CSA - Jan/Feb 2021

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January/February 2021

New Formats Focus on Convenience Walmart’s Growing IoT Network Real Estate Report: Northeast & MId-Atlantic

FulďŹ llment Centers Reimagined

Robots, delivery hubs, automated systems transforming traditional model


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from the editor’s desk

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On the Level: A real estate column

tech viewpoint: a retail tech column

Contents VOL. 97 JANUARY/FEBRUARY NO. 1

COVER STORY

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FULFILLMENT CENTERS TRANSFORMED Robots, delivery hubs and automated systems are transforming the traditional retail fulfillment and warehouse model.

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Quick-service chains unveil new restaurant designs focused on convenience and the drive-thru.

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STORE SPACES

For businesses, supporting inclusion means making all employees feel welcome.

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HVAC and COVID-19: A look at existing and emerging HVAC technologies that can be added to existing systems to help improve indoor air quality Retailers are enhancing their commitment to in-store health and safety with new sanitization initiatives.

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New best practices in facilities management in wake of COVID-19 include the need to reassess operational risk. Vendor Q&A: Rubicon’s Perry Moss discusses waste management and recycling challenges and how technology is impacting waste management operations. ShopTalk: Rite Aid is testing a new store format that upends traditional drug store design.

CSA (USPS 054-410; ISSN 0193-1199), is published bimonthly by EnsembleIQ, 8550 W. Bryn Mawr Ave., Suite 200, Chicago, IL 60631, on a controlled basis to qualified retailer titles and architects. Real estate and shopping center owners and developers $75 per year. All other non-qualified in the United States: $80 one year; $155 two year; $14 single issue copy; Canada and Mexico: $105 one year; $185 two year; $16 single issue copy; Foreign: $115 one year; $215 two year; $16 single issue copy. Digital edition subscription: $55 one year digital; $105 two year digital. Periodicals postage paid at Chicago, IL and additional mailing offices. ­POSTMASTER: Please send address changes to CSA, Circulation Fulfillment Director, 8550 W. Bryn Mawr Ave, Suite 200, Chicago, IL 60631. Subscription changes may also be emailed to contact@chainstoreage.com, or call 1-877-687-7321. Vol. 97, No. 1, January/February 2021. Copyright ©2021 by EnsembleIQ. All rights reserved.

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Contents VOL. 97 JANUARY/FEBRUARY NO. 1

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REAL ESTATE

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In 2020, tenants battled stormy weather

TECH

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REGION REPORT: Northeast & Mid-Atlantic Dense metros take on suburbanization

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Metro Market Watch Retail prices, rents, availability and post-pandemic conditions in nine leading metros.

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Walmart uses a network of more than 7 million unique IoT data points across its stores to help lower energy consumption and improve food quality.

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Bed Bath & Beyond’s omnichannel transformation is the foundation of its turnaround strategy.

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Vendor Q&A: Rob Garf of Salesforce examines how retailers can expand on existing digital transformation initiatives for continued success. 4

JANUARY/FEBRUARY 2021

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FROM THE EDITOR’S DESK

Still Not Enough Starting with the exit of the legendary Les Wexner at L Brands, the retail industry has experienced plenty of leadership shake-ups during the past 12 months or so. But to my mind, the most notable change in retail C-suites these days isn’t the people who have left as much as it is the gender of the folks who are taking the reins. Think about this for a minute: As of mid-March, the nation’s three largest drug store and integrated health companies — Walgreens Boots Alliance, CVS Health Corp. and Rite Aid — all will have women at the helm. Rite Aid named healthcare veteran Heyward Donigan as CEO in August 2019. Aetna executive Karen S. Lynch takes charge at CVS this February. And on March 15, former Starbucks COO Roz Brewer steps into the top office at Walgreens Boots Alliance. She will be the only Black woman currently at the helm of a Fortune 500 company and only the third in its history. (The first was Ursula Burna, CEO of Xerox from 2009 to 2016. The second was Mary Winston, interim CEO of Bed Bath & Beyond for a brief time in 2019.) The three women cited above are just the tip of the iceberg. In November, Dick’s Sporting Goods named Lauren Hobart as its next CEO, making her the first female chief executive of a major sporting goods retailer. J. Crew Group, Gap Inc. and Coach parent Tapestry all named female CEOs during the past 12 months. When Brewer officially takes the helm of Walgreens, she will be one of 40 women running a Fortune 500 company. (It would have been 41 if not for the abrupt departure of Jill Soltau at J.C. Penney.) And out of those 40, 10 (barring any lastminute additions or exits) will be running retail chains.

CHAIN STORE AGE

The stats speak for themselves. Women are making progress, especially in retail, but the overall gender gap in the top ranks of corporate America remains massive. Yes, the number of female-run Fortune 500 companies is at an all-time high, but at 40, it’s still a small percentage. And there is still a startling lack of racial diversity. The situation isn’t much better on corporate boards. Among the 3,000 largest U.S. publicly traded companies, only about one in five board members are women, according to Equilar, which tracks corporate governance data. And it found that nearly one in 10 boards had no women. But change may be in the air. Nasdaq wants to require the more than 3,000 companies listed on its stock exchange to improve boardroom diversity by appointing at least one woman and at least one minority or LGBTQ+ person to their boards. Companies would have to report regularly on how many women and minorities sit on their boards and then follow that up by appointing at least one member of each group, under a rule recently submitted to the Securities and Exchange Commission. I understand that quotas are never popular, but sometimes they are the only way to make real progress. And if you are still not convinced, here’s something that might strike close to home — or at least the bottom line: An S&P Global Market Intelligence study last year found that public companies with female CEOs (or CFOs) often were more profitable and had better stock price performance than many of the companies that had appointed men to those roles. (The study looked at new CEO and CFO appointments for companies on the Russell 3000 Index during the past 17 years.)

Marianne Wilson mwilson@chainstoreage.com

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CHANNELS chainstoreage.com > COMMERCE > CUSTOMERS

An EnsembleIQ Publication

Corporate Office: 8550 W. Bryn Mawr Ave., Suite 200, Chicago, IL 60631

Vice President, Group Publisher, CSA, SPECS Chairman Gary Esposito (212) 756-5118, gesposito@chainstoreage.com

Editor Marianne Wilson

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Corporate Officers Chief Executive Officer Jennifer Litterick Chief Human Resources Officer Ann Jadown Chief Financial Officer Jane Volland Chief Innovation Officer Tanner Van Dusen Executive Vice President, Events & Conference Ed Several Senior Vice President, Content Joe Territo

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COVER STORY

Fulfillment Centers Transformed Traditional model evolving with robots, delivery hubs and automated systems By Dan Berthiaume

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obots, customer-centric delivery hubs and automated systems are transforming the traditional retail fulfillment center model. The fulfillment center is not typically an area of the retail enterprise that is viewed as a center of innovation. Much attention has been paid to the “store of the future,” but retailers are also rapidly adopting technologies that are re-inventing the staid operations of the fulfillment center. Of course, the fulfillment center does not operate in a vacuum. Larger retail trends, already evolving for several years but magnified in the past 12 months due to the impact of COVID-19, filter down to the fulfillment center. These include consumers’ move to-

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ward e-commerce (see sidebar), as well as a migration toward offering a more personalized, segmented customer experience. “We are not post-COVID-19, we are in a new beginning of the supply chain,” Matthew Lekstutis, global practice leader, supply chain transformation, Tata Consultancy Services (TCS) told Chain Store Age. “The pandemic has accelerated a series of dynamics that were already underway and consolidated and amplified them. “COVID-19 accelerated the industry’s motion toward a personalized experience, with retailers and CPG companies offering an end-to-end supply chain,” continued Lekstutis. “The new supply chain is focused on availability, deliverability, accessibility,

and sustainability and ethics. It is purpose-driven, with a heightened sensitivity to safety.” The “fulfillment center of the future” that retailers are creating to serve the new supply chain as described by Lekstutis is still taking shape. However, three early trends are already having a major impact on how retailers run their warehouses: robots, customer-centric delivery hubs, and automated systems.

ROBOTS Faced with an unprecedented surge in online orders and significant workforce disruption caused by the COVID-19 pandemic, an increasing number of retailers JANUARY/FEBRUARY 2021

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have been relying more on robots to perform repetitive, monotonous and lower-skill tasks for e-commerce fulfillment. Specialty apparel retailers Gap Inc. and American Eagle Outfitters have been scaling their picking and packing operations for online orders with the Sort smart robotic solution from Kindred, which was purchased by U.K. online grocer Ocado Group in late last year. Gap is operating more than 100 of the piece-picking Sort Robots in its U.S. distribution centers. The retailer expanded its fleet in June 2020. Between Jan. 1 and April 30, 2020, the Kindred piece-picking robots completed more than 13 million unique picks of Gap merchandise. During that time frame, the robots facilitated an average sorting speed of 335 units per hour and maintained uptime at 99.8%. Rather than standing side-by-side with co-workers to conduct pick and place operations, one employee can manage three to four Sort robots simultaneously, helping them to keep up with e-commerce fulfillment while maintaining social distancing. American Eagle Outfitters, which began using Kindred Sort robots at select facilities in 2018, added new units in its primary U.S. distribution centers in August 2020. Sort piece-picking robots utilize AutoGrasp, a robotics intelligence platform that identifies and singulates items to pick and place into an automated put wall. AutoGrasp combines vision, grasping and manipulation algorithms to move clothing, poly bags and other small items. Kindred uses artificial intelligence (AI) research and human-in-the-loop data methodology to continuously improve robot capabilities so that picking becomes smarter, faster and more accurate over time. Meanwhile, global grocery conglomerate Ahold Delhaize is piloting a robotic solution for disinfecting air and surfaces in two of its U.S. supply chain facilities. Retail Business Services (RBS), the services company of Ahold Delhaize USA, is testing newly launched ultraviolet robots from Ava Robotics in two of its affiliated distribution centers to support enhanced cleaning procedures during the COVID-19 pandemic. The fully autonomous robots feature applications that disinfect both air and surfaces, with integration of screens and speakers for disinfection-related announcements. CHAINSTOREAGE.COM

