Disruption: US Retail in the Age of Amazon - ICSC Chicago Retail Real Estate Program & P3 Program March 22, 2018 Garrick H. Brown Vice President ...
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Disruption: US Retail in the Age of Amazon ICSC Chicago Retail Real Estate Program & P3 Program March 22, 2018 Garrick H. Brown Vice President, Retail Intelligence Garrick.brown@cushwake.com
Amazon Innovations
Recent Patents Issued to Amazon
Amazon Patents
Will Amazon really build flying
warehouses, parachute
delivery systems for drone
package drops or self-defense
systems for drones?
Is it real?
Or just great PR?
Does it matter?
Source: Cushman & Wakefield Research
The Store of Tomorrow?
Welcome to Amazon Go
Cashierless Stores
Amazon Go opened in Seattle
in January 2018, roughly a
year later than originally
planned as engineers worked
out issues in the technology.
BingoBox has been active with
a similar technology in China
for a couple of years now.
Source: Cushman & Wakefield Research
Beacon Technology
It’s only just begun…
Beacon Uses
Indoor Navigation
Proximity Marketing
Automatic Check-in
Cashierless Payment
Tracking Consumer
Movements
Source: Cushman & Wakefield Research
Beacon Technology +
Beacons connected to…
Who You Talkin’ to Dummy?
Iconeme
Mannequin has a beacon
inside. Mannequin (beacon)
detects consumer. Mannequin
notices consumer lingering.
Mannequin sends consumer
details about what he/she is
wearing.
Source: Cushman & Wakefield Research
Automated Pricing/Digital Price Tags
Kroger is testing it NOW.
Who You Talkin’ to Dummy?
Automated Pricing/Digital
Shelf Tags
Algorithms keep retailers
pricing competitive and take
human error out of the
equation.
The shelf tags can be
programmed to update prices
automatically based upon a
pre-determined timeframe.
Source: Cushman & Wakefield Research
Interactive Mirrors
It’s only just begun…
Interactivity
Kiepierre
Inspiration Corridor
Interactive Mirrors
(Body Scanning)
Interactive Fitting Rooms
Body Scanning
MAC Magic Mirror
Uniqlo Magic Mirror
Rebecca Minkoff
Magic Mirror
Source: Cushman & Wakefield Research
Customizable Clothes
Design it yourself, onsite manufacturing…
Customizable Apparel
YRStore app already being
utilized by dozens of retailers
for simple, onsite
customizable clothing.
Consumers create their own
designs onscreen with user-
friendly, touchscreen.
Those designs are then
printed on t-shirts, etc.
Onsite 3-D printing and
textiles are coming.
Source: Cushman & Wakefield Research
Other Visions of the Store of Tomorrow
Eye Pay: Retina Scan or Thumbprint
Futurists Weigh In
Retina or Thumbprint ID
“Husband Pods.” Pods where
you can relax, play video
games, watch television,
connect to the internet, etc.
Diversions for those who hate
shopping. Already in use in
China.
Credit scores based on your
smartphone number. Guess
what? Already in use in China.
Source: Jim Carroll, Doug Stephens, Money Magazine, Cushman & Wakefield Research
The Store of Tomorrow?
“Would you like fries with that? Bleep Blurp Blop
Robots
Automation will increasingly
be a reality for major fast food
chains.
Robots will increasingly be
utilized for the lowest level
customer service interactions
in retail categories.
They are not likely to replace
humans for quite some time in
higher level customer service
interactions.
Source: Techjuice, Cushman & Wakefield ResearchBeacon Technology +
This actually exists today…
Realeyes
How Does it Work?
1. Beacon recognizes
consumer in store.
2. Retrieves shopper history
& likes.
3. Sends shopper text
coupon as they pass near
item.
4. Uses shopper’s mobile
phone to take picture of
shopper as they look at
promotional offer.
5. Facial recognition software
determines if shopper
pleased or not.
6. If not pleased, will send a
different coupon.
Source: Cushman & Wakefield ResearchWhy You Haven’t Seen These Things… Yet
Through November 2017 Convenient or Creepy?
Most of these technologies already
Leading Organizational Barriers to Using Location-Based exist…
Analytics, According to US Retailers (November 2017)
So why haven’t they been
Other omnichannel priorities take this off the table implemented more widely?
Business leadership can't see value of locational Cost
analytics beyond site selection
Other Priorities
Technology seems unproven, don't want to be the first
Fear of Being Creepy
Overreaching concerns about consumer privacy
prevent us from even considering these types of… But they will be part of the retail
landscape…
Need more proof around ROI/business case
Sooner, rather than later…
Business leaders are concerned about the "creepiness"
factor in tracking
Company's profitability model is based on standardized
assortments and store layouts
0% 10% 20% 30% 40% 50% 60% 70%
Source: eMarketer, Cushman & Wakefield ResearchAsk Alexa: 2018 is the Year of Voice
Virtual assistants are listening devices… sort of
Convenience Overcomes Creepy
Virtual assistants are live 24/7
listening devices. All current
systems needs to be activated
by your command (“Hey
Google” before contacting the
cloud. Twenty years ago, how
would you have responded to
the idea of putting a listening
device in your home for the
sake of convenience.
