-store retail was first introduced with catalog sales in the late 1800s when Sears, Roebuck and Company issued its inaugural catalog. And for the next 100 years, retail was transacted either at a spe- cific store or through a catalog sale, with an order placed by mail, or later by tele- phone. In the early 1990s, with the advent of safe encryption of credit card numbers, early experimental online sales began to take root. The launch of Amazon.com in 1994 completed the stage for the dramat- ic revolution that has drastically changed — and continues to change — the way we shop today. And shopping went from be- ing place-driven to space-driven: We can now shop anywhere and everywhere. E-COMMERCE, NOW AND THEN As e-commerce took on life, the retail real estate, legal and brokerage communi- ties were initially concerned with how this would impact existing business models. With rent valuations traditionally based on sales origination, and calculation of gross sales and percentage rents to land- lords, how would online sales change this structure? Early confusion quickly quiet- ed down: The volume of online transac- tions was not enough to be transforma- tive. E-commerce was somewhat limited to books and music, and other tangible goods, that were easily acquired at a desk- top computer. The traditional shopping patterns stuck, with online just another venue to purchase certain categories of goods. Until those patterns didn't stick any- more. The confluence of a drastic reces- sion, and a rising young, technologically savvy demographic all combined to sig- nificantly mod- ify shopping behavior. First, the creation of the iPhone in 2007 was the cata- lyst for rapidly advancing mo- bile technology, and it quickly opened chan- nels for smarter, faster, targeted, and interactive e-tail. Then, the global economic meltdown resulted in the shut- tering of thousands of stores, and the re- shaped environment became populated by stronger retailers who used the reces- sion to curate their brands. Thirdly, the emergence of the millennial class (roughly defined then 18 to 35-year-olds) translat- ed to a preference for digital shopping for the instant-gratification generation. The smartphone also aided them with com- paring pricing instantly during struggling economic times. Constituting approxi- mately 25 percent of the U.S. population, this powerful segment has demonstrated that we can shop with our fingers rather than our feet. Clearly, same store sales — the tradi- tional barometer by which Wall Street measures retailers' successes — continue to experience muted growth across all channels. Even luxury players, who were responsible for much of the success of urban retail during the period from 2010 through 2015, have been experiencing setbacks during the past few years. Their struggles have been the result of interna- tional exchange rates favoring the U.S. dollar, stratospheric real estate valuations in New York City and other high-street gateway marketplaces, and more cautious Getting Out Of Our Own Way How landlords, brokers and lawyers can help retailers stay alive. Nina L. Kampler Nina Kampler Kampler Advisory Group

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