JANUARY/FEBRUARY 2021

The robots also provide remote access for facilities managers or other users, and automatically send email reports to managers that confirm appropriate dosages for assigned areas. RBS can integrate the robots with its cleaning best practices and existing protocols. According to Ava Robotics, the solution offers a disinfection rate of approximately 9,000 sq. ft. per hour, with 99% effectiveness against COVID-19. DHL Supply Chain, the supply chain subsidiary of global logistics company Deutsche Post DHL Group, is collaborating with Microsoft and enterprise systems provider Blue Yonder to roll out a “plug and play” robotics solution designed to ease the integration of automation into more than 2,000 warehouses. The solution leverages Microsoft Azure IoT and cloud platform services, and is powered by Blue Yonder’s Luminate digital fulfillment platform, which provides machinelearning (ML)-driven task management capabilities for warehouse operations. The robotics platform is designed to reduce integration time and programming efforts to on-board new automation devices into warehouse facilities, while giving DHL sites more flexibility in selecting robotics systems suited to their individual business needs.

CUSTOMER-CENTRIC SUPPLY CHAIN HUBS It’s no secret that retail is becoming a more customer-centric industry. Retailers are promising shoppers the products they want, when and where they want them. To fulfill that promise, retailers are creating highly specialized supply chain hubs designed to meet the needs of specific customer segments. In time for the 2020 holiday season, Walmart created “pop-up e-commerce distribution centers” to fulfill home delivery orders. The retail behemoth took space in 42 of its existing regional distribution centers (RDCs) across the U.S. and created pop-up e-commerce distribution centers, or eDCs, to meet its growing demand for delivery of online orders directly to customers. Walmart expected to ship up to 30% of its holiday volume from these pop-up

ONGOING FULFILLMENT CHALLENGES

Major fulfillment challenges are continuing for retailers amid the sharp growth in e-commerce as a result of the COVID-19 pandemic, according to new research from enterprise technology provider Blue Yonder and conducted by Researchscape International. The survey revealed the following: • E-commerce revenue as a percentage of total revenue increased by 33% from before initial COVID-19 lockdowns began in March 2020. • 27% of retailers have added fulfillment centers to meet the e-commerce shift, and half operate centers dedicated to e-commerce order fulfillment. • Roughly seven in 10 (71%) retailers have expanded their logistics network to meet increased e-commerce demand and close to half (46%) said they need to be closer to the consumer to reduce cost to fulfill and enable delivery speed and convenience. • 15% of retailers have leveraged micro-fulfillment centers in their logistics network. • 14% of retailers currently operate automated fulfillment locations, including nearly half (49%) which obtain all their revenue from e-commerce. • Four in 10 (41%) drug store/ health & beauty retailers and 40% of grocery retailers have increased their number of fulfillment centers to meet e-commerce needs and maintain a consistent customer and brand experience, more than any other verticals.

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COVER STORY

Specialty apparel retailers Gap Inc. and American Eagle Outfitters have been scaling their picking and packing operations for online orders with the Sort smart robotic solution from Kindred. eDCs. A multi channel sourcing engine (MCSE) scanned the entirety of the company’s fulfillment network in less than a second and assigned orders to eDCs when it determined they offered the fastest and most efficient option to fulfill an online order. After the holiday, Walmart’s eDCs will have the flexibility to scale up and down, and the company says it will apply lessons learned to further evolve the supply chain network in the future. By early 2022, home improvement giant Lowe’s plans to have opened 50 cross-dock delivery terminals, seven bulk distribution centers and four e-commerce fulfillment centers across the U.S. “It’s all about our customers,” Don Frieson, Lowe’s executive VP of supply chain, told Chain Store Age. “We have an opportunity in the omnichannel environment to serve customers the way they want to be served.” Lowe’s opened a West Coast e-commerce fulfillment center in Mira Loma, Calif., in October 2020, with the goal of offering faster direct-to-consumer shipping options. This direct fulfillment center is designed to improve two-day delivery options to reach nearly 100% of customers nationwide. “We want to offer flexible delivery options, especially for bulky and highly deliverable items like washers, dryers, grills and patio furniture, whether in store or online,” said Frieson. “To deliver from stores, we want to take the capacity out of the store. This increases sales by allowing store associates to focus on the customer instead of whether they can deliver the product.” 10

Frieson said that by removing the need to deliver inventory to stores and instead delivering from the warehouse to a cross-dock facility to a fulfillment center, Lowe’s can remove two steps from the process and make delivery much more efficient. “In many cases, if the customer comes in the store and makes a purchase by 4 p.m., we can make the delivery the next day,” he stated. Another home improvement giant, Home Depot, is opening three Atlanta-area facilities to better fulfill purchases from certain areas and for targeted products and customers. The largest of these new facilities, a 657,600-sq.-ft. distribution center focusing on fast replenishment to stores in the Southeast, opened in December 2020. A new “flatbed delivery center,” set to open in Stonecrest, Ga., in 2021, will offer same-day and next-day delivery of bulk and oversized orders to both Pro and DIY customers. The third will be an order fulfillment operation that will open in late 2021 and offer same-day and next day delivery of the most popular products primarily ordered by institutional business customers for their maintenance, repair and operations needs.

AUTOMATED SYSTEMS One of the hottest current trends in automated retail fulfillment technology is micro-fulfillment. Primarily found in the grocery and CPG verticals, micro-fulfillment uses small-scale warehouse facilities located in urban areas to operate same- or next-day delivery order fulfilment. “Micro-fulfillment centers allow for high-

density product storage and use shuttle systems or other forms of material handling automation to put away and retrieve products for consumer orders at high speed,” Tom Enright, VP and analyst with Gartner, told Chain Store Age. “The model is a goods-to-person style of automation and robotics, where the human stays in one place and automation delivers the goods to be picked to them.” Retailers including Walmart, Albertsons, Loblaw, H-E-B, FreshDirect and goPuff are all utilizing micro-fulfillment technology. “This model can significantly increase picking productivity when compared to traditional, manual, in-store picking,” said Enright. “Micro-fulfillment centers challenge the notion of ‘bigger is better’ by providing smaller footprints, automation and/or robotics enablement and fulfillmentas-a-service distribution points that are specifically designed to cost-effectively enable on-demand fulfillment.” Grocery giant Kroger is collaborating with U.K. online grocery retailer Ocado Group (cited as new parent company of Kindred in “Robots” section) to deploy a whole new leading-edge automated supply chain technology model in fulfillment centers and across its physical stores. Calling this new model the “customer fulfillment center (CFC),” Kroger and Ocado are incorporating state-of-the-art automation and artificial intelligence to help accelerate Kroger’s ability to provide customers with “anything, anytime, anywhere” through its seamless ecosystem. The program coincides with Kroger’s Restock program, which focuses on the company’s accelerated commitment to digital and e-commerce efforts. Ultimately, Kroger intends to use the CFC model to expand the availability of its products to a larger footprint. Kroger plans to open the country’s first two CFC facilities in Monroe, Ohio, a suburb of Cincinnati, and Groveland, Fla., in early 2021. Kroger and Ocado plan to open a total of at least 20 CFC sites. Kroger will also collaborate with Ocado on in-store fulfilment (ISF) capabilities, with a planned rollout across its stores beginning this year. Ocado’s in-store fulfilment solution includes proprietary software that supports associates’ efforts to assemble orders and makes it easier and more efficient for them to find products when fulfilling customer pickup orders. The grocer intends ISF to help support the rapid growth of pickup demand across its stores nationwide. JANUARY/FEBRUARY 2021

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NEW FORMATS

Quick-Service Chains Focus on Convenience New, smaller formats boast smaller footprints, digital integration By Marianne Wilson The pandemic is causing some of the nation’s leading fast-food chains to rethink their restaurant designs, with an eye on convenience, contactless pickup and a drive-thru experience enhanced by technology. The interior space is taking a backseat to exterior elements as consumers continue to favor online ordering and drive-thru lanes. In many instances, footprints are getting smaller as operators streamline customer access points. “Retailers can learn a lot from quickservice restaurants that are enabling their digital-first customers,” said Michael Brown, partner and retail lead for the Americas at global strategy and management consulting firm Kearney. “Contactless and frictionless are preferred ways of payment. Consumers will expect BOPIS to evolve to in-vehicle curbside in every situation. Retailers who can successfully execute on in-vehicle curbside have the potential to convert consumers from ship-to-home to curbside, thus significantly reducing costs.” Here’s a look at how several quick-service chains are reimagining their designs. Taco Bell

Burger King

Taco Bell: The new “Taco Bell Go Mobile” concept, which will debut in the first quarter of 2021, is designed to enhance the digital and drive-thru experience for customers. It has two drive-thru lanes, including a new priority pick-up lane with quick service for customers who have ordered online via the Taco Bell app. (Customers can still walk into the restaurant and order at the counter.)