Fun Stuff:
Ask Alexa…
What Gordon Ramsay thinks of your
cooking?
Where Chuck Norris is?
Do you want to go on a date?
What’s the magic word?
Can you give me some money? (ask twice)
Do you have a job?
Say: More cowbell!
Source: Cushman & Wakefield ResearchProceed with Caution
The “personalized” experience could cross the line
Don’t Curate Creepiness
The kinds of data mining that
consumers currently accept on their Enhancing the consumer
computers and devices may be due, experience is critical in the
in large part, due to a lack of newCommerce Age...
awareness or simply different
situational norms for cyberspace. There are easier ways to do it,
than through the unauthorized
Similar tactics employed in physical mass collection of their most
space, especially if executed poorly, personal information.
might result in strong negative
reactions from consumers that feel
their privacy is being violated. Use of invasive technologies
could backfire: damaging or
Privacy concerns will increasingly even destroying brands.
become an issue with Big Data.
Let the consumer choose the
level of personalization that
they are comfortable with.
Source: Cushman & Wakefield ResearchWhat is Happening with American Retail?
Don’t you know there a “retail apocalypse” under way?
The Mainstreaming of Doom
There are real challenges, but the
perception is becoming worse than
the reality.
Unfortunately those perceptions
will contribute to the reality by
harming healthier retailer and REIT
values.
Bloomberg launched an online interactive game in February 2018 where the goal
is to save a dying mall.
Source: Cushman & Wakefield ResearchSo Why the Gloom?
Is US retail really doomed?
Consumer Confidence
February reading of 130.8 was
the highest in 17 years!
Source: Cushman & Wakefield ResearchRetail Rebound Underway?
Recent positive developments…
All of these will help retailers
Positive Signs for Retail Real Estate? in 2018. But will these factors
help slow closures and
1. Great underlying consumer fundamentals; will they improve in bankruptcies heading into
2018? 2018?
• Unemployment
• Wage growth
• Consumer Confidence
2. Strongest holiday season since the Great Recession (+5.5%).
3. Trump tax cuts
• Corporate impact
• Consumer impact
4. Did a landlord action just slow a strategic closure (Simon v.
Starbucks)?
5. U.S. Supreme Court to review bid to collect internet sales tax.
Source: Cushman & Wakefield ResearchSales Up, But so are Closures…
Retail challenges are structural, not cyclical…
Outside of the 2009/2010 downturn
in consumer spending during the
Consumer Spending vs. Major Chain Store Closures Great Recession, consumer
12,000 spending has been consistently on
the rise, even as retail
bankruptcies and closures have
11,500 accelerated.
$Billion
11,000
$Billion
10,500
10,000
9,500
2009 2011 2013 2015 2017
Source: TradingEconomics.com, US Bureau of Economic Analysis, Cushman & Wakefield ResearchStructural Issues in Retail
What’s really driving today’s wave of consolidation?
All of these will help retailers
in 2018. But will these factors
help slow closures and
1. Over-retailed marketplace. bankruptcies heading into
2018?
2. Acceleration of eCommerce. Recent positive signs are
helpful, but won’t save many
troubled retailers.
3. Race to the Bottom Discounting (Rise of Off-Price)
• The rise of off-price, growth of dollar stores, discounters, etc.
4. Shifting Consumer Spending Patterns.
• Millennials spending less than previous generations.
• Millennials spending differently (experience over stuff).
Source: Cushman & Wakefield ResearcheCommerce Acceleration
Will continue with new categories coming…
Ramping Up 2018 & Beyond
eGroceries
13%
12.0%
12% ePharma
11%
eFurniture
% of Total Retail Sales
10%
9.3%
9%
8%
7%
6%
5% 4.2%
4%
3%
Source: Company filings, Department of Commerce, Cushman & Wakefield ResearchAmazon US Market Share
2017 Analysis
Total eCommerce growth is
55%
Total Retail Sales eCommerce Sales Amazon Sales healthy, but always lagging
total Amazon growth.
45%
Amazon still taking largest
35%
share of a growing pie.
25%
15%
5%
-5%
-15%
Q4 2008
Q4 2009
Q4 2010
Q4 2011
Q4 2012
Q4 2013
Q4 2014
Q4 2015
Q4 2016
Q4 2017
Source: Company filings, Department of Commerce, Cushman & Wakefield ResearcheCommerce to newCommerce
How online keeps evolving…
1995 - 2000 2001 - 2009 2010 - Present 2015 - Present 2017 - ?
The Early Days Pure Play The Age of Omnichannel newCommerce
Years Amazon Age Age
Desktop
Desktop Desktop Desktop Desktop
Initial Launch of Mobile Mobile Mobile Mobile
eCommerce Tablets Tablets Tablets
Post Tech Wreck Ramp ?
