CANNES, France — In the age of retail-tainment, with an ever-growing, Millennial-led trend toward authentic experiences over consumerism, what does relevant retail real estate look like?
“Retail is moving rapidly, even if you can’t be ahead of it, you’ve got to be alongside it.…We’ve had to almost retreat in our business just to look at how the market is moving,” said Adrian Nelson, group leasing and brand development director of McArthurGlen Group, at the recent Mapic retail real-estate fair here.
A successful retailer, said experts attending the three-day event, held at the Palais des Festivals et des Congrès de Cannes, needs to deliver seamless omnichannel “customer journeys” through an ecosystem of touch points, and retail theater, from gourmet food pop-ups to product animation.
“By 2020, the shopping experience will overtake product and price, both in the U.K. and globally. The social aspect of ‘doing’ is more important than ever, and brands need to work creatively and competitively to connect with consumers at that level,” said retail consultant Mary Portas, moderator of the “United Kingdom — Good Morning Retail!” conference. Right on track, members of the King’s Cross retail cycle team — outfitted in jerseys designed by Paul Smith — cycled to the event to promote developments taking place in the London neighborhood, including the creation of 94,000 square feet of new retail space.
Attendance at the bellwether fair, which wrapped on Nov. 18, rose 5 percent to 8,400 versus last year’s session, including 1,000 investors, 2,100 retailers and 500 new brands such as Coach, L’Exception and Groupe Chantelle.
For better or for worse, shopping just isn’t what it used to be. And as unprecedented pressure builds for retailers wrestling rising rents plus global economic and political turbulence, a vital dialogue is opening up with landlords keen to better steer their real estate investments.
Take Acadia Realty Trust’s “Project Hand Shake” initiative, based on paying visits to tenants to learn more about what’s happening in their business. “It’s a smart time in our business, given the challenges that retailers are facing, to take a moment and listen, to ask them what’s working as they try to find the perfect balance of e-commerce and brick-and-mortar stores,” said the firm’s executive vice president and chief operating officer Christopher Conlon.
Acadia Realty Trust, which has more than $1.4 billion in real estate investments worldwide and is wrapping its “most productive year by far” in terms of acquisitions, is focusing investments on “more defensive urban and street real estate assets” where the demographic is not subject to tourism flows.
“In terms of our shareholders, if we keep chasing those markets where rents are growing at an unsustainable rate, that’s probably a bad play,” added Conlon. “Both domestic and international brands tell us again and again that the eyeballs and foot traffic that the street presence affords them is complementary to their e-commerce strategy because you’re taking that to where the people live, work and play. There’s a halo effect across all their formats.”
“With brands now, we’re not talking property issues, we’re talking much broader retail strategies to understand how it aligns with us and what we can do, develop, test. They used to only ask about catchment, now they want real data on who the customer is. Everyone wants knowledge, information,” echoed McArthurGlen Group’s Nelson. The company over the next couple of years will open outlet malls in Provence, Vienna, Naples and Düsseldorf, to name a few.
Melissa Gliatta, chief operating officer at Thor Equities, said as landlords, they are constantly challenging themselves. The retail real-estate giant, which is building its portfolio in Western Europe, presented its 51 Haussmann asset, located opposite Printemps in Paris, at the event. “We look at a building and think, how much efficiency can we get out of that space and make it more appealing to the retail tenant? We’re like students every day,” said Gliatta. “What’s so unique about Mapic is seeing retailers from so many different countries, it’s very helpful to us in our leasing efforts.”
John Burton, head of development at leading shopping center operator Westfield, which is piloting several innovations at its Westfield London center, like smart parking, believes retailers have the upper hand. “We’re seeing an evolution at the moment between the different types of centers — the tiers of centers — and the high street. I think everyone’s coming to the realization that we’re not necessarily setting the agenda, that it’s the retailers that are setting the agenda going forward. That this is not a developer-led business at the moment, it’s the retailer’s demand for the size of shop, the experience, the connectivity and clearly the commercial terms….There are a huge number of centers, and huge number of high streets that can no longer deliver what retailers want.”
Westfield, as it continues to iron out a number of local infrastructure issues, is gearing up to enter full construction mode on its Westfield Milan site — set to be Italy’s biggest mall, with a Galeries Lafayette department store in its midst — due for completion in late 2019. The company’s Westfield London site, meanwhile, is undergoing a 600 million pound, or $748 million at current exchange, renovation and extension, due for completion Easter 2018. The project will make it Europe’s largest shopping center, measuring a total of 2.6 million square feet and anchored by a 230,000-square-foot John Lewis department store.