To streamline the experiences even further, the eateries will also include tablet ordering in drive-thrus, which along with curbside pickup, will be operated by a “concierge service” of employee “bellhops.” Other features include smart kitchen technology that is integrated with the brand’s app. The technology detects when customers have arrived and alerts them to the quickest route for pick-up: curbside, the express lane or carry-out. At 1,325 sq. ft., Taco Go Mobile locations will have a much smaller footprint compared to the average 2,500-sq.-ft. Taco Bell. McDonald’s: The fast-food giant is testing a number of drive-thru concepts and initiatives, including automating ordering and payments by identifying customers at the display screen. In addition, new technology will alert store employees to prep orders when customers are nearby, with dedicated parking spaces helping to ensure fast pick-up. McDonald’s is also piloting a new express drive-thru lane that lets customers using its get their food even faster, with some stores delivering express drive-thru orders via conveyor belt.

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NEW FORMATS

smells and kitchen views of a traditional Chipotle restaurant. Chipotle is also testing other innovations. The chain is piloting “carside pickup” at select locations, with plans to roll it out nationwide later this year. Online orders are delivered directly to customers’ parked cars. And “Chipotlanes,” the brand’s drive-thru digital order pickup lanes, are expected to be included in the majority of new Chipotle restaurants opening this year.

Chipotle

Shake Shack

Burger King: The chain has two futuristic restaurant designs in the works that offer a “touchless” experience, with a footprint that’s about 60% smaller than a traditional Burger King restaurant site. The new designs will feature dedicated mobile order and curbside pick-up areas, drivein and walk-up order areas, an enhanced drive-thru experience and exterior dining spaces. The reimagined restaurant blueprints also allow for mobile and delivery orders to be picked up from coded food lockers facing the exterior of the restaurant. The food will come straight from the kitchen to the pickup lockers. One design option features a suspended kitchen and dining room above drive-thru lanes. There are three drive-thru lanes — with one exclusively for delivery drivers — and a walk-up window. Orders will be delivered from the kitchen

by a conveyor belt system. Customers eat their food in the dining room or covered outdoor area above the drive-thru entrance. The other design has two drive-thru lanes and a shaded outdoor dining patio. Customers can also park their cars under solar-powered canopies and have their orders delivered directly to their vehicles after scanning a QR code at their parking spot and placing their order on Burger King’s mobile app. Chipotle Mexican Grill: The new “Chipotle Digital Kitchen” is the company’s first-ever digital-only restaurant. With no dining or front service line, it fills pick-up and delivery orders only. Customers must order in advance via the Chipotle website or app, or third-party delivery partners. Orders can be picked up from a lobby that includes all the sounds,

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El Pollo Loco: The fast-casual, grilled chicken chain is debuting a format designed to enhance off-premise convenience. There are two versions of the new design, with one focused on drive-thru and pick-up. It features a take-out window, a dual drivethru, dedicated curbside pick-up parking spaces, and patio seating — but no indoor dining room. The second version includes a dual drivethru, dedicated curbside pick-up parking spaces and a smaller than typical dining room that opens up to an expansive patio via flexible garage-styled doors. When the doors are open, the indoor and outdoor experiences “seamlessly blend,” according to the company, and increase the comfort level of the customers inside by enabling them to enjoy their meal in an airy, well-ventilated environment. The two designs share an enhanced digitized experience, including a double drive-thru with digital menu boards and GPS-enabled curbside pick-up. Customers will have the option to go fully contactless and pick up their mobile to-go orders from designated cubbies inside the restaurant. The digital features are all integrated with the company’s mobile app. Shake Shack: The fast-growing eatery will open its first-ever location with a drive-thru later this year, at the Vineland Pointe outdoor center in Orlando, Florida. The 3,300-sq.ft. unit will feature a digital menu board, a two-lane ordering system, a separate walk up window for picking up online orders and a patio. The company expects to open five to eight Shacks with drive-thru lanes during the next two years. In addition, Shake Shack is also adding digitally enabled interior and exterior walk-up windows to select locations. JANUARY/FEBRUARY 2021

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BEFORE

AFTER

This is the result of three months of fitting-room traffic at a major clothing retailer, prior to SCUFF-X® application. This fitting room was re-touched as part of a weekly maintenance schedule.

This is the result of three months of fitting-room traffic at the same major clothing retailer, following SCUFF-X® application.

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HUMAN RESOURCES

Supporting Inclusion in the Workplace Making ALL employees feel at home By Sarah Alter The Network of Executive Women was established in 2001, and since that time most would say that workplaces have gotten better for LGBTQ+ people. Yet there is still a major disconnect at many organizations between stated progress and the day-to-day experience of being an LGBTQ+ person at work. [LGBTQ+stands for lesbian, gay, bisexual, transgender and queer (or questioning) and others.] In 2018, the Human Rights Campaign (HRC) published its “A Workplace Divided’ study and it stated that the number of employees who were closeted at work had dropped. Unfortunately, that number had only dropped by 4% — from 50% to 46% — during the 10 years since their previous study in 2008. As the HRC stated in it’s report, “LGBTQ workers lack faith in accountability systems, sometimes with good reason.” They found that workers primarily don’t report hearing their coworkers speak negatively about LGTBQ+ people because they simply don’t think anything will be done to stop it. They also fear harming their relationships with coworkers. For LGBTQ+ employees to be their full selves at work, organizations need to prove they are worthy of their employees’ trust. And that starts at the top. Zero tolerance for intolerance The HRC reported that one in 10 employees has heard a supervisor making negative comments about LGBTQ+ people. This leads to employees who feel excluded from company culture, 31% of whom state that they feel depressed at work. Knowing you may have depressed employees who feel denigrated by their supervisors for who they are should be enough to prompt any employer to take swift and decisive action. Allyship [the state or condition of being an ally] can only begin when accountability has

been established. LGTBQ+ employees need to hear clearly stated policies from their employer which ban discriminatory language from the workplace, and encourage who that hear it to report it via an unbiased accountability system. Forty-five percent of LGBTQ+ people agreed with the statement that “enforcement of the non-discrimination policy is dependent on their supervisor’s own feelings towards LGBTQ people,” adding to the pressing need for an impartial resource outside their direct supervisor. Fifty-percent of LGBTQ+ workers stated they believe they are the only LGBTQ+ person in their workplace. Ensuring that employees who feel isolated are secure in the knowledge that their identity will be respected could not be of more critical importance for their comfort, happiness and retention.

outsized impact on the well-being of those around you. One such resource was created by the NYC Department of Social Services and it does a wonderful job. Remember, educating yourself should be the order of the day along with arranging for professional education for your team. Relying on LGBTQ+ coworkers to educate you adds additional stress to an already stressful situation. Some wonderful online resources you can lean on instead include the Human Rights Campaign and the University of California San Francisco’s Lesbian, Gay, Bisexual and Transgender Resource Center. Stand by your team and they’ll stand by you After education, however, comes action. Allies need to be willing to speak up at work when they hear a coworker, fellow supervisor, or even fellow board member denigrating LGBTQ+ people. “It’s just a joke” is never an excuse for making members of the LGBTQ+ community feel they don’t belong in your workplace. Twenty-percent of LGBTQ+ people working in an unwelcoming environment said they were looking for other jobs, and 17% of LGBTQ+ people report being exhausted with trying to hide their identity at work. If

If nothing else, the cost of replacing employees lost to prejudice — and the strong evidence that diverse workplaces lead to better business outcomes — should motivate businesses to respond. Allyship — actions mean more, but words matter Allyship begins with education, and there is no better way to start than with robust education for employees on unconscious bias and the realities of the LGBTQ+ community. Fifty-three percent of LGBTQ+ people reported hearing jokes about their community at work, while just 37% of non-LGBTQ+ employees heard them. This gap shows unconscious bias in the minds of many non-LGBTQ+ employees, which, while unintentional, can only change with education. Respecting pronoun use is another way to show your allyship. There are many wonderful resources out there to help explain why this small sign of respect can have

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nothing else, the cost of replacing employees lost to prejudice — and the strong evidence that diverse workplaces lead to better business outcomes — should motivate businesses to respond. The report cited in this article is from 2018, and there can be no doubt that the COVID-19 epidemic has wrought many changes on our workplaces since. But with our coworkers more involved in our lives than ever — seeing our dogs, our homes, and our children over Zoom — everyone deserves to be as open as they would like to be at work. — Sarah Alter is president and CEO of the Network of Executive Women, a non-profit learning, leadership and gender equality advocacy organization that counts more than 300 national and regional corporate partners. JANUARY/FEBRUARY 2021