Rise (and Fall) Up of New Pure Play Amazon Distribution Amazon Dominance
of Early Players Internet eCommerce Strategy: Speed to Continues Seamless Integration
Consumer over Tax of Omnichannel (now
Distribution Strategy: Retailers Still Building a GIVEN for Retail
Tax Advantages Amazon Dominance eCommerce Survival)
over Speed Infrastructure
Retailers Rush to Build eGroceries
eCommerce Emergence of Bricks
Infrastructure to Clicks Movement ePharma
Source: Cushman & Wakefield ResearcheCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Retail Real Estate Disruption Meter
Cumulative eCommerce
Impact on Retail Real Alcohol/Package Goods Stores
Estate by Category: 2018 Amusement Concepts
*Apparel (Luxury)
*Apparel (Mid-Price)
No/Minor Disruption
*Apparel (Off-Price)
Modest Disruption Art Galleries
Arts & Crafts Stores
Disruption Auto Parts
Auto Sales
Major Disruption
Automotive Repair & Service
Devastating Impact Bakeries
Bars, Pubs & Nightclubs
Bicycle Stores & Repair
*Apparel includes all categories, as Boating & Boat Supplies
well as accessories. Book Stores
Bridal Shops
Cameras & Video Equipment
Car Audio
Cellular Stores & Cellular Repair
0.0 1.0 2.0 3.0 4.0 5.0
Source: Cushman & Wakefield ResearcheCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Retail Real Estate Disruption Meter
Cumulative eCommerce
Impact on Retail Real Childcare/Learning Centers
Estate by Category: 2018 Computer Repair
Consumer Electronics
No/Minor Disruption Convenience Stores/Gas Stations
Department Stores
Modest Disruption
Dollar Stores
Disruption Drug Stores
Dry Cleaning/Tailoring
Major Disruption
Entertainment Concepts
Devastating Impact Eye Care/Optical Stores
Farm Supply/Ranch Stores
Film Developing
Financial Services (Insurance/Tax)
Financial Services (Lending/C.C.)
Financial Services (Banking)
Food Specialty Retail
Formalwear
0.0 1.0 2.0 3.0 4.0 5.0
Source: Cushman & Wakefield ResearcheCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Retail Real Estate Disruption Meter
Cumulative eCommerce
Impact on Retail Real Garden Stores
Estate by Category: 2018 Gift Shops/Cards/Stationary Stores
Grocery Stores
Hair & Nail Salons
No/Minor Disruption
Hardware Stores (Small Format)
Modest Disruption Health & Beauty (Cosmetics, Etc.)
Health Clubs (Gyms, Etc.)
Disruption Home Improvement/DIY Mega Stores
Jewelry Stores
Major Disruption
Laundromat
Devastating Impact Luggage Stores
Medical Retail
Music Stores—Instruments
Music Stores—Records, DVDs & CDs
Office Supplies
Party Supplies
Pawn Shops
Pet Stores (Pets & Supplies)
Pool & Spa Stores
0.0 1.0 2.0 3.0 4.0 5.0
Source: Cushman & Wakefield ResearcheCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Retail Real Estate Disruption Meter
Cumulative eCommerce
Impact on Retail Real Portrait Studios
Estate by Category: 2018 Restaurants (All Types)
Shipping, Packing & Postal Stores
Shoe Repair
No/Minor Disruption
Shoe Stores
Modest Disruption Sign & Banner Stores
Spas (Day Spa, Massage Concepts, Etc.)
Disruption Sporting Goods
Superstores/Category Killers
Major Disruption
Tattoo Parlors
Devastating Impact Theaters
Thrift Shops/Consignment Shops
Tire Stores
Tobacco, Cigarettes, Vape Shops
Toy Stores
Travel Agencies
Video Game Stores
Video Rental Stores
Warehouse Club Stores
0 1 2 3 4 5
Source: Cushman & Wakefield ResearchWhat’s Up With Pharma?
Will this be the next category disrupted?
Walgreen’s
+ Rite Aid (Half)
Albertson’s
+ Rite Aid (the Other Half)
CVS
+
Aetna
Amazon
+
JP Morgan
+
Berkshire Hathaway
Source: Cushman & Wakefield ResearchRace to the Bottom Discounting…
Off-Price brands present just as big, if not bigger, a challenge to mid-priced apparel
Sales levels continue to fall for
Comparable Same Store Sales Analysis department stores…
8
While rising significantly for
6 off-price retailers!
4 Nordstrom growth has been
driven by Nordstrom Rack.
2
Macy’s is going downscale:
0
2012 2013 2014 2015 2016 2017
Has opened more than 100
Macy’s Backstage locations
-2
within existing Macy’s stores.
-4
-6
-8
Traditional Department Stores Off Price Department Stores
Source: CreditNtell, Cushman & Wakefield ResearchIT’S ALL ABOUT MILLENNIALS!
Millennial Generation Born Between
MILLENNIAL VALUES:
1981 1996
• Experiences Over “Stuff” ARE THE LARGEST CONSUMER GROUP
• Authenticity! Uniqueness! Choice! Variety! 100
80
• Intimacy in Shopping Experience!
