Discussing the proliferation of pop-up shops and the factors that led to their unprecedented rise — including the glut of vacant retail space, a result of bankruptcies and store closures, and retailers’ reluctance to sign long-term leases at pre-correction rents, McGee said, “It’s where we are at this point in the retail renaissance.”
The world renaissance may be a bit too upbeat for an industry that’s seen national chains shutter, bankruptcies and downsizings, the encroachment of Amazon, and consumers who, despite positive economic indicators, are showing restraint in spending.
“Broadly, I’m an optimist,” said McGee.
Some would say the industry is in the midst of a reckoning rather than a retail renaissance, with supply and demand being shaped by new forces, including Millennials and Gen Z consumers for whom shopping in physical stores has never been a foregone conclusion — actually far from it. If not a time of reckoning, shopping center executives might be in the mood for a little introspection to iterate on mall design and find the right ratio of stores, restaurants and entertainment venues.
The pop-up craze, which shows no signs of abating, “is symptomatic of the huge supply of digitally native retailers,” McGee said. “They need physical locations. There are steps on a journey. If they’re poised to have a large national footprint or footprint in a certain geography, a pop-up is a way to test that, and next it’s opening up a store, then opening a number stores.
“There’s a focus on digitally native retailers. We’re going to have curated content at the show” for digitally native brands interested in opening pop-up shops, McGee said, referring to a session at ICSC’s New York Dealmaking, which launched Tuesday at the Jacob K. Javits Convention Center. “They’ll have the ability to network with each other and talk to financiers and venture capitalists,” he said. “There was interest from the retail community. This is the first time we’ve done anything on such a large scale. What’s happening is there’s a huge recognition on the part of digitally native brands that you need to have a store to build brand awareness and credibility.”
McGee said sharing the best of brick-and-mortar stores’ capabilities with the brand’s web site and vice versa strengthens both platforms. “There’s a tremendous amount of convergence,” he said. “We issued a recent report, ‘The Halo Effect: How Bricks Impact Clicks.’ That study spoke to the benefits that synergies between physical and online retail channels drive. For example, an e-tailer opening a physical store can realize a 37 percent gain in traffic to the web site, and increase its share within a market by 27 percent.”
Bullish as ever, McGee said, “We’re forecasting 4.5 percent growth for the holiday season, and I wouldn’t be surprised if it ends up being stronger. The economy is strong and there’s strong consumer sentiment.”
CBL Properties‘ chief executive officer Stephen D. Lebovitz wasn’t quite as effusive. “Black Friday traffic was flat in our portfolio, but sales were up because people were doing more research. They were being intentional,” Lebovitz said. “We made changes from a merchandise-mix point of view. We added more food and entertainment. In the past two years, over 60 percent of leases [we signed] have been nonapparel tenants. We’re not as dependent on apparel. The margins of the last few years suffered because retailers had to take more markdowns.”
Lebovitz said CBL is having success with adding hotels to projects such as Hamilton Place in Chattanooga, Tenn. “Sears is the big one we’re watching to see if it emerges as a 500-store chain. He [Edward S. Lampert, chairman of Sears Holdings and ESL Investments] is trying to see if he can maximize the real estate value over time.”
Lebovitz went on: “Gap closing stores is nothing new. We shrunk our Gap exposure over 15 years. We have about eight or nine Gap stores left. We had 40 Sears stores at the start of the year and we’re ending the year with 18. Some we tear down and some we repurpose. We opened a Cheesecake Factory at Hamilton Place and we have a hotel going up on the parking lot.”
“The rationales behind store closings are very different,” McGee said. “The larger department stores such as Sears have been around for decades. Those closings relate to a lack of investment in physical stores and lack of differentiating themselves. The others are part of the normal environment. Retail is, by nature, an exceptionally competitive business. They’re always trimming stores, new ones are coming in and others exiting. I’m not worried about the inability of [shopping centers] to absorb the square footage. We have a strong economy. It’s best not to get caught up in the quarter by quarter absorption. The industry has been able to manage itself well since the Great Recession. The demographics are positive with Millennials starting to buy their first homes.”