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STORE SPACES

HVAC and COVID-19 What retailers need to know By Clive Samuels As the scientific and medical community learns more about COVID-19 every day, the consensus remains that airborne transmission is the primary mode by which the disease is spreading. In addition to requiring masks and taking other precautionary sanitization measures, retailers can also upgrade their HVAC systems with emerging technologies shown to amplify their effectiveness in cleaning the air. Every retail environment will have its own unique needs and opportunities to upgrade and equip HVAC systems to aid in the fight against COVID-19. The type of existing HVAC system that is being used, as well as the size, layout, coding regulations and structure of the retail space, are all factors that must be considered. Fortunately, there are a range of existing and emerging HVAC technologies that can be added to existing HVAC systems to improve indoor air quality. Ideally, these technologies should be evaluated in consultation with a trained HVAC professional to ensure that they will work for the individual needs of each retail store environment. Air Ionization Also known as bipolar ionization, air ionization is gaining greater adoption as a tool to remove airborne pathogens from indoor air. On a molecular level, air ionization works by using high-voltage electrodes that separate oxygen molecules into negative and positive ions. As these destabilized ions circulate through the air, they attach themselves to airborne pathogens and neutralize them. Within a continuously circulating HVAC system, these enlarged molecules are trapped in an air filter and removed from the air. Air ionization units can be a cost-effective and relatively easy to integrate into most existing commercial HVAC system. UV-C Lighting Ultraviolet (UV) light can be a powerful tool in not only disinfecting surfaces, but also in purifying the air with the proper equipment and installation methods. UV-C light at a CHAINSTOREAGE.COM

germicidal wavelength of 260nm is considered the most effective in destroying pathogens. While it is harmful to human when direct exposure occurs, HVAC engineers can design and install equipment that will maximize its disinfecting power while keeping humans safe from its negative effects. A newer version of UV-C light termed FAR-UVC is emitted at a wavelength that does not cause harm to humans and is still very potent in destroying virus particles. Expert HVAC technicians can install the UV-C lighting within the HVAC ductwork, where the airborne particles that contain the virus will recirculate and become irradiated. Maintenance is key to ensuring that ultraviolet lights function efficiently and they generally should be replaced on an annual basis. Air Filtration Proper air filtration is fundamental to healthy indoor air quality and may help lower the risk of airborne transmission of COVID-19. Standard air filters have varying degrees of filtration efficiency, based on their minimum efficiency reporting value (MERV), which is a numerical value ranging from 1 to 16. The higher the number, the higher level of filtration it will provide as part of the HVAC system. ASHRAE recommends air filters with MERV of 14 or higher in order to block airborne viruses. Higher grade filters such as HEPA (high-efficiency particulate air) and ULPA (ultra-low particulate air) filters can provide stronger air filtration to remove viruses and bacteria from indoor air. It’s important to consult with an HVAC professional before upgrading filters to ensure that the existing fan and motor systems can handle increased air pressure. Humidity Control Controlling humidity is important for the comfort of shoppers and staff, and may also help minimize the possibility of airborne transmission of COVID-19. Based on recommendations from the American Society of Microbiology, maintaining indoor relative humidity in between 40% and 60% creates

an environment that is less conducive to airborne transmission of COVID-19, and it can help the body to ward off the virus by hydrating mucous membranes which help filter inhaled air. Depending on the needs of the indoor space, retailers can increase humidity, particularly during the winter months, by installing a humidifier within their HVAC system, or they can explore how best to lower humidity by consulting with a qualified HVAC professional. High Ventilation While proper ventilation cannot prevent COVID-19 transmission on its own, it can serve as one of many key contributors to healthy indoor air quality. Published research has shown that indoor air quality is greatly enhanced when a higher-than-normal amount of conditioned outdoor air is circulated into an indoor air environment. Retailers can improve indoor ventilation by having an air economizer installed within the building’s HVAC system or they can add a dedicated outdoor air system (also commonly known as a make-up air unit.) Experienced HVAC contractors can reprogram the HVAC controllers to increase the quantity of fresh air permanently, or through frequent flushing cycles. If the outdoor temperatures, air quality and humidity levels are appropriate, they may also be able to enhance ventilation by opening windows and doors to allow outdoor air to circulate inside. HVAC systems can provide a powerful tool to help retailers protect their customers when they are used as a secondary measure and environmental control in tandem with other CDC-recommended protocols to reduce COVID-19 transmission. Retailers can make a difference with meaningful improvements and additions to their existing systems that can pay off significantly with enhanced safety and peace of mind. — Clive Samuels is president of CoolSys Energy Designs, a division of CoolSys, a parent company of HVAC and refrigeration companies nationwide.

JANUARY/FEBRUARY 2021

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STORE SPACES

Spotlight on Store Sanitization By Deena AmatoMcCoy The pandemic forced retailers to rethink how to sanitize shared spaces. Committed to supporting employee and customer health, retailers are creating new health policies and procedures, and adopting new equipment, such as innovative air filters, to deliver safer shopping environments. That’s according to Jessica Rose Cooper, chief commercial officer for International Well Building Institute (IWBI), which works to bring health-focused design and policy solutions to diverse buildings and human environments worldwide. Chain Store Age spoke with Cooper about how retailers are renewing their commitment to store-level health and safety. How has the pandemic impacted retail facilities maintenance? Retailers are now tasked with understanding and implementing strategies to support public health, and this includes rethinking their spaces from a health and wellness lens. For many retailers, this new normal will include updating policies and procedures to facilitate a healthy and safe facility for all and implementing maintenance procedures designed to enhance indoor health and safety and reduce the risk of disease transmission. It also means increasing customer communication, education and signage to capture important updates, activities and information. What sanitization initiatives can position retailers for long-term success? Retailers need to be continually evolving their processes so we can respond more efficiently to future circumstances. For example, it is critical for operators to implement rigorous cleaning practices among high-touch areas, such as doorknobs, handles, switches and countertops, among other locations. They should also keep a cleaning log to increase accountability. There is work to be done on the air quality side as well. For example, it is critical to keep indoor air as fresh as possible. This can be achieved by filtering fresh outdoor air into stores. Operators should start the process by

evaluating their filtration system and introducing outdoor air on a real-time basis. This machinery should also run after hours when the retail space is not in use. Some retailers are also reducing customer capacities, a move that keeps more fresh air in the space and provides customers with more fresh air, as well. The second line of defense is stepping up filtration practices. This could include installing HEPA or MERV-13 filters that increase particulate filtration capabilities. These filters are designed to catch larger particles that the COVID-19 virus attaches itself to and remove them from air. If companies do not have the ability to make these changes, they can consider adding an air purifier in retail spaces. These stand-alone units also help mitigate air transmission. What advice do you have for retailers committed to keeping their stores safe for customers and employees? While design, operations and protocols (open doors and windows, enhanced cleaning measures, social distancing) all play a critical role in minimizing transmission, the most important thing any retailer can do is encourage people (customers and

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employees) to wear a mask properly and stay home when they feel sick. What can retailers do to manage customer expectations regarding safety? We are constantly learning new information about the COVID-19 pandemic and, with that, continually enhancing guidance around best practices. That’s why it is so critical that retailers not only take an evidence-based, holistic approach to fighting the virus, but also effectively communicate that approach to customers to help manage their expectations and enable them to engage in safe and healthy behaviors. IWBI can help retailers achieve this goal through the Well Health-Safety Rating, an evidence-based, third-party verified rating for all facility types. It focuses on operational policies, maintenance protocols, emergency plans and stakeholder education to address a postCOVID-19 environment now and broader health and safety-related issues into the future. The Well Health-Safety Rating serves as road map for retailers to implement evidencebased strategies that address their unique retail spaces. Upon completion, the Well HealthSafety seal signifies that the retail space has made a commitment to supporting employee and customer health. JANUARY/FEBRUARY 2021

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Facilities Management: New Best Practices By Barry Wood

Long before COVID-19 was even a part of our vocabularies, retail stores have strived to keep their locations clean, safe and visually pleasing. But facilities have been thrust into the forefront of public concern over the past year, as the unknown surrounding virus transmission has redefined proper facilities management. As we look at 2021 with hope — hope that better days will soon be here — now is the time to ensure our operations meet the new consumer standards we can expect even beyond COVID-19. Reassess Operational Risk Early into the pandemic, heating, ventilation and air-conditioning systems (HVAC) made headlines as possible super-spreaders of the virus. While droplet transmission is believed to be the most common and likely means of infection, the role HVAC plays is still a point of contention. Nonetheless, even with the typical high ceilings found in retail spaces, a poorly managed system still poses the risk of spreading contaminated air. Re-evaluate current systems in place and assess how air is currently moving. For example, if a customer removes their mask in a fitting room and sneezes, the high air flow from the HVAC will undoubtedly move the particles in that space dramatically and have a domino effect on other customers and employees. Diffused air that circulates out and around versus vertically could likely be the future of HVAC implementation in such spaces. Staying abreast of preventative maintenance should be a key consideration moving forward. Stained ceilings from HVAC leaks won’t aid consumer confidence, while shopping and uncomfortable and inconsistent store temperatures can be distracting. Even as the vaccine sees further widespread adoption, consumers will remain on high alert for the CHAINSTOREAGE.COM

Staying abreast of preventative maintenance should be a key consideration moving forward. immediate future, especially as reporting rises around alternate virus strains. Prepare for Increased Inventory and Fulfillment Options Historically speaking, stores have been designed to house as much product as possible, giving consumers as many options as possible to fit their needs and desires. Between social distancing and the rise in ecommerce, more and more consumers are shifting to instore and curbside pick-up models for fulfillment and returns. Retailers should carefully consider how to efficiently manage and plan for inventory and staffing to accommodate multiple fulfillment options and returns. Offering curbside pick-up only during nonpeak retail hours can be one way to manage and properly prepare for traffic flow. In a December 2020 shopper insights survey conducted by multidimensional brand experience firm Big Red Rooster, 60% of consumers rated the availability of products that were purchased online for store pick-up as less than perfect, meaning there’s significant demand to increase in-store inventory to account for ecommerce growth. But preparing for an influx of inventory must be carefully considered. Do you have the equipment to efficiently move product back and forth? Or, do you have the space needed to be moving products through the store? Apparel and shoes may seem like less daunting tasks, but larger products will require the use of carts and a rearranged traffic flow that doesn’t interfere with social distancing. Increasing communication with neighboring tenants could also help to bridge gaps in fulfillment. Joining forces with neighboring tenants to share third-party

labor sources could be a viable solution that also drives savings. By outsourcing curbside pick-up, you can transfer operational risk to the third party, alleviate your own staffing concerns and split the costs with your neighbors. Reimagine Design More retailers are taking a better look at their surfaces as they accommodate social distancing through remodel efforts. They’re shifting away from soft surfaces that could potentially hold harmful contaminants that transmit easily via touch. Ensuring you have maintenance standards for daily cleaning and consistent and clear communications in place for those who will carry out those tasks is critical. Even as the vaccine brings bright spots to better days, pandemic-proofing your surfaces will help future-proof your operation. Implementing ultra-violet technology could be a valuable investment to restore consumer confidence and maintain a safe atmosphere. Stay Prepared The need to future-proof and plan for the next crisis can’t be stressed enough. And while each emergency presents itself uniquely, we do know one thing: time is of the essence. Don’t wait for the next disaster to re-evaluate your facility management practices. Staying up to date on maintenance and the latest technologies will help ensure the safety of your customers your people. — Barry Wood is director of operations at JLL Retail.

