18 JUN 2018
Some say it’s the era of retail apocalypse as some of the United States’ most prominent retailers are shuttering stores and out of the 1,200 malls across the country, just 50% are expected to be in business by 2023. Some say it’s the era of Digitally Native Vertical Brands (DNVBs) whose rapid expansion meant the number of store openings versus closures were actually up in 2017.
One thing is for sure, retail is a large and growing market with $5.1 trillion retail sales in 2017 with $650 million incremental U.S. annual retail sales estimated by 2021. Constant change in this market is inevitable.
In May, ICSC organized REcon, the world's largest global gathering of retail real estate professionals with 37 thousand industry professionals and 1,250 exhibitors participating in an exchange of ideas and glimpse into the future of retail.
There were several excellent panel discussions that delved deeply to understand both the drivers and the impact of the change. The key drivers are demographics, technology and purchase patterns.
The population of the US is expected to reach 360 million by 2030 with 61 percent of the population born after 1981 (Millenials, GenZ, AlphaGen). Urbanization will keep playing a significant role in shaping the landscape resulting in bigger and denser cities.
Technology has accelerated communication on all levels - consumers see more of what's available and that makes it easier for them to compare brands.
As consumers spend more time online, their purchasing behavior shift to the online portals, and fundamentally tomorrow’s customer is valuing experiences over products.
A retailer (and/or a retail property owner) will need to adapt to succeed in this new environment. There has to be a focus on authenticity both in its space and services. We’re seeing a shift from mass production to mass customization and the physical store locations are often morphing into temples of brandhood. The key is access over ownership. Success is driven by the companies’ ability to engage and differentiate itself in an Omnichannel world. According to A.T. Kearney, convenience will fuel the growth of e-commerce sales propelling it to nearly $1.5 trillion by 2030 (from 11 percent of total sales to 32 percent of total sales).
With that in mind, the main theme of the conference was what we call “experiential retail.” Owners and retailers will need to work on bringing the stores to life, providing in-store experiences (such as the Augmented Reality experience at the new Starbucks in Shanghai or the new Hema grocery store concept by Alibaba).
Today, 66 percent of the mall visitors state that the food and beverage experience is important when choosing a mall so no surprise that ICSC predicts the area dedicated to F&B in a mall will increase from nine percent to 20 percent by 2025.
Michael Brown, Partner at A.T. Kearney, provided some advice for property owners. He suggested they identify the unique traffic driving capabilities of the property and amplify them, develop digital and data strategies, engage customers directly to build a lasting relationship and develop win/win leasing strategies.
We’re living in era where successful properties will shift from being traditional retail real estate spaces to consumer engagement spaces. Consumer engagement spaces give priority to mixed-used schemes and the primarily focus is on consumer engagement. The virtual and the real will seamlessly fuse and the role of technology will be to connect buyers, sellers and places.
Dr. Robert Herman MRICS, co-founder and CEO of REscan Inc. and RICS Northern California Chapter committee member