60
MILLIONS
• Curated Retail - NOT COMMODITY! 40
• Non-Conformist! 20
0
• Cool is a Value! Generation Z Generation X Greatest
Generation
59% of Millennials Look for Physical Store Presence When Buying Online.Major Retailer Bankruptcies
2017: Major retailer bankruptcies 2017 2018
Aerosoles Charlotte Olympia
Major Retailer Bankruptcies Alfred Angelo Agaci
BCBG Max Azria Bon Ton
40.0 Bob’s/Eastern Mountain Kiko USA
Central Grocers Walking Company
35.0 Charming Charlie Claire’s
Gander Mountain
30.0 Gordman’s
Gymboree
HHGregg
25.0 Limited
Marbles: The Brain Store
20.0 MC Sports
Papaya Clothing
Payless
15.0
Perfumania
RadioShack/General Wireless
10.0 Romano’s Macaroni Grill
Rue 21
5.0 Sheikh Shoes
Sports Zone
Toys R Us
0.0 Traffic Shoes
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 True Religion
Vanity
Major Chain Bankruptcies Forecast Total Vitamin World
Wet Seal
Source: Cushman & Wakefield ResearchThe Problem for These Retailers?
It’s leveraged buyout debt… not relevance or eCommerce
Over the past 20 years, we
Albertson’s Belk Charlotte Russe increasingly saw private equity
groups borrow money to
acquire retailers and then put
JoAnn Fabrics Shopko Southeastern Grocers
that debt on the retailer
balance sheets. This risky
Chuck E. Cheese Staples Hot Topic practice, known as leveraged
buyouts, is creating issues for
Pep Boys GNC 99 Cent Only many relevant retailers today.
BJ’s Wholesale Club Talbots The Fresh Market Many of the latest
bankruptcies (Toys R Us, etc.)
HBC Claire’s Bon Ton have come about from this
practice.
Guitar Center Academy Sports PetSmart
Neiman Marcus J. Crew Petco
Source: Cushman & Wakefield Research and Moody’s AnalyticsMajor Chain Store Closures
2017: Surpassed great recession levels
What’s Really Happening (it’s not
Major Chain Store Closures just about Amazon)?
12,000
Convergence of Four Factors:
RadioShack
PayLess
10,000 Gymboree 1. Acceleration of newCommerce
Hancock Fabrics
Teavana
2. Over Retailed Marketplace
Sears/Kmart 3. Race to the Bottom
8,000 Discounting (Rise of Off-Price)
4. Shifting Consumer Patterns
RadioShack
Sports Authority (Millennials Spending
6,000 Office Depot
Walmart
Differently than Past
Aeropostale
Dots Sears/Kmart
Wet Seal Teavana Generations)
A&P
4,000
2,000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Major Chain Closures Forecast Major Chain Closures
Source: Cushman & Wakefield ResearchTop Retail Chains in Contraction Mode
2018: Announced store closure plans
More of Same in 2018
Major Chain Closures 2018
Agaci Top Contraction Categories:
Walking Company*
Sears
Sam's Club
The Gap
Consumer Electronics
CVS Apparel
Applebee's
Destination Maternity Department Stores
Kmart
Footlocker Consumer Electronics
Carter's Media (Books, Video, Music,
H&M
GameStop* Etc.)
Signet Jewelers
Best Buy Mobile
Office Supplies
Ascena Retail (various banners) Sporting Goods
Mattress Firm*
Walgreens
rue21
Toys R Us
Claire's*
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Potential Closures 2018 Announced Closures 2018
Source: Cushman & Wakefield Research *Estimated likely closures based on market intelThis is NOT the Retail Apocalypse
4,080 14,239 OPENING
MORE STORES OPENING
IN 2017 THAN CLOSING
10,123 CLOSING
TOP 3 OPENING SECTORS IN 2017
1,905 MASS
MERCHANDISE
1,700 CONVENIENCE
STORES
674 GROCERYThis is NOT the Retail Apocalypse
% ONLINE Shoppers Who Say a
Nearby Physical Store Presence is
Important to Them When Buying Online
60%
59%
57%
56% 56%
54%
54%
51%
All Millennials Generation X Baby Boomers
RespondentsTop Retail Chains in Growth Mode
2017: Announced new store openings
Value, Value, Value
Major Chain Openings 2017
Dollarama Top Expansion Categories:
Sephora
Wendy's
Walmart Dollar Stores
Athleta & Old Navy (the Gap)
Tractor Supply
Dollar Stores Added Roughly Discount Grocery
Sally Beauty 1,700 New Units in 2017. Off-Price Apparel
H&M (All Banners)
That equates to:
Ross Beauty/Cosmetics
Lidl ONE EVERY 4.5 HOURS
ULTA Super Stores (but often in
Five Below smaller sizes—Target)
Retro Fitness
TJX (all banners) Fitness/Health Clubs
AutoZone Fast Food
McDonald's
Starbucks Coffee
Aldi
Dollar Tree Fast Fashion
Dollar General Clicks to Bricks
0 200 400 600 800 1,000 1,200
Announced Major Chain Openings 2017 2018: More of the Same
Source: Cushman & Wakefield ResearchTop Retail Chains in Growth Mode