JANUARY/FEBRUARY 2021

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STORE SPACES Q&A

“Smart” Waste Management Waste management and recycling have taken on increased importance as retailers commit to corporate sustainability goals. Chain Store Age spoke with Perry Moss, chief advisor at Rubicon, about challenges, best practices and how technology is impacting waste management operations.

What are the top recycling and waste management challenges facing retailers? Education, program execution, and accountability remain a key challenge in recycling and waste management practices in the retail space. Given all the changes from COVID-19, there are new challenges that retailers have faced such as setting up decontamination programs to keep stores clean and safe, determining how to properly dispose of personal protective equipment and adhering to local and state COVID-19 guidelines that can impact waste and recycling activities. While food retailers are faced with increasing numbers of regulations related to material recovery (recycling), food waste and food waste packaging. Removing heavy food scraps from the waste stream can provide a significant increase in landfill diversion percentages and help companies achieve waste reduction goals. What are the biggest mistakes retailers make when it comes to recycling and waste initiatives? Inconsistent signage and training across locations can lead to confusion for staff. Lack of engagement from management can cause lackadaisical attitudes towards established recycling programs. Similarly, there can be a great opportunity for retailers to look upstream to determine if products are designed for recyclability before the product is consumed and enters the recycling system. The single most important element in transforming a company into a successful sustainability-oriented business is the adoption and full commitment to recycling, sustainability and the circular economy. Sustainability should become a critical component of the driving force that dictates both corporate and management behavior and drives overall company values. It should be

the grounding force that guides the company’s’ decision-making process becomes a mindset or for leaders, employees, and thirdparty contractors. Another mistake retailers make is not proactively eliminating barriers to change and innovation. The development and implementation of new programs will require investments in service, facilities, resources, realigning management/employee responsibilities, etc. Not carefully considering these investments will compromise the success of any program. Finally, working with misaligned service partners can hamper recycling and waste management programs. Retailers must ask themselves which service providers’ business model is aligned with their mission and needs. If a retailer wants to be sustainable and divert maximum amounts of materials from landfills, does it make sense to work with a major landfill company that benefits from landfilling materials? If a retailer wants to lower costs through service level efficiencies, does it make sense to work directly with companies that benefit from more services or hauls? What about best practices for the same? As noted earlier, clear, and consistent signage and training across locations can help eliminate confusion and reduce contamination, as can developing a systematic, purpose-driven, targeted approach when implementing a comprehensive program. This integrated approach is necessary to predefine and clarify the sustainability and/or waste diversion goals/expectations in order to design effective up- and down-stream methodologies. Effective program design must consider budgetary, operational, and regulatory considerations, while respecting other identified limitations at a minimum.

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How has technology impacted waste management? Technology has provided the ability to capture the impact of recycling and waste activities and develop benchmarks to know where a company is starting from and how it can grow in the future. It allows us to compile data for all types of materials into one platform which leads to cost improvements, process improvements and gains towards sustainability goals. It has dramatically improved transparency and access to data in an otherwise opaque industry. At Rubicon, we use technology to drive environmental innovation and help turn businesses into more sustainable enterprises, and neighborhoods into greener and smarter places to live and work. What solutions does Rubicon offer retailers in waste management and recycling? Rubicon is a software company that provides smart waste and recycling solutions for businesses and governments worldwide. Our mission is to end waste by helping Rubicon’s partners find economic value in their waste streams and confidently execute on their sustainability goals. Our solution for retailers is a one-stopshop technology platform for waste collection visibility that includes real-time service requests and confirmation, bill payment, financial reporting, regulatory and environmental mandate awareness, complete service data, and sustainability/diversion data across all customer locations for all waste and recycling streams. Rubicon provides a solutions-based platform that maximizes landfill diversion and sustainable practices with access to all service data while making the process of managing waste/recycling easier and more efficient. JANUARY/FEBRUARY 2021

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SHOP TALK Trending stores: On, a Swiss brand that counts Roger Federer as an investor, opened its firstever physical store, in downtown Manhattan. The sleek, 1,630-sq.-ft. flagship boasts a “magic wall” that spans nearly the length and height of the space. The wall (photo, left) features hidden “gait-cycle analysis” technology — shoppers only need run a few strides to get instantly On matched with the best shoes for their individual running style. Combined with a custom-built invisible foot scanner, shoppers also receive the perfect size. The back of the wall, which is freestanding in the middle of the store, features drawers filled with every model and size of On’s shoe collection. At checkout, an employees brings out a fresh pair, enabling a largely contactless purchase. … Dick’s Sporting Goods will unveil a new store concept called Public Lands in the second half of 2021. The banner dedicated, to the outdoors, will debut with a location in Pittsburgh and Columbus, Ohio. … Spanish fashion giant Mango is looking to grow its U.S. presence. In collaboration with Simon, Mango will open three stores in Simon centers in the first quarter of 2021. The locations — Roosevelt Field, Garden City, N.Y.; Menlo Park Mall, Edison, N.J.,

StoreSpaces e-newsletter The only industry newsletter dedicated to store planning & design, construction, and facilities management. Get the latest news on retailers’ expansion and remodeling programs, new store prototypes, green initiatives, facilities updates and more. Find out who’s opening stores and where. CSA StoreSpaces covers retail development and facilities management inside and out.

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JANUARY/FEBRUARY 2021

and Dadeland Mall, Kendall, Fla. — were “strategically selected” to jumpstart the expansion of Mango's Mediterranean brand to the American consumer, said Simon. … Charming Charlie continues its retail comeback after closing its stores nationwide and selling its intellectual property at a bankruptcy auction. The first Charming Charlie store under its new owner opened in the fall at Cumberland Mall in Atlanta. Since then, five additional locations opened across the country, with a sixth set to open at Green Acres Mall in Valley Stream, N.Y. The company, which delayed some openings due to COVID-19, plans to roll out additional retail locations, opening as many as 25 stores annually. … Rite Aid is piloting a new store design in select locations that puts the pharmacist up front in the shopping experience. The chain’s “stores of the future” format is described as a modern store design concept. It upends the classic drug store experience by bringing pharmacists out from behind the counter and into the center of the space, enabling them to be easily accessible to customers. The store also has a "wellness room" where customers can schedule a visit with a licensed clinician. The interior is airy and open, with vibrant colors, modern signage and an enhanced Rite Aid merchandise assortment.

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ON THE LEVEL

Urbanization Conflagration Rarely do we daily scribes receive a press release that stops us in our tracks, that has us saying, “This has gotta be wrong.” But the email containing the first 2021 Rent Report from Zumper, an online apartment-hunt site for middle-income renters, had us ready to call for a recount. Zumper’s January ranking of top-rent cities listed the same top two as last year--San Francisco and New York. But the average one-bedroom apartment prices couldn’t be correct. San Fran did a Filbert Street drop from $3500 to $2660 and NYC dipped from $3000 to $2410. Both 24% drops in one year, unheard-of in two of the most dynamic cities in the nation. Down the list: Oakland rents dropped by 22%, Boston by 16%, San Jose by 15%. Local studies had Chicago rents down 12% and Dallas off 27% at one point during the pandemic. “In March, when the coronavirus shock hit, there was a huge downturn in traffic on our site. No one was looking to move into the major cities,” said Zumper analyst Neil Gerstein. “Then we saw huge increases in our traffic. We attributed that to the moving-out phenomenon.” The urbanization trend that had trendsavvy retailers and restaurateurs trailing throngs of millennials and Gen-Zers to Brooklyn and Mission Bay and Atlanta’s Old Fourth Ward stopped cold. Younger folks ran back home, older folks retreated to their summer homes or bolted to Florida, and young families in city apartments figured it was time for that starter home in the suburbs. Graceada, a real estate investment company with a $10 billion commercial real estate

portfolio, released a report last month on what it calls the “Outpost Economy,” a new ethic inflamed by the pandemic that allows workers to live where they want to live and not where their bosses put the offices. “What you have is people who were not getting a good deal in places like San Francisco,” said Graceada’s CEO, Joe Muratore. “Now their employers are telling them they don’t have to come to the office, so they’re going to go where they’d really like to live. “ The Outpost Economy, Graceada analysts contend, will unleash an entirely new form of urbanization across the United States that will extend to smaller, more liveable cities. The new hotspots will be Austin, Charlotte, and Sacramento instead of Los Angeles, Chicago, and New York. Indeed, says the report, San Francisco itself was one of our earliest outpost economies in the 19th Century, when Eastern companies opened offices out West for the Gold Rush. Expanding retailers, especially affluent and trendy ones, Muratore argues, should have their expansion plans focused on outposts that will hunger for what they provide. “There will be more demand for brands like Whole Foods and Blaze Pizza in secondary markets,” Muratore said. “For bigbox retailers, now is the time to re-invent and maybe go mid-sized. Young people who moved to big cities to make highdollar salaries are now moving and those dollars are being imported from primary to secondary markets.” Keep in mind that some of those secondary markets might not be as resplendent as Austin or Charlotte. One town appeared for the first time on Zumper’s list of highest one-bedroom rents in the nation. It was Newark. Though Newark’s Penn Station is just a 15-minute ride to New York’s Penn Station, New Jersey’s largest city has long been shunned as a place to live for New Yorkers. Now it’s a nearby outpost.

