Monday, March 20, 2017

Retail Apocalypse

Consumers are getting spoiled. The worldwide web has opened massive opportunities for consumers to learn about products and services before they buy, to compare as to quality and price, and to purchase directly (often without sales tax and with free shipping). Wherever there is any commoditization, consumers get deals. Big Box stores – especially Wal*Mart and Target – have used their sheer size to beat down supplier prices, while huge online retailers from eBay to Amazon have eroded smaller retailers everywhere.
Here’s a sobering assessment, from Business Insider (4/25/16): “Shopping malls are losing some of their most valuable tenants — department stores — at an alarming rate… Retailers like Sears, JCPenney, and Macy's have been closing hundreds of locations over the last several years, leaving dead or dying shopping malls in their wake as they try to remain profitable amid the growing threat of e-commerce.
“But these closures are just the tip of the iceberg, according to a new report from real-estate research firm Green Street Advisors… Department stores need to close as many as 800 more locations — or one-fifth of all anchor space in US malls — to return to the levels of productivity they saw 10 years ago, according to the report, which was first cited by The Wall Street Journal.
“Sears would have to close about 300 stores (or nearly half of its existing locations), JCPenney would have to close 320 stores (31% of its current fleet), Nordstrom would have to close 30 stores (25% of its fleet), and Macy's would have to close 70 stores (9% of its total) to generate the kind of sales per square foot they saw in 2006.” Bankruptcy looms for many of these old-line department stores. Every report we see from many of these retailers suggests that 2017 will be a bad year for them. By the midpoint of 2017 alone, Sears, JCPenney and Macy’s will have collectively closed 400 stores. What little retail footprint Macy’s might have in the future will mostly be relegated to its discount outlets.
And yet the overwhelming majority of American commerce is offline. Depending on where you live, the traditional mall experience varies. They used to be the cool shopping/gathering places. Then, they went downscale fast. “For many years, the shopping center model was simple: Shoppable product was of paramount importance, and distractions were kept to an extreme minimum. Food courts consisting of high-calorie snacks and convenience meals existed only so shoppers could quickly consume the needed calories to continue their purchasing excursion; outside of those, little (if any) seating could be found. The mall was essentially a mausoleum — an enclosed labyrinth with no windows and thick, concrete walls to shield the shopper from the great outdoors.
“But in a world where shopping is but a click away, this kind of bland ecosystem no longer works. According to the United States Census Bureau, in 2016, approximately 90 percent of commerce is still done offline. But still, malls have died, fallen into decay and disrepair, often at huge detriment to the economies of the cities in which they operate. This past May, retail analyst Jan Kniffen told CNBC that a third of American malls currently in existence will eventually disappear.
“However, that's not to say that the mall, as a concept, is facing extinction; and a few of the country's shopping centers have figured out how to make it work in today's rapidly evolving retail landscape — namely by thinking differently about the experiences people want to have when they go offline and venture outside their homes.”, March 14th.
If you live out here in California, particularly Los Angeles, you just might be witnessing a rebirth of malls under an entirely new, upscale alternative. Some of the best new restaurants and amazing retail shops here are in malls that are being upgraded with massive new investment capital… and they are a joy to visit. There is a new retail path out there that just might make a difference. Take for example two extremely competitive mall owners, Caruso and Westfield, who have reinvented that experience... in different ways… across upscale communities throughout the United States. And other forward-looking mall owners have just aggregated the best outlet experiences into massive destination shopping venues
“Both [the above-noted] companies have shopping centers that have not only managed to survive, but thrive. Westfield is behind the Oculus at the World Trade Center in New York City, Topanga (the site of Kylie Jenner’s first Kylie Lipkit pop-up back in December) in Southern California, Garden State Plaza in New Jersey and a work in progress in Los Angeles's Century City. Caruso is known for The Grove in LA and Americana at Brand in Glendale, Calif. – both of which have consistently been among the top 15 performing malls in the country according to real estate analysts Green Street Advisors. (The Grove is number two). Fellow exceptions to the ‘malls are dead’ trope include several Simon properties like Woodbury Commons, The Mall at Rockingham Park and The Forum Shops at Caesar's Palace, as well as Miami's Bal Harbour Shops… but we've chosen to focus on two companies whose innovative approaches to shopping offer some indications about the mall's overall future.
“Despite similar successes, Westfield and Caruso differ greatly when it comes to brand identity. Where Westfield is grandiose, Caruso is quaint. Where Westfield still retains the structure and ethos of the mall, Caruso would be insulted if you ever described its shopping centers as such; ‘town center’ is its preferred phrasing.
“Plus, these two major mall purveyors are sworn enemies. As such, it is likely that both would object to being compared to one another. But, in the profitable and wealthy Southern California especially, both Westfield and Caruso have done phenomenally well (most of Westfield’s top-performing malls are located there), creating an ‘arms race’ of premium shopping centers. Of course, some of this may owe to the region's mild weather. ‘[Our properties] having an outdoor environment certainly helps because I feel like people here want to be outside, especially in Los Angeles,’ says Jackie Levy at Caruso.
“The company strategy at Westfield is, according to Peter Gold at, is ‘to develop superior retail destinations by integrating food, fashion, leisure, entertainment. And using technology to better connect retailers with consumers.’ Caruso is more focused on what it refers to as "guest experiences.” It's how the company defines who it is as a business. As Jackie Levy, the executive vice president of operations told me, ‘we classify ourselves as a hospitality company.’ So much so, in fact, that Caruso is currently working on building its first hotel and resort in Santa Barbara, the Miramar Resort.
“Caruso is a privately owned company founded in 1987 by Rick Caruso after he purchased a retail building that housed a Loehmann's. By 1996, Caruso opened the Promenade at Westlake in SoCal's Thousand Oaks neighborhood (aka ‘The Valley’). The Promenade was unique at the time — a meandering complex with a range of stores defined by its beautiful landscaping. Though it was more ‘strip mall’ than suburban mall; the outdoor nature of the Promenade was an incipient technique that would later inspire his most successful venture: The Grove.”
The major mall reconstruction in and around my own world is massive. When these shopping meccas reopen, they are packed. The food is better. The shops are better, and often they no longer are completely reliant on department stores for survival. Gourmet specialty shops join upscale niched clothing stores, incredible dessert emporia and some of the best restaurants anywhere. We can do it. We can reinvent those malls as we need to reinvent our own businesses in a world of automation, global competition and extreme polarization. No matter what politicians tell you, we are not going be able to push the clock back to an older, familiar time. But we can accept progress and use it to our advantage. We just have to live in the real world and not a parallel universe based on “alternative facts.”
I’m Peter Dekom, and to keep America Great, we need to act to embrace progress to our total advantage.

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