2018: Announced new store openings
More of Same in 2018
Major Chain Openings 2018
Warby Parker Top Expansion Categories:
Signet Jewelers
Darden (all banners)
Gander Outdoors (Camping World) Dollar Stores
Nektar Juice Bar
Tractor Supply Discount Grocery
Walmart
The Gap
Off-Price Apparel
IHOP Beauty/Cosmetics
CVS
Ross Dress for Less Super Stores (but often in
Bank of America (retail banking) smaller sizes—Target)
Chipotle
Carter's/OshKosh Fitness/Health Clubs
Aldi Fast Food
O'Reilly Automotive
Jersey Mike's Coffee
Dunkin Donuts
Dolalr Tree* Fast Fashion
Dollar General Clicks to Bricks
0 100 200 300 400 500 600 700 800 900 1000
2018 Planned New Stores
Source: Cushman & Wakefield ResearchTop Retail Chains in Growth Mode
Dark headlines always get more press than good news…
More of Same in 2018
Top Expansion Categories:
Dollar Stores
Discount Grocery
Off-Price Apparel
Beauty/Cosmetics
Super Stores (but often in
smaller sizes—Target)
Fitness/Health Clubs
Fast Food
Coffee
Fast Fashion
Clicks to Bricks
Source: Cushman & Wakefield ResearchBut What Does it All Mean for Retail Real Estate? Myths and Realities in the Age of newCommerce To fully understand, you must first understand the different types of American shopping centers…
The Neighborhood/Community Center…
Neighborhood/Community and Strip Centers doing fine…
Typical Anchors:
Grocery Stores
Outdoors Drug Stores
Mostly Suburban
Neighborhood
30,000 to 125,000 SF Typical Inline Tenants:
3-mile trade area Restaurants
Fast Food
Community Coffee
125,000 to Juice
400,000 SF
Dry Cleaning
6-mile trade area
Laundromat
Postal Services
Dental/Medical Offices
Financial Services
Retail Boutiques
Source: Costar Group, Cushman & Wakefield ResearchThe Power Center…
Neighborhood/Community and Strip Centers doing fine…
Typical Anchors (Big Box):
Superstores (w/Groceries)
Outdoors Home Improvement/DIY
Mostly Suburban
Off-Price Apparel
Power Consumer Electronics
250,000 to 600,000 SF Arts/Crafts
10-mile trade area Pet Supplies
Typical Inline Tenants:
Restaurants
Fast Food
Coffee
Juice
Dry Cleaning
Laundromat
Postal Services
Dental/Medical Offices
Financial Services
Retail Boutiques
Source: Costar Group, Cushman & Wakefield ResearchThe Mall…
When Americans think of retail, they think of malls
Typical Anchors (Big Box):
Department Stores
Mostly Enclosed
Mostly Suburban
Regional Mall Typical Inline Tenants:
400,000 to 800,000 SF Apparel
15-mile trade area Accessories
Shoes
Super Regional Mall Jewelry
800,000 SF + Gift Shops/Gadgets
25-mile trade area
Books
Toys
Restaurants
Fast Food
Coffee
Juice
Retail Boutiques
Source: Costar Group, Cushman & Wakefield ResearchOver-Retailed, But Not All Retail is Suffering
Neighborhood/Community and Strip Centers doing fine…
Shopping Center Total GLA Vacancy Vacancy Share of Malls and Power Centers
Type (MSF) Rate Rate Retail have been most impacted
Q4 2016 Q4 2017 Market by current wave of
closures…
Power Centers 754.5 5.5% 5.0% 7.1%
But Malls only account for
8.4% of all USA retail and
Shopping Centers 3,537.2 8.0% 7.4% 33.1%
(Neighborhood, Power Centers account for
Community, Strip) 7.1% of all USA retail.
Malls (Lifestyle, 899.2 5.4% 6.3% 8.4%
Regional Mall, Super BUT IN TERMS OF ACTUAL
Regional Mall) SHOPPING CENTERS,
MALLS ONLY ACCOUNT
Specialty Centers 85.7 5.0% 4.9% >1.0%
(Outlet, Airport, etc.) FOR 0.5% OF ALL
SHOPPING CENTERS!
Freestanding Retail 5,400.4 3.0% 3.5% 50.5%
Shopping Centers
(neighborhood, community
and strip centers) have
TOTAL RETAIL USA 10,676.0 4.8% 5.3% 100.0%
actually seen vacancy
declines.
Source: Costar Group, Cushman & Wakefield ResearchROI Performance Along Class Lines
Mall performance gap between best and worst assets…
The Retailer Logic Behind this
Gap:
Class A
If the goal is to reduce your
physical footprint, while
looking to boost your online
sales… This inherently means
Class C/D that your remaining physical
locations are more important
than ever before…
CHAINS STRATEGICALLY
REDUCING THEIR
FOOTPRINTS ARE LARGELY
DOING SO IN CLASS B AND
C MALLS—NOT CLASS A.
Source: MSCI Global, Cushman & Wakefield ResearchNot All Malls are in Trouble
It’s all about class…
Class A and above malls
Approximate Number of Malls by Class accounted for more than
200 70% of all mall retail sales in
150 2016.