Al Urbanski aurbanski@chainstoreage.com @AlUrbanski (Twitter) JANUARY/FEBRUARY 2021

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REGION REPORT: NORTHEAST & MID-ATLANTIC

REAL ESTATE

In 2020, Tenants Battled Stormy Weather Don’t know why there’s no sun up in the sky? Because your occupancy costs put you in the gutter. By Al Urbanski 2021 was a turbulent year for retail renters and landlords. There was little middle. Grocery and essentials providers like Walmart, Lowe’s, and CVS grew their businesses during the pandemic and widened their distribution channels on the web and in parking lots. Fitness, apparel, and cinema chains, meanwhile, struggled to pay the rent. 24 Hour Fitness filed for Chapter 11 protection and the doors of all the theaters run by Regal Cinemas, the nation’s second-largest movie chain, remained locked in January. “To retail, the pandemic was like a tornado that touches down in a neighborhood, destroying one house and leaving the next one untouched,” said Mark Sigal, CEO of Datex Property Solutions. “Some chains went from healthy to bankruptcy. Others took an initial hit but were able to course-correct. And a fortunate few weathered the storm in pretty good shape.” When COVID-19 hit, Datex, a business intelligence platform for real estate owners and investors, created Tenant Track to track rent collections in malls and shopping centers. Checking adjoining brands on the full-year Tenant Track report released in January is like looking at an overhead shot of intact homes beside levelled ones from the Easter Sunday tornado in Mississippi. As the only numerical-named retailer on

the list, 24 Hour Fitness sits at the top, just above Albertsons. In the second quarter of 2020, when the coronavirus swarmed and shutdowns ran rampant, the fitness chain paid just 8% of its rent while the supermarket chain paid 99%. In Q3, 24 Hour ratcheted up a little and Albertsons ratcheted down a little. Still, they were miles apart with payment scores of 25% compared to 97%.

“It was like a tornado that touches down in a neighborhood, destroying one house and leaving the next one untouched.” Move to the L’s on the list and find a matchup that sums up the mightily different impacts weathered by apparel chains and takeout restaurants during the pandemic. In Q2, Lane Bryant paid basically no rent — less than a quarter of a percent — while the next brand on the list, Little Caesars, paid 95%. In the R’s, Regal Cinema put up 4% to Rent A Center’s 75%. One notable side-trend that developed based on the special demands created by COVID-19 was that, despite the desperate afflictions endured by local and regional retailers, early

COLLECTIONS VS.OCCUPANCY COSTS IN 2020 Q1-2020 COLLECTIONS

Apparel Fast Food Fitness Movie Theater Restaurant Supermarket Nationals

89.41% 95.74% 95.41% 99.81% 95.48% 97.37% 94.49%

OCCUPANCY COSTS

17.82% 7.87% 19.86% 31.01% 7.86% 2.28% 9.30%

Q2-2020

COLLECTIONS

34.88% 70.83% 14.47% 12.52% 49.69% 97.42% 62.39%

OCCUPANCY COSTS

25.22% 8.16% 193.00% 4410.64% 12.29% 2.33% 9.16%

terminations of contracts actually receded in Q2 2020 by 25%. “In 2019, if tenants didn’t pay their rents, landlords turned them out,” explained Sigal. “In 2020, there was government assistance and they worked with them.” Occupancy costs, however, a measure that retailers strive to decrease, went up across the majority of segments as a result of shutdowns and social distancing. It’s the percentage of revenue that’s needed to pay the rent, determined by dividing rent by sales. Putting up unheardof numbers in this category were theater chains with average occupancy costs of 4410% in Q2, meaning that a theater with a rent of $4410 in a month did just $1 of revenue. “Margins are getting wiped out because sales are being wiped out by rent,” Sigal said. Fitness chains recorded the next highest Q2 occupancy costs of 193%, followed by apparel chains at 25%. AMC and Cinemark started reopening theaters with stringent social distance regulations in Q3 and Q4, lowering the segment’s occupancy costs into the 12% range. Occupancy costs among essential product providers, by comparison, were above par. Supermarket chains registered historically low occupancy costs of close to two percent in the second and third quarters of 2020, and fast food restaurants posted numbers in the 7% to 8% range. During the same period, national chains as a group posted occupancy costs of 9%. “When you look at 2020, the fact that a chain is paying its rent doesn’t mean it’s successful,” Sigal said. “You want occupancy costs going down, and that was much harder to do in 2020.”

Q3-2020 COLLECTIONS

65.36% 90.54% 60.90% 30.04% 80.34% 98.14% 84.27%

OCCUPANCY COSTS

12.18% 7.52% 31.81% 209.43% 8.75% 2.51% 9.46%

Q4-2020 COLLECTIONS

87.03% 93.39% 71.89% 32.89% 90.07% 96.51% 89.75%

OCCUPANCY COSTS

11.83% 7.63% 49.73% 104.68% 7.29% 3.23% 10.43%

Source: Datex Tenant Track CHAINSTOREAGE.COM

JANUARY/FEBRUARY 2021

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REAL ESTATE

Dense Metros Take on Suburbanization Expanding retail chains follow socially distanced city office workers to the ‘burbs. By Al Urbanski Once vaccine inoculations reach critical mass, COVID-19 will release its stranglehold on American commerce and society. Some societal differences it put in play, however, will persist. “People don’t leave their apartments. They work at home and they’ve gotten used to it,” PREIT CEO Joe Coradino remarked. “The lack of traffic in Philadelphia is mindboggling. It’s a trend that’s not easily reversible and it’s creating a cycle,” said the longtime mall renovator who holds a bachelor’s and a master’s degree in urban planning from Temple and the University of Arizona. In Boston, 5.6 million more square feet of office space was vacant in September of 2020 than in March, according to Marcus & Millichap. The office vacancy rate in New York City rose 190 basis points to 13.5%. Philadelphia’s hit 13.8% Coradino reports that apartments are renting better in the suburbs than downtown. That’s helping PREIT’S suburban super-regional malls in Cherry Hill and Moorestown in New Jersey. But the Fashion District mall PREIT opened with Macerich in September 2019 on Market Street in Center City has suffered. “We’re quite optimistic about how our properties will fare once the vaccine takes

hold. Fashion District is more challenging. It will reverse itself, but it will take time,” Coradino said. Adam Ifshin, CEO of DLC Management Corp., manages 30-plus outdoor centers in the Northeast and has experienced healthy demand during the pandemic for space in non-urban locations. “The less sexy, the better. If you’re thinking of paying $800 a square foot in Soho, forget it. The traffic’s not there,” Ifshin said. If, rather, you can do business in Vernon, Conn., Keene, N.H., or Wappingers Falls, N.Y., that’s where you’ll see high sales per square foot and low occupancy costs in the DLC portfolio. “I’m seeing great demand in the Northeast from Class A value-oriented retailers like TJ Maxx, Home Goods, and Marshalls. Takeout food is on fire. Chik-fil-A and Chipotle are expanding,” Ifshin said. One metro that’s drawing retail tenants downtown is Washington D.C. Ifshin said that DLC leased more space there during the pandemic than anywhere else. Two deals were done with Lidl, and tenants were quickly signed to fill a Kmart whose lease expired in 2020. “There had been a lot of government jobs

“The less sexy, the better. If you’re thinking of paying $800 a square foot in Soho, forget it.” –DLC CEO Adam Ifshin King’s Plaza in Brooklyn

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left empty and those jobs will be filled,” Ifshin said. “When the government spends money, it always seems to have a positive effect in the D.C. suburbs, but there’s not a lot of space in the suburbs, so the D.C. market will be bullish.” Marcus & Millichap reports that Washington held more jobs during than pandemic than any major metro in the Northeast or Mid-Atlantic regions. Its September unemployment rate was 6.4%, a point-and-a-half below the national average (see page 25). Workers and residents in big cities in the Northeast and Mid-Atlantic have been reticent to use buses and subways throughout the pandemic. Avoiding close contact in confined spaces has not just kept workers out of offices, but urban residents out of shops outside their neighborhoods. In September, Patrick Foye, the CEO of New York’s Metropolitan Transportation Authority that runs the subways and two commuter railroads, wrote to suppliers requesting forbearance during the crisis. For the full year 2020, he expected $4.2 billion in fare losses and $880 million in toll losses. “The urban core has been challenged not only by the lack of foot traffic, but also by the lack of public transportation,” said Sean Beuche, a regional manager for Marcus & Millichap in Philadelphia. “In a 1.8 million-square-foot campus downtown, we’re one of the few offices here where 20 or 30 people show up every day. Le Pain Quotidien closed up.” Like PREIT’s Coradino, though, Beuche sees hope on the horizon in the nation’s 8th largest metro. “Ghost kitchens are opening with haste, as are CBD stores and liquor stores. Texas Roadhouse is doing great here. We have a lot of dated industrial base in Philadelphia that can be converted to retail use at low cost. We have useable industrial space in places with forgiving zoning,” Beuche said. “I’m eager to see what happens.” JANUARY/FEBRUARY 2021

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REGION REPORT: NORTHEAST & MID-ATLANTIC

