Brick and mortar is far from dead. Shopping, not just showrooming, continues to be brisk in actual stores. Malls keep drawing visitors from opening to close. But this is generally true only where changes have been made to match management strategies to e-commerce-prompted revolutions in customer behavior. Retail that succeeds is shaped by technology that gathers consumer intelligence and illuminates viable options, and is implemented in innovative solutions.
Traditional foundations have shifted
While e-commerce is capturing a sizable share of total sales, contrary to reasonable fears it is not squeezing retail space out of existence. It is instead prompting shopping and spending habits that can be satisfied by a judicious mix of physical and virtual.
Store remain desirable
Most sales still take place in stores. An omnichannel strategy — a strong store presence and an online arm — is working for many retailers. Mutual support is vital, according to Calvin Schnure, senior vice president of Research Economic Analyst for the National Association of Real Estate Investment Trusts. Online sales suffer, he says, when retailers respond to rising ecommerce activity by shuttering the store to focus exclusively on the Web. Utilizing both brick and mortar and the Web allows the purchase process to begin at either site.Malls are going strong
Some retailers have scaled back their mall space but are still viable renters. And when a larger tenant such as a department store does move out, multiple smaller tenants can replace it, often at a higher rate than the long-held lease. An additional benefit is a growing visitor preference for experiences over simply heading to a department store. Adjusting to different motivations for visiting and what constitutes an anchor, malls are reconfiguring, e.g, adding fitness centeres as anchors. REITs-owned retail occupancy, says Schnure, is at a record high.
The outlook is brighter than some perceptions, which include one-fifth of real estate industry executives perceiving vacancies at record highs, according to a recent Grant Thornton poll.
But in fact, vacancy rates are at their lowest since before 2010.
And rents did indeed fall from a high point in 2016, but recent growth has been positive.
In addition, same-store net operating income has been growing at a 31⁄2 to 4% rate for the past five years.
Technology informs and enables responsive shifts The Minneapolis Mall of America has mirrored evolutions in customer preferences throughout its 25 years, beginning with the massive amusement park literally at its center. According to the July 2017 issue of Mpls.St.Paul Magazine, currently the mall devotes 30% of its space to entertainment; the future vision is to reach a 50-50 retail-entertainment mix. Already in place are an aquarium with a snorkeling area, a flight simulation aerial tour of the country, a sports and virtual reality center, an “escape room” where teams have an hour to solve the mystery route to an exit, and more than 400 annual events — some including celebrity appearances.
Americans continue to shop both physically and virtually, but they are increasingly interested in experiences. While millennials are credited with leading in this shift, the wider population is moving along, too. “Millennials are proving to be cultural trailblazers for older and newer generations,” said Advertising Age. In sync with this trend, malls are learning the value of offerings beyond department stores, shops and restaurants. EPR Properties, a Kansas City, Mo.-based real estate investment trust specializing in entertainment, recreation and education, is working from this premise. “You want people to say, ‘I don’t know what we want to do tonight, but we can find it there,’” said CEO Gregory Silvers in the Chicago Tribune. What they’ll find in 2019 at the Mall of America’s nearby neighbor Southdale Center is a fitness club in place of anchor J.C. Penney. According to the Star Tribune, Lifetime Fitness CEO Bahram Akradi expects the workout and medical-wellness to more than satisfy mall visitors: “We want to create a more environmentally friendly spot where there’s less driving to the club,” he said. “It can be a place where you can do services and shopping designed to save time, fuel and the planet.”
Sophisticated tech systems allow retail real estate leadership to collect information and draw insights about the performance of buildings in their portfolios. The analytics can provide understanding for optimizing use of space. These data-driven insights can cement the relationship with tenants and support the case for higher rents; capture valuable data, such as foot traffic, for reconfiguration; improve operations and energy use; and help direct marketing efforts including social media. Tech-enabled insights can guide decision-making about events and delivery services.
Technology is supporting a physical presence and powering retail’s forward movements. Four tech architectures
give structure to appropriating retail’s future-focused potential:
Digitization and analytics
– Overall, technology transforms retail business models and processes, and informs marketing approaches, customer engagement, and consideration of new and blended products and services.
– This growing form of business model engages customers in a community defined by needs and expectation, e.g., millennials who prefer minimal shopping time. A platform allows a focus on shopping demographics in order to continuously evaluate product and services preferences, and prioritize investments and activities to monetize target communities.
– The networking capability of the internet of things makes it possible to collect data from devices embedded with sensors and electronics in order to manage security, energy usage, facility monitoring, outside logistics and transportation, and supply chain asset tracking.
– This technology delivers unprecedented security and efficiency for transaction transparency and cost reduction, maximizing accuracy and minimizing opportunities for fraud in the supply chain, as well as purchasing in-store and online.
To stay ahead of customer movement through the digital age, retail real estate leaders need to be flexible, adaptive and tech-savvy. They must drive innovation in their organizations, partnering with technology experts to create smart building infrastructures and connected systems for a future of growth.
Leader, Real Estate Sector
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