100
There are roughly 670 Class
50
B and C malls in the US, but
0 they only accounted for 28%
A++ A+ A A- B+ B+ B- C+ C C- D of all mall sales last year.
A++ A+ A A- B+ B+ B- C+ C C- D
Class D malls accounted for
Approximate Share of Total Mall Value by Class less than 0.2% of all mall
25.0 sales last year…
20.0
15.0
10.0
5.0
0.0
A++ A+ A A- B+ B+ B- C+ C C- D
A++ A+ A A- B+ B+ B- C+ C C- D
Source: Cushman & Wakefield Research, Fung Global, Green Street Advisors, BloombergClosures Hitting Everyone
Class A replacing with greatest ease…
All Classes of Malls Lost
Net Decrease in National Credit Tenants 2017 National Credit Tenants in
40%
2017
Class A Class B Class C
20%
35% of Class A Malls gained
national credit tenants in
0% 2017.
5% of Class A Malls saw no
-20% change in the number of
national credit tenants.
-40% 65% of Class A Malls lost
national credit tenants.
-60%
30/5/-65% Class A
-80% 13/9/-78% Class B
10/8/-82% Class C
-100%
Positive Tenant Change No Tenant Change Negative Tenant Change
Source: Cushman & Wakefield Research, Green Street Advisors, BloombergPower Centers Rebounded in 2017
Will traditional power center tenants re-tenant troubled malls?
Power Centers saw vacancy
DECLINES in 2017.
45.0 9%
40.0 8% Vacancy had spiked in 2016
35.0
due to the bankruptcy of
7% Sports Authority.
30.0
6%
Million Square Feet
25.0 Roughly 450 stores, averaging
45,000 square feet in size,
20.0 5%
closed.
15.0 4%
One year later, approximately
10.0 340 (roughly 75%) have been
Forecast 3%
5.0 backfilled.
2%
0.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 (F)
2019 (F)
2020 (F)
(5.0) 1%
(10.0) 0%
Net Apsorption (MSF) New Construction (MSF) Overall Vacancy
Source: Costar Group, Cushman & Wakefield ResearchFeeling Good in the Neighborhood
Neighborhood/Community/Strip vacancy continues to slowly fall
Neighborhood/Community
Centers
70.0 12%
60.0
10%
50.0
40.0 8%
Million Square Feet
30.0 Forecast
6%
20.0
10.0 4%
0.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 (F)
2019 (F)
2020 (F)
2%
(10.0)
(20.0) 0%
Net Apsorption (MSF) New Construction (MSF) Overall Vacancy
Source: Costar Group, Cushman & Wakefield ResearchRetail Investment
USA Current Cap Rate Asking Ranges
10.0%
9.0%
8.0%
7.0%
Class A
Class B 6.0%
Class C
5.0%
4.0%
3.0%
Malls & Power Centers Neighborhood & Outlet Centers
Lifestyle Centers Community Centers
Source: Real Capital Analytics, Costar, Cushman & Wakefield ResearchAre There Any Good Investment Opportunities?
Yes, but you have to know what you are doing!
The black cloud hanging over
General Risk Levels the retail sector is already
impacting investment
Malls & Lifestyle fundamentals.
Power Centers Neighborhood/
Centers Community Centers Many institutional investors
Class A Class A Class A are rebalancing their portfolios
to contain less retail and are
Class B Class B Class B selling off assets.
Class C Class C Class C
Many of these assets have
challenges, but many don’t!
Low Others are jewels in the
Medium rough.
High
Source: Cushman & Wakefield ResearchAre There Any Good Investment Opportunities?
Yes, but you have to know what you are doing!
Urban Vs Suburban
General Risk Levels
In general, urban properties
have performed better than
Malls & Lifestyle Power Centers Neighborhood/
suburban ones, but this is not
Centers Community Centers always the case.
Class A Class A Class A
Six of the United States top
Class B Class B Class B ten malls (in terms of sales
Class C Class C Class C PSF) are suburban.
Low
Medium
High
Source: Cushman & Wakefield ResearchChallenges & Opportunities
Yes, but you have to know what you are doing!
Every property must be looked
Type Challenges Opportunities
at individually for its
Few available and most owners unwilling to This property type still stable and will strengthen as
Malls A sell. Though risk is low, likely low cap rate may more Class C malls fail. fundamentals.
still not be commensurate with risk.
B Many will require extensive repositioning and This might be where the most jewels in the rough The financial health of current
re-tenanting. A lot of innovation and are found. Some B malls are in great locations and
unconventional thinking will be required. were either poorly tenanted or managed.. tenants, possible re-tenanting
Here is where the most damage will be done. There will be great opportunities for redevelopment scenarios and an
C Tenanting these will require unconventional or repositioning of properties once properties return
tenants and means. Many will fail. to lenders and can be had for dimes on the dollar or
understanding of perceived
less. risk vs. likely actual risk is
Power A Malls, especially Class B, raiding the With investors focusing on core and urban and retail required.
traditional power center tenant pool to backfill already making many nervous, there may be some
vacancies could have an impact, but it will be cap rates here that are far higher than actual risk.
minimal for Class A. Due diligence is a must!