Metro Market Watch Marcus & Millichap’s regional experts give the rundown on retail prices, rents, availability, and post-pandemic conditions. By Al Urbanski BALTIMORE Baltimore has made a strong comeback from the pandemic. Of more than 216,000 jobs lost during March and April, about 105,000 returned through September and slowed the unemployment rate from 10% to 6% —180 basis points below the U.S. level. Apartment absorption recovered between July and September, lowering the metro’s residential vacancy rate to 4.3%. Just 230,000 sq. ft. of retail space was delivered during the first three quarters of 2020, compared to a total of 827,000 sq. ft. in 2019. Some of the 90,000 sq. ft. promised in Q4 was delayed and will arrive this year. As in many other parts of the country, retail demand increased for distribution and fulfillment space. Amazon leased nearly 1 million sq. ft. of Baltimore industrial space in the second quarter. Retail brand closures in the city included Men’s Wearhouse, J.C. Penney, and Macy’s. Q4 2020 Baltimore’s Key Retail Real Estate Numbers Vacancy rate: 6.4%: Avg. cap rate: 7.2% Avg. price per sq. ft.: $312 Avg. asking rent per sq. ft.: $20.69 BOSTON Despite a rapid rise in residential construction in New England’s biggest city, the apartment vacancy rate in the city was zero in the third quarter of 2019. But one year later, with COVID-19 dispatching Bostonians to pads and private houses in local suburbs and New Hampshire, vacancies hit 5%. Three hundred thousand more workers were on the city’s unemployment rolls in September than there were in February. In addition, most of the 150,000 students that come from all over the world to attend Boston colleges staid home. Retail suffered. Store closures increased vacant stock by about 570,000 sq. ft.; multi-tenant retail space availability rose by 70 basis points. CHAINSTOREAGE.COM

Chestnut Hill Square in the Boston Metro

“Boston has students renting from all over the world and this year they’re not here. Many of these students come from very wealthy international families that backfill the demand for luxury amenity buildings. The next biggest group leaving their apartments in the city is aging Baby Boomers,” said Tom Shihadeh, a regional manager for Marcus & Millichap in Boston. Q4 2020 Boston’s Key Retail Real Estate Numbers Vacancy rate: 3.6% Avg. cap rate: 6.5% Avg. price per sq. ft.: $307 Avg. asking rent per sq. ft.: $20.48 BUFFALO Demand for industrial space here was rising prior to the pandemic. Five cargo airlines run out of Buffalo-Niagara International Airport due to the metro’s access to the Great Lakes, Northeastern states, and Canada. But COVID-19 hit hard. More than 100,000 jobs were cut in March and April, burdening it with an unemployment rate of nearly 20%. On the plus side, government economic and tax incentives have added 2,600 rental apartments over the past six years

in neighborhoods where vacated office and industrial buildings have been converted into mixed-use developments. New retail space has been scant in the past year, however. Just about 25,000 sq. ft. was added in 2020, the lowest annual delivery in 10 years. Q4 2020 Buffalo’s Key Retail Real Estate Numbers Vacancy rate: 6.2% Avg. cap rate: 8.4% Avg. price per sq. ft.: $96 Avg. asking rent per sq. ft.: $12.83 NEW HAVEN More than half of the 145,300 jobs lost between February and April have been restored, mostly due to pandemic migration into the area from New York City. Most of the relocators have taken up residences in Fairfield County, a traditional suburban settlement for Manhattan commuters who now are working at home or in offices in Stamford and Norwalk. Only about 76,000 sq. ft. of retail space opened in the metro in Q3 of 2020, well below the quarterly average of 190,000 sq. ft. in 2019. But availability in New Haven County exceeded that of Fairfield County by 170 basis point at the

JANUARY/FEBRUARY 2021

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REAL ESTATE quarter’s completion. The average retail property sale price dropped by 5% during the year, mostly due to a steep decline in the cost of multi-tenant space. Q4 2020 New Haven’s Key Retail Real Estate Numbers Vacancy rate: 5.5% Avg. cap rate: 6.1% Avg. price per sq. ft.: $301 Avg. asking rent per sq. ft.: $22.27 NEW YORK CITY Grand Central Station is as sparsely populated as it’s ever been. The New York Metro’s employment base contracted by 20%, higher than the national average, and in the most populous city in the country. About 31% of jobs lost in the spring were recovered in September, though not all those workers returned to their desks in the city. Only 3,000 new apartments were completed in Q3, the lowest quarterly total in New York City in four years. Lost revenue and the highest rents in the land forced many prominent tenants to close for good, among them J.C. Penney at the Manhattan Mall and the Neiman-Marcus that had made its New York City debut at Hudson Yards in 2019. Still, retail space remained tight with a vacancy rate of 3.9% in September. In Midtown, availability was less than 3%. Private buyers of property have not been scared off by the pandemic, though the price of multi-tenant retail property dropped in September. Tysons Corner Center in the DC Metro

Fashion District in Center City Philadelphia

Q4 2020 New York City’s Key Retail Real Estate Numbers Vacancy rate: 3.9% Avg. cap rate: 5.4% Avg. price per sq. ft.: $525 Avg. asking rent per sq. ft.: $59.95 NORTHERN NEW JERSEY Employment had already begun to fall off before in January and February of 2020. Combined with layoffs caused by the arrival of COVID-19 in March and April, this populous suburban region across the Hudson from Manhattan lost 411,300 jobs. But more than half of those positions were restored during the following five months. Residents who would normally commute to New York on a daily basis stayed home instead, and many apartment dwellers bought houses, contributing to a 5% drop in Class A apartment rents between March and September. Retail space inventory grew through September — a 32,000-sq.-ft. neighborhood center in Wayne being the largest delivery. The average asking rent declined 3.5% compared to Q3 2019, but the number rose nominally to the price of $24 since June. Buyers focused on prime locations along the Hudson River waterfront or alongside Walgreens, McDonald’s, and Starbucks in the suburbs. Q4 2020 Northern New Jersey’s Key Retail Real Estate Numbers Vacancy rate: 4.6% Avg. cap rate: 6.1% Avg. price per sq. ft.: $374 Avg. asking rent per sq. ft.: $24.00

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PHILADELPHIA The annual delivery of retail space fell below 1 million sq. ft. for the first time in 13 years. Less than half a million sq. ft. had been completed as of September; another 690,000 sq. ft. won’t be completed until sometime this year. Retail and industrial property purchases out-paced office properties, as workers stayed home and provided steady business for street-level stores and restaurants. Buyers targeting assets priced under $10 million were the most active. For renters, pricing remained steady. An asking rent of around $18 remained flat quarter-to-quarter in 2020. Sean Beuche, a Marcus & Millichap regional manager in Philadelphia, expects lively sales activity to ensue among retailers seeking retail as well as industrial properties for e-commerce fulfillment. “Philadelphia has an aged stock of properties,” Beuche said. “You can get it a very low value, re-do it, and your net operating income will be very healthy because of the basis on which you’re buying it.” Q4 2020 Philadelphia’s Key Retail Real Estate Numbers Vacancy rate: 5.7% Avg. cap rate: 6.6% Avg. price per sq. ft.: $338 Avg. asking rent per sq. ft.: $18.06 PITTSBURGH Pennsylvania trails just Texas in natural gas production and Pittsburgh headquarters many of the leading companies in the business. Tempered consumption of natural gas during the COVID crisis slowed JANUARY/FEBRUARY 2021

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REGION REPORT: NORTHEAST & MID-ATLANTIC

the local economy and lowered employment by 19%. A surge in positive tests during the summer continued to hamper job restoration. As a result, retail development decreased for the first time since 2017, with less than 100,000 sq. ft. delivered each quarter. The vacancy rate rose 60 base points, though still remained low at 4.2%. And, for buyers of retail properties, funding is readily available. “Capital is available for assets that perform at pre-crisis levels, especially industrial assets,” said Tony Solomon, senior VP of Marcus & Millichap Capital Corporation. “Single-tenant retail with national credit tenants are also heavily favored by lenders, followed by grocery-anchored multi-tenant properties.” Q4 2020 Pittsburgh’s Key Retail Real Estate Numbers Vacancy rate: 4.2% Avg. cap rate: 7.4% Avg. price per sq. ft.: $269 Avg. asking rent per sq. ft.: $12.74 WASHINGTON, D.C. Following a delivery of a 1 million sq. ft. of retail space in 2019, another 540,000 sq. ft. opened in the first nine months of 2020, the largest single property being a 100,000-sq.-ft. neighborhood center in Loudoun County, Va. Some 450,000 sq. ft. of retail space went empty in Q3, raising the metrowide vacancy rate 30 basis points to 5.5%. By Q4, however, the average asking rent was just 1.4% below the previous year’s rate. A large concentration of high-skilled positions in the metro were able to go remote and, after peaking at just 10.1% in April, unemployment in Washington fell to 6.4% in September — well below the national rate of 7.9% Single-tenant and suburban retailers are faring the best in the metro, as lightly populated offices have had a profound effect on ground-level stores. Something else to note: Washington, and suburbs in Virginia and Maryland follow separate paths toward full re-openings. Q4 2020 Washington’s Key Retail Real Estate Numbers Vacancy rate: 5.5% Avg. cap rate: 6.5% Avg. price per sq. ft.: $340 Avg. asking rent per sq. ft.: $25.91 CHAINSTOREAGE.COM

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Walmart Keeps Things Cool With IoT Retail giant leverages IoT to manage food temps, energy use By Dan Berthiaume Walmart is using a network of connected Internet of Things devices to improve food quality and lower energy consumption. The retail giant currently has more than 7 million unique IoT data points across its more than 4,600 U.S. stores. Every day, the network of connected devices sends almost 1.5 billion messages regarding a variety of store conditions, including temperature, operating functions and energy use. To help manage the massive volume, the IoT team within Walmart Global Tech built proprietary software designed to use advanced algorithms to detect anomalous events in realtime and act to fix issues quickly. Food Quality: With food quality a critical part of Walmart’s customer experience, Walmart’s real estate team helps ensure that food is kept at the proper temperatures by monitoring refrigeration units with IoT systems.

“Our IoT application not only monitors the temperature of an individual unit to ensure proper food safety standards, but also looks at how the equipment is performing and takes proactive steps towards maintenance repairs to reduce the cost and downtime caused by equipment failure,” said Sanjay Radhakrishnan, VP, global tech, Walmart. If the signal received requires additional information, it is sent to the maintenance team through a cloud application, where the team will triage the issue and determine the best course of action. The response could include alerting a store associate to take additional steps, repairing an IT connection issue, submitting a work order and getting a technician on-site to look at the unit, or making changes remotely to the equipment. Energy Consumption: Walmart uses IoT sensors on its stores’ HVAC and energy systems to remotely monitor and respond

Walmart manages more than 7 million unique IoT data points across its U.S. stores.

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to community energy consumption needs quickly and with minimal impact to customers’ shopping experience. By means of demand response, the chain is able to reduce energy consumption to any of its U.S. stores for a set amount of time and then have systems in place to automatically return equipment back to the normal operating standards. This allows Walmart to lower energy use anywhere in the U.S. by region or an individual store, reducing energy consumption and lowering utility costs without impacting the shopping experience. The application also has sustainability implications in that, in partnership with local communities, can reduce its use of the energy grid in response to high demand such as blackouts and brownouts. Pandemic: During the early stages of the COVID-19 pandemic, Walmart’s store hours were adjusted to allow employees time to restock and sanitize stores. Adjusting the “set-back” times for HVAC and refrigeration cases on-site would have required Walmart to spend hundreds of hours to manually change the equipment scheduling in each individual store. Instead, Walmart leveraged demand response to make changes across multiple stores and geographic locations simultaneously, saving time and reducing expenses. The retailer has continued to leverage its internal systems to modify equipment scheduling accordingly. “What’s most exciting about our IoT work is that we are just getting started,” said Radhakrishnan “We have a roadmap for the future of IoT that will include other types of equipment, other types of algorithms and data processing and additional locations. As we continue to connect more assets we will apply our experience to further reduce our energy consumption while increasing the value to our customers. We will continue to focus on what our customers need most, like high food quality and a positive shopping experience.” JANUARY/FEBRUARY 2021

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Tech lessons from 2020 — to carry into 2021 A unique year produced some technology-related developments in retail that will be applicable in 2021 and beyond. I don’t need to go into the details of how the COVID-19 pandemic radically disrupted retail — and every other facet of everyday life — during 2020. Retailers were able to respond and adjust effectively with the help of some innovative technologies, which they leveraged in ways that are still instructive for the industry as it moves forward from the challenges of last year. Welcome to learning machines Machine learning is not new, but the emergence of COVID-19 and accompanying unpredictable disruptions revealed just how valuable ML is to retail. The algorithms produced by the very best predictive artificial intelligence systems were not capable of forecasting sudden product shortages and outages, or the rapidly accelerating shift to e-commerce. Fortunately, ML technology (which is essentially a subset of AI), with its ability to learn from events and make adjustments in real time, enabled retailers to efficiently react to the shocks of the pandemic. Looking ahead, retailers should bake the reactive capability of ML into as many areas of their enterprises as possible. Examples include Kroger leveraging the MLbased Everseen visual learning platform to watch video of store operations, understand complex processes, and intelligently intervene to optimize them. Retailers seeking a real-world model for their ML efforts should also take a close look at how Best Buy is working with Google Cloud to unify its data sources and run ML models against that data to build more personalized offers and recommendations. Mind the store Ironically, the sharp increase in consumers shopping online as COVID-19 shuttered stores and caused safety concerns has demonstrated the continuing vitality of the brick-and-mortar store.

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Many customers may have digitally purchased goods, but they often sought to expedite fulfillment with omnichannel options such as buy-online-pickup-instore (BOPIS) and curbside pickup. During 2020, I wrote more articles than I can count about retailers launching or enhancing BOPIS and curbside programs, with most intending to maintain these efforts into the foreseeable future. The past year also saw an increase in the use of dark stores, which are underperforming brick-and-mortar locations that retailers can utilize as last-mile distribution hubs for BOPIS, curbside and/or on-demand delivery orders, without serving in-store shoppers. Even as the prospect of vaccination offers hope that in-store shopping may return to normal during 2021, e-commerce with fast, convenient fulfillment will likely retain its popularity. Add in the fact that Amazon Prime is offering delivery in as little as five hours in some cities, and it becomes clear every retailer needs to investigate store-based fulfillment of online orders as a way of meeting heightened customer expectations. New kid(s) on the e-commerce hosting block Similar to ML, the Shopify and BigCommerce e-commerce platforms are not new solutions. But also, the challenges of COVID-19 illuminated their long-term value. Shopify and BigCommerce both provide what could be called “e-commerce in a box” services that enable small businesses to set up full-scale online retail operations, including managed fulfillment, within a matter of days. The need for companies of every size to quickly stand up or expand e-commerce shone a spotlight on these platforms as viable alternatives to partnering with large retail marketplaces such as Amazon, Walmart, Google or eBay. And these two major competitors to third-party marketplaces themselves picked up new competition during the past year from players such as Postmates Shop, which enables customers to browse products for purchase and delivery from local retailers. Participating retailers create a virtual digital storefront, hosted by Postmates. In addition, 2020 saw DoorDash introduce DashMart, which offers household essentials and local restaurant products for on-demand delivery. DoorDash is partnering with both national and local convenience, grocery and foodservice retailers to stock DashMart stores. Retailers considering utilizing a hosted e-commerce service in 2021 should be aware of the expanding roster of players.

Dan Berthiaume dberthiaume@chainstoreage.com JANUARY/FEBRUARY 2021

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TECH

Bed Bath & Beyond’s Omnichannel Transformation By Dan Berthiaume

Bed Bath & Beyond is making a major push into the omnichannel commerce space as part of its turnaround strategy. Chain Store Age spoke with Rafeh Masood, executive VP and chief digital officer of Bed Bath & Beyond, about the retailer’s efforts to evolve itself into a leading-edge omnichannel retailer. Masood, who joined the company in May 2020, is driving its digital transformation efforts. And his efforts are bearing fruit. Bed Bath & Beyond reported 94% growth in digital comp sales and 2.2 million new digital customers during its most recent quarter. “Early this year, Bed Bath & Beyond made a bold pivot from being a laggard in the omnichannel space to embracing omnichannel,” said Masood. “We went from being a multichannel to an omnichannel enterprise. Our stores serve as a strategic omnichannel asset.” Before launching its omnichannel initiative in May 2020, Bed Bath & Beyond had operated its $2 billion annual e-commerce business as a separate function. The retailer began its transformation by launching curbside pickup early in the COVID-19 pandemic as it shuttered most stores across its banners. It added buy-online-pickup-in-store (BOPIS) as stores began reopening. Bed Bath & Beyond, which had been developing both curbside pickup and BOPIS in early 2020 before the COVID-19 crisis began,

also performed an end-to-end customer experience audit shortly after Masood joined. “We identified 100 customer experience improvements, including reducing the number of steps needed to check out from seven to three and creating a new, mobile-optimized framework,” he explained. “More than half of our digital traffic is mobile. We overhauled the look and feel of our consumer app to let customers have an easier time taking advantage of BOPIS. Shoppers can check in for curbside pickup when they arrive at a store. We overhauled our product discovery, which is powered by machine learning, improving relevancy of search results, making it even easier to shop on our sites.” “In September, the retailer introduced sameday delivery chainwide via a variety of options. Customers can place same-day delivery orders on the Shipt and Instacart marketplaces and directly on the retailer’s website. Shipt supports our direct same-day delivery operation behind the scenes,” said Masood. “Customers can place orders for same-day delivery by 1 p.m. local time. Stores fulfill sameday delivery, BOPIS and curbside orders, as well as one-third of online orders. The rest of our online orders are fulfilled at our distribution centers. We’ve put a lot of work into enabling store fulfillment and implemented technology to expose site inventory online.”

APPS: As part of its omnichannel fulfillment efforts, Bed Bath & Beyond has introduced instore mobile apps that enable store associates to pick and pack and ship omnichannel orders from store inventory. On the consumer app for its BuyBuy Baby banner, Bed Bath & Beyond has introduced an omnichannel nursery design and shopping experience. Launched in partnership with Bed Bath & Beyond’s Decorist online interior design banner, the “Design Squad” service includes omnichannel features such as “Shop the Room” — a predesigned collection of 35 online nursery designs customers can shop or add to their registry, as well as custom virtual room design. To support its overall transformation strategy, Bed Bath & Beyond established a digital-first, agile, creative customer experience organization. Product teams and engineering teams work together developing customer service capabilities. The company has also rolled out new order management functionality and is considering upgrading its supply chain technology. “In 2021, we will double down on our omnichannel capacity,” concluded Masood. “We have a three-pronged technology strategy — elevate customer experience, develop our omni-capabilities, and unlock our potential with a digital-first mindset.”

Brick-and-Mortar Investments Bed Bath & Beyond’s plans to accelerate its omnichannel transformation doesn’t mean the home goods retailer has given up on physical retail. Far from it. “We view our stores as a real strategic asset,” John Hartmann, executive VP and COO, Bed Bath & Beyond and president of its BuyBuy Baby business, told Chain Store Age. “Stores are the anchor of our omni-always promise.” Bed Bath & Beyond has unveiled a three-year strategy that includes investing approximately $250 million to remodel about 450 stores, which represent 60% of the company’s revenue, with a goal of making shopