Western Real Estate Business

OCT 2016

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

Issue link: https://westernrealestatebusiness.epubxp.com/i/732258

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Page 48 of 50

46 • October 2016 • Western Real Estate Business www.REBusinessOnline.com "It's 'curated retail,' which is really just the old way of noting when retail- ers used to actually bother connect- ing with consumers," he continued. "That's what the new brands of retail- ers are doing really well. Millennials aren't responding to the same win- dowfronts done in 1,000 stores that look the same from Portland, Oregon, to Portland, Maine. If you throw un- limited, frozen appetizers that were heated up on a plate in front of a bunch of Millennials, they aren't go- ing to eat it." Dana Telsey, CEO of Telsey Advi- sory Group and the conference's key- note, also pointed toward this trend as a way for retailers to stand out, espe- cially when it came to Millennials. "Millennials are growing in num- bers, dollars and significance," she said. "That is overall the group and demographic that needs to be focused on. Retailers today that can capture the Millennial dollars will, over time, see that this demographic will soon have spending power of more than $1 trillion." Outside of the ever-popular food category, Telsey believed specialty ap- parel and activewear were two of the fastest-growing areas within retail, particularly when it came to apparel. She attributed their success to, among other things, a strong omnichannel presence, an efficient supply chain and the ability to understand Mil- lennials — both from a demographic point of view and a data point of view. "We're seeing structural changes in companies," she said. "Companies are learning how to figure out what's new and different to excite and attract the interest of consumers' wallets. They're investing in CRM systems, localiza- tion, regionalization, customization and personalization." Telsey outlined three keys to driv- ing consumer spending. They include promotions put in place by retailers; product innovation, particularly in the activewear and watch sectors; and seamless storefronts where you can pick up items you ordered online in a bricks and mortar store. "Whatever that consumer spent online will increase by 20 percent to 40 percent if you just let them pick it up in a store," she said. "Those dol- lars are real because you're enticing them with new merchandise, offering them a speedy checkout process and allowing them to visit more channels [within the omnichannel experience], ultimately resulting in more dollars spent." Telsey was particularly bullish on both tried-and-true labels that were expanding their brand offerings, as well as international retailers who bring what she calls "specialness" to the U.S. retail landscape. She pointed to high-end houses like Tory Burch, Burberry and Chanel, who have all entered the activewear or athleisure markets. Irish clothing store Primark also received special attention, as did Tesla, which opened an electric car boutique inside the men's section of Nordstrom at the Grove in Los Ange- les. "Who would've ever though the words 'new' and 'department store' would go in the same sentence?" she asked. "When we think about depart- ment stores, those overseas have a lot of categories. Our department stores became infiltrated with apparel in the '80s and '90s, but now we're seeing diversity and department stores are beginning to put in other categories." Make It Better, Make It Right Department stores aren't the only ones reinventing themselves to stay relevant. Drugstores, dollar stores, quick-service restaurants and even ur- gent care clinics are overhauling their formats to fit the locations, design schemes and offerings most consum- ers enjoy nowadays. Patrick Wood, president of Wood Investments and a fellow panelist, noted there was one unique attribute he saw many retailers clamoring to capture before they disappear — in California, at least. "We all know a drive-thru equals convenience," he said. "I don't know if it's a California thing because we love our cars, but if you look at Bev- erly Hills, Malibu, Laguna Beach and Newport Beach, they've gotten rid of drive-thrus. California will eventually follow suit because of environmental regulations, so if you can get one, get one." Wood noted the drive-thru concept was popular with everyone from Wal- greens to Starbucks and even small, localized chains like Miguel's Jr. in Or- ange County and the Inland Empire. Panelists agreed the "recession- proof" nature of the drugstore busi- ness made this industry a good bet, though one that may face stiff investor competition and some unpredictabil- ity due to the potential Walgreens-Rite Aid merger and impending store sell- off. Dollar Stores were also a source of concern in terms of oversaturation, with panelists cautioning that some landlords may get stuck holding these boxes if this niche continues expand- ing the way it is. While these two cat- egories may not offer too many value- add opportunities, panelists believed urgent care clinics may be the new tenant of choice, particularly when it comes to the latest wave of store clo- sures. "We've done a number of urgent care conversions that involved an old Hollywood Video or Blockbuster video," said fellow panelist Michael Kaplan, COO of Barry Slatt Mortgage. "What we're seeing is a really high buildout and well-located assets are where medical tenants are focusing. They're not just getting a concrete block, they're getting a nice build- out, more of a package than what you would traditionally see. We like them from a quality of construction point of view." Kaplan also likes these tenants be- cause many urgent care centers have aligned themselves with credit hospi- tals like Baylor Health Care System, Cedars-Sinai Medical Center and UCLA. "That really adds value," he said. "They're low cap rates but, for a land- lord, you have investment-grade, A-rating backed tenants coming into these spaces." If all this talk of department stores, quick-service chains, global drug- stores and nationwide hospital sys- tems seems to take away from the "authentic" experience Millennials are craving, Tom McGee, president and CEO of ICSC, believed this isn't so. McGee noted that almost 50 percent of neighborhood shopping centers are occupied by locally owned business- es. He further noted that although the omnichannel approach and current reliance on technology is important to capturing consumers, ecommerce is not a humungous threat to those who internalize the new retail reality and adapt authentically. "Amazon represents 1.4 percent of U.S. retail sales," he cited. "Yes, it's a big deal, but it's not taking over the world. Walmart represents 7.5 per- cent. Costco has 1.8 percent and no one says Costco is taking over the world." McGee believed an adaption toward urban density — the all-in-one-place concept of living where you work and shop — could bolster retailers both big and small. The same could be said about the relationship between bricks and mortar and technology. Rather than fighting City Hall and making the customer come to you or buy what you sell, McGee envisioned the next era as being one where the customer is definitely king. "We can't dispute there are changes happening that impact our industry," he said. "Tech is having a huge im- pact but it's not bricks versus clicks, it's really bricks and clicks. One thing tech has done is raise the ante. We all expect tailoring and customization. We have an expectation that things are instantaneous. We have to look at demographics like Millennials and Baby Boomers — both of whom look at society slightly differently — and this industry has to figure out a way to serve both effectively." n ICSC WESTERN CONFERENCE: THE NAME OF THE NEW RETAIL GAME IS 'AUTHENTICITY' ICSC from page 1 Dana Telsey, CEO of Telsey Advisory Group and the conference's keynote, stated that Millennials are growing in "numbers, dollars and significance," and that, therefore, retailers should take note. Net Lease panelists included (L – R) Patrick Wood, president of Wood Investments; Joel Tomlinson, senior vice president of acquisitions at Realty Income Corp.; Michael Kaplan, COO of Barry Slatt Mortgage; Scott Campbell, associate director of Calkain Companies; Garrick Brown vice president of retail research for the Americas at Cushman & Wakefield; and moderator Matthew K. McNeill, vice president of Cushman & Wakefield.

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