Lebovitz is no stranger to pop-up shops, either. “Over the years it’s been a growing program for us. For the 2017 bankruptcies we rotated different concepts through spaces weekly, biweekly or monthly,” he said. “We opened a pop-up shop for Rachel Roy, and now we’re talking to them about shorter-term stores. Pop-up shops offer retailers flexibility and they give us a chance to validate a concept. A lot of pop-up shops stay for a long time. We always want to have pop-ups in the 5 to 10 percent range of the total mall.”
McGee said the convergence theme is playing out on multiple levels, not only between the physical and digital worlds, but in the sense of bringing different types of real estate together for mixed-use projects. “Consumers are demanding to live, work and play all in one place.
“Food and beverage will continue to be important,” McGee sad. “In terms of demographics, Baby Boomers are empty nesters and the oldest Millennials are 37, and just beginning to have kids. It’s a generation that goes out to eat a lot. With America’s focus on using time efficiently and the growing demands on time, we’ll continue to see a lot of people eating out.”
Hudson Yards, the development on the far West Side of Manhattan, is finally coming to fruition with a scheduled spring opening. “Hudson Yards is building a new neighborhood,” said Andrea Abrams, a New York-based international business development and strategy consultant for the retail and fashion industries. “This project is about ‘place-making’.”
Abrams, who worked on projects such as The Woodlands town center, Summerlin town center and Ward Village, said the success of those mixed-use developments rested on “the developers’ ability to successfully brand the experience. Related [developer of Hudson Yards] has mastered the art of urban mixed use. The retail collection and food and beverage program will give consumers a new reason to visit the West Side.”
Hudson Yards’ food offerings are expected to be a major draw, with many restaurants chosen by Related Urban ceo Kenneth A. Himmel and French Laundry and Per Se owner and chef Thomas Keller. A sign of the importance of food to the retail industry is Cushman & Wakfield‘s announcement Monday that it acquired food, beverage and entertainment group Colicchio Consulting, with cofounders and principals Phil Colicchio and Trip Schneck joining Cushman & Wakefield.
“In an evolving retail environment, experiential and specialty food, beverage and entertainment concepts are critical to success,” Colicchio said. Schneck added, “We work as true strategists and partners with our clients….our team understands the importance of authenticity and intelligent programming. We’re thrilled to help clients take advantage of the changing real estate landscape in powerful ways.”
Entertainment will be the mother lode at American Dream, opening next year in the Meadowlands in East Rutherford, N.J. “Triple Five’s American Dream is also West of Manhattan,” Abrams said. “The destination is projected to have over 45 million visitors, including 22 million tourists, by offering a multitude of experiences new to New York. The dynamic of shopping will change with access to world class entertainment that New Yorkers haven’t enjoyed during a day of street shopping or shopping at a local mall.”
McGee agreed with diversification. “The more consumers can do at a shopping center, the more they want to do,” he said. “I think there’s a role for experience, but experience from a broadly developed standpoint. Retailers themselves need to offer experience. T.J. Maxx is an experience, it’s a treasure hunt. Ordering online and having it dropped off in the parking lot for you is an experience. A high-tech experience can be going to test out big coats.” For example, Canada Goose opened a cold room at its store at the Mall at Short Hills in New Jersey, where consumers experience the Thermal Experience Index, which is the scale Canada Goose created to rank the warmth of its jackets.
“Clearly, real estate is by nature a very local business and wants to curate to the needs of the community,” McGee said. Walmart Inc.’s new town center concept will reimagine more than a dozen existing Walmart Supercenters, the land on which they sit and surrounding property — which in many cases is owned by the retailer — by utilizing square footage and acreage in new ways including building container parks, food halls and complimentary services.
“Walmart is speaking to a need to meet what consumers want,” McGee said. “Retailers are always trying to adapt and look at opportunities to grow and meet customers where they want to be. I wouldn’t rule anything out for anyone. Walmart is doing a very good job of growing the digital channel by leveraging the physical aspects of its stores. Amazon is leveraging digital. The largest retailer in the world, Walmart, and largest digital player, Amazon, are both focused on growing in different channels.”