If tenant pool diminishes, here is where it will Depending on property, could be some solid value
B be felt most. add buys with high yields.
The current landscape s
Weak already and getting weaker… Might make for good redevelopment plays or value
C add acquisitions. increasingly becoming a
Drug store disruption may eventually have The most eCommerce resistant and resilient of the buyer’s market.
Neighborhood A impact, but these will easily backfill. product types. Class A in secondary markets may
provide best yields.
Drug store disruption may eventually have Largely a safe bet, look for good value adds to turn
B impact, could be a bit of a challenge here. B into A and even greater yield opportunities.
Weak already. Not getting weaker, but will Might make for good redevelopment plays or value
C take significant investment to improve. add acquisitions.
Source: Cushman & Wakefield ResearchBut What Does it All Mean for Retail Real Estate? Myths and Realities in the Age of newCommerce To fully understand, you must first understand the different types of American shopping centers…
Amazon/Whole Foods Has Some Catching Up to Do
Combined grocery market share in 2016 was roughly 3%
Look for aggressive growth
from Amazon/Whole Foods
likely to begin 2H 2018.
We anticipate that as many
as 500 new stores in
different formats may be
Amazon began eGrocery delivery from opened in the next five
Whole Foods locations on 2/8/18 to: years…
Austin
Cincinnati
Virginia Beach
Dallas
Source: Kantar Worldpanel, Statista, Cushman & Wakefield ResearchClicks to Bricks
Brand embassies, returns savings driving more pure play growth in physical space
90
80
70
60
50
40
30
20
10
0
Store Count (YE 2017) Planned New Stores 2018
Source: Cushman & Wakefield ResearchFood Halls ON FIRE!
Food Halls: the shared economy for restaurants
Food Halls in the U.S.
350
300
250
200
Projected
150
Existing
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Cushman & Wakefield ResearchCraft Brewing Explosion
Trend is still not mature nationally
STATES WITH 100+ BREWERIES
Microbreweries Brewpubs Planned
MA S S A C H U S E T T S 75 29 39
MI N N E S O T A 74 35 42
Craft Breweries in the United States
INDIANA 54 69 25 6,000
W ISCONSIN 73 62 27 5,000
MI C H I G A N 87 51 33 4,000
VIRGINIA 117 44 63 3,000
OHIO 100 73 47 2,000
ILLINOIS 99 74 44 1,000
NORTH CAROLINA 133 56 55 0
TEXAS 134 58 105 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
FLORIDA 141 51 76 Brewpubs Microbreweries Regional Breweries
P E N N S YL V A N I A 84 116 62
OREGON 133 93 26
N EW YO R K 170 91 80
W ASHINGTON 227 88 52
COLORADO 199 121 67
CALIFORNIA 388 204 156
Source: Cushman & Wakefield ResearchRise of the Indies
Many of the hottest new brands are former pure play eCommerce
(recently
purchased
by Nestle)
Source: Cushman & Wakefield ResearchCool Street Contenders Privately-held hipster brands can take chances the big chains can’t—and they’re connecting with Millennials! Source: Cushman & Wakefield Research
Entertain Us!
Millennials spend more on experience than “stuff”
Golf/Sports/Arcade Entertainment Themes
BarCades/Mixed (Dave & Athletics Space
Buster’s, Punch Bowl Social, etc.) Aquatic Parks
TopGolf/Miniature Golf/Glow Golf Trampoline Rooms
Baseball/Batting Cage Bars Indoor Rock Climbing
Axe Throwing Bars Indoor Skydiving
Ping Pong (Susan Sarandon) Velodromes (Indoor Cycling Tracks)
Bowling Alleys (Lucky Strike, etc.)
Duck Pin Bowling Culture/Performing Arts Space
Indoor Go Cart Tracks Art Galleries
Indoor Shooting Galleries (Real Guns Museum Space
Optional)
Live Theater Space
Event Centers
Dinner Theaters
Cirque Space
Experiential Theaters/Dine-In Theaters
Stand Up Comedy Clubs
IMAX
Live Music Venues
Restaurant/Theaters
Bar/Theaters
Float Rooms/Sensory Deprivation
Children Themed Theaters
Hipster/Art House Theaters
Source: Cushman & Wakefield ResearchCool Streets
Millennial-driven up-and-coming alternative urban neighborhoods still hot
The Evolution of Cool Streets
Edgy Cool Bodegas, Bars &
Funky Local… Cheap
Rents
EDGY UP AND
COOL COMING Up and Coming Boutiques, More
Restaurants Arrive…
Rents Climbing
Prime Hipness Funky Local Priced
Out, Cool National
Concepts Arriving…
GONE
MAINSTREAM Rents Climbing
Still Cool, But Going Whole Foods Arrives
Mainstream Rents Climbing
STILL
PRIME
Gone Mainstream Creatives Moving On,
COOL, Replaced by More
HIPNESS
BUT…
Affluent Crowd.
Pottery Barn!
Source: Cushman & Wakefield ResearchThere is No Room for Mediocrity in Retail Anymore
Follow Viktor Gruen’s Original Vision
The Father of the American Mall
• You must give people a reason to come to your store or your “I am often called the father of
shopping center in the age of newCommerce. the shopping mall. I would like
to take this opportunity to
disclaim paternity once and for
• If your shopping center is the center of your community, it will thrive.
all. I refuse to pay alimony to
those bastard developments.
• If it isn’t, then build a community around it. They destroyed our cities…”
• YOU MUST GIVE CONSUMERS AN IMPROVED EXPERIENCE. Viktor GruenHow Do I Cultivate Experiential Retail?
Simple steps to follow…
Beacon Technology
1. Knowledgeable and friendly salespeople are your front line. Beacon technologies are
Provide adequate real world wages and career paths so you increasingly being utilized by
can retail quality people. Enthusiastic and knowledgeable retailers and landlords to track
consumer activity in their
staff are the least expensive and most productive way for
stores and shopping centers.
brands to create experiential retail!
When a consumer enters a
2. Utilize your physical space to collect as much data as possible
store, a beacon detects their
(dwell times, foot traffic, etc.) so that you can use that data to cellphone signal. It then can
benchmark and improve your own performance. anonymously track the
consumer as they journey
3. Use those data touchpoints also to personalize the consumer through the store and beyond.
experience. Consumers are more likely to shop at stores that know
their name and their likes.
4. Loyalty programs, especially those that reward consumers, are
embraced by customers and are one of the best sources of
gathering voluntary shopper information.How Do I Cultivate Experiential Retail?
More simple steps to follow…
Robots for Some
5. Augmented reality is already being used online and will increasingly Automation will increasingly
be used in stores (magic mirrors, etc.) be a reality for major fast food
chains.
6. Virtual reality will increasingly be available to help with everything
from store design to shopper interaction. Robots will increasingly be
utilized for the lowest level
customer service interactions
7. Not all retail needs high service levels, but bad service is
in retail categories.
unforgivable. Go automated. Robots will increasingly become a
normal part of retail over the next decade.
They are not likely to replace
humans for quite some time in
8. Be sure to create a community; social media is critical to how higher level customer service
Millennials interact and shop; it will be even more so with social interactions.
media natives, Generation Z. Use your social media for marketing
campaigns, consumer interaction and to advertise in-store events.How Do I Cultivate Experiential Retail?
Wait! There’s even more…
The Future is Now
9. Capture emails addresses for direct marketing, social media, etc. “We always overestimate the
change that will occur in the
10. Find ways to eliminate queues… Automation, adequate staffing, next two years and
underestimate the change that
salespeople equipped to ring up sales via mobile technology on the
will occur in the next ten.”
sales floor all can help.
--Bill Gates
11. Don’t ignore the critical importance of the visual importance of your
store and it’s product displays. Be “Instagrammable.” “The Road Ahead”
1995
12. Host events… and not just sales. Product launches, celebrity pop-
ups, fashion shows, spa days… anything to pamper your
customers, give them a great experience and lure them to your
store.
13. You MUST go omnichannel to survive and thrive in the
newCommerce Era, only a rare few categories are exempted.The New Retail
Retail space will need to fit one of these needs…
Premium Destination
Centers
Large regional centers
anchored by popular
attractions, which draw
Premium Destination Centers Value Oriented Centers from broad local, national
and some international
audiences.
Value Oriented Centers
Local retail focused on
local service and value.
Hybrids Amenity Retail
Mixed-use centers where
people live/work/play.
Innovation/Experience
Centers
Amenity Retail Innovation/Experience Centers Every store is a smart,
active environment
featuring the latest in
high technology.
Source: A.T. Kearney, Cushman & Wakefield ResearchThe New Retail
In the newCommerce Era, the use of space is radically different…
The New Retail Ahead
Old Model New Model
Retail
Anchor Traditional
Residential
Tenants Retailers
Entertainment
Organizing Retailer
Consumer “Pull”
Principle “Push”
Shopping
Centers Primary Selling Consumer
Focus Things Engagement
Connecting
Role of Powering
Buyers, Sellers &
Technology the System
Places
Tenant Mix Mass Market Market of One
Source: Cushman & Wakefield ResearchGet on My Mailing List! Garrick.brown@cushwake.com ©2018 Cushman & Wakefield. The material in this presentation has been prepared solely for information purposes, and is strictly confidential. Any disclosure, use, copying or circulation of this presentation (or the information contained within it) is strictly prohibited, unless you have obtained Cushman & Wakefield’s prior written consent. The views expressed in this presentation are the views of the author and do not necessarily reflect the views of Cushman & Wakefield. Neither this presentation nor any part of it shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to enter into any contract or commitment whatsoever. NO REPRESENTATION OR WARRANTY IS GIVEN, EXPRESS OR IMPLIED, AS TO THE ACCURACY OF THE INFORMATION CONTAINED WITHIN THIS PRESENTATION, AND CUSHMAN & WAKEFIELD IS UNDER NO OBLIGATION TO SUBSEQUENTLY CORRECT IT IN THE EVENT OF ERRORS.
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