The rise of the sharing industry, led by pioneers like Uber and Airbnb, is also influencing customer expectations. More than a king, the customer is to be treated as a guest.
“To quote Steve Jobs, you’ve got to start with the customer experience and work backward to the technology….These are customers that are extremely demanding….They want to be able to access their brands any time, anywhere and anyhow they want,” said Pamela Wolf, innovation strategy director at cloud-based customer relationship management company Salesforce and a panelist on the event’s opening “Luxury & Prestige Retail” conference.
Westfield is keeping its eye on the rental retail market, meanwhile. According to a new report by the company, the U.K.’s fashion rental market represents an estimated one billion pounds, or about $1.24 billion, in untapped sales. Driving the trend, the Millennials — sometimes referred to as “generation rent” — are moving toward a sharing economy characterized by a market in which people are interested in access and experience rather than just ownership, it said.
With shopping centers increasingly being marketed as leisure destinations and meeting places geared to the “theater” of shopping, Westfield is also taking the retail-tainment phenomenon seriously, having recently acquired Tony Award-winning Broadway producer Scott Sanders’ company and named him the developer’s creative head of global entertainment.
On that theme, among start-ups pitching innovations at Mapic, France’s SmartPixels presented a concept combining augmented reality and video-mapping technologies designed to animate objects in stores. Nike’s Champs-Élysées flagship is already testing the technology, as are a handful of major luxury brands.
Joshua Wexler, chief executive of fun at iP2Entertainment, believes augmented reality is set to change “the way we do everything, from how we view and experience to how we shop fashion.” At Mapic, Wexler presented the imminent rollout of National Geographic-branded entertainment centers involving augmented reality apps where users are invited on a mission to snap endangered species hidden throughout stores in shopping centers. Independent fashion-related innovations are also being developed by iP2Entertainment, he confirmed.
“It could be [a technology] that involves regular glasses, but you go into a shop and look at a shoe on a shelf and immediately you know the inventory, you don’t have to ask. The glasses will tell you: ‘We’ve got your size, would you like us to bring it up?’ You blink, and the customer service person arrives with your pair of shoes.”
Industry experts also hailed food and beverage (F&B) — the theme of the next edition of Mapic — a vital component for boosting footfall, dwell time and, ultimately, spending.
Viaduc Village, the first outlet scheme for IDEC Invest, the real estate investment arm of Groupe IDEC, will boast two gourmet eateries. Measuring around 18,000 square feet and due to open in June, the site is based near the Millau Viaduct in the South of France — the country’s third most-visited monument — on a major highway linking Paris to Barcelona.
A major 30 million euro, or $37 million, F&B upgrade program is under way at Ikea Centres Russia under its “Taste Boulevard” banner, already active in its MEGA Teply Stan and MEGA Khimki centers in Moscow, according to Olga Shevtsova, head of sales and commercial development Ikea Centres Russia. Its MEGA Khimki site, also in Moscow, is due to add an 8,000-square-foot fresh food market, dubbed “LavkaLavka,” working with local farmers.
Spanish chef Begoña Rodrigo features in Unibail-Rodamco’s latest “Unexpected Shopping” campaign geared to demonstrate the diversity on offer in its centers, including restaurants. “It’s no longer only about a fashion-based image featuring a young woman, you see kids, athletes, older people, artists,” said Jean-Marie Tritant, group chief operating officer. Dynamic markets, he said, include Scandinavia, with Unibail-Rodamco’s Mall of Scandinavia, which opened in Sweden less than a year ago, drawing around 14 million visitors to date.
Also in the region, Oslo — a late developer in the luxury retail sector — is proving a hot draw for brands, as Europe’s fastest-growing capital. What Norway lacks in population (with 5.2 million residents), it makes up for in purchasing power, with total retail spend per person an estimated 45 percent higher than the Scandinavian average, according to a CACI 2016 report conducted on behalf of Meyer Bergman, which presented its Promenaden assets.
Located in central Oslo, Promenaden boasts seven streets including a luxury street with tenants including Hermès, Louis Vuitton and Burberry. Mark Gamble, executive director of asset management and an investment committee member at Meyer Bergman, which owns 50 percent of the retail space, said they’ve just signed two new deals, with one of the existing “heritage luxury brands” looking to upsize. Balenciaga will open a store on the street this spring, he added.
“The luxury expansion has fueled the retail market, especially when we see the great returns in Norway,” said Remi Olsen, head of retail at Akershus Eiendom, the Norwegian arm of JLL, which at Mapic was meeting with premium and luxury retailers for the 15,000-square-foot retail component of Karl Johans gate 45. The three-story heritage building, located on the corner of Oslo’s most prestigious street, Karl Johans Gate, was recently acquired by Hines for 52 million euros, or $55 million.
“Louis Vuitton was the first luxury international retailer we saw take a flagship here, in 2006, with Mango coming in 2008,” Olsen said. Slowly but surely, other luxury brands have followed, but since Inditex unveiled plans to open Northern Europe’s biggest flagship for Zara there, measuring some 65,000 square feet, a number of the missing brands, he said, are “knocking at the door to get in.”
“That’s a big statement because if we look back at the last nine months, all the uncertainty around the world led retailers to reconsider their expansion strategies. In Oslo we had five big deals with retailers that we were about to sign off in early January. Now with Zara and Inditex taking this massive flagship, the phone has started ringing again. We see an exciting end to 2016 and a busy 2017.”
As the retail landscape shifts, retailers are sizing shops to the market, with a spike in demand for six to 18-month short-term rentals.
“Luxury brands have become much more risk conscious and have started to check certain locations, even by doing pop-up stores, to see the potential and then decide whether they’re successful enough to operate and sustain with these levels of rent that are currently in place,” said Philipp Gajzer, managing director of Move Now Luxury Brokers and Advisors, during the “Luxury & Prestige Retail” conference. “The pop-ups are actually turning into permanent stores.”
In New York, Google just opened a four or five-month pop-up on Spring Street and they’re spending real money on it, the equivalent of what some people do for permanent stores,” said Karen Bellantoni, vice chairman of Robert K. Futterman & Associates.
“Short-term retail is now being used by all the players in the market, from small to major brands,” said Matthew Greenwell, cofounder of Thestorefront.com. Billed as the largest international marketplace for short-term space rental, with 10,000 stores across three continents, Storefront has seen an increase in brands crossing borders, he said. “A Parisian client that may have four or five stores around the city, instead of going for that sixth store what they can now do is three pop-up stores in three different cities within the space of a year.”
Jeremy Collins, property director at John Lewis, who was on the panel of the “United Kingdom — Good Morning Retail!” session, said the retailer is reducing product per square foot to focus on those who connect with the consumer in a different way. The new John Lewis store in Leeds features a “sleep room” where customers get to take in a bedroom environment before seeing any beds, for instance. “It takes up space that we would traditionally have given to product. That ability to engage and inspire, not just inform, is absolutely crucial.”
Landlords, meanwhile, are paying more attention to environments with the blossoming globally of mixed-use developments and urban live, work and play areas, commercial-cultural districts that blend retail, restaurants and culture.
“We’ve got lots of negotiations going on here about the real estate, but a fundamental part of every one of those discussions now is not what you are doing in your stores but what you are going to be doing outside the stores, that’s where it’s moving,” said Westfield’s Burton.
Selfridges London is investing 300 million pounds, or $373 million, in its Oxford Street flagship and has acquired several neighboring buildings, with plans “to create a district of sorts,” according to Jace Tyrrell, chief executive officer of the New West End Co., an industry group that represents retailers trading on and around London’s Bond, Oxford and Regent Streets, which took a stand at Mapic for the first time. “On Bond Street, about 25 percent of the street is owner occupied with brands such as LVMH, Richemont and Kering all thinking about more than just the retail side of their business — they are conscious of their commercial tenancy, as well as the culture around them.”
“Innovation-wise and commercially, retailers are continually evolving their business models to get the best value out of their buildings, both in terms of the design and how to maximize space. Over the next few years, we will see retailers using their backroom space differently and perhaps even having storage off-site. Currently, only 20 percent of car parks are being used to park vehicles, so we could see some of this underutilized space turned into much-needed storage for retailers,” added Tyrrell.
London projects in development include the Elizabeth subway line, due for completion in late 2018. The Crossrail route, which will run through the West End, is expected to bring an additional 60 million visitors to the area and has already been a catalyst for 2.5 million square feet of new and refurbished commercial development in the district. Bond Street, meanwhile, is in for a facelift. The street this year set a rent record in Europe, with Ralph Lauren paying around $2,757 per square foot in the Zone A area nearest the display window of its store, according to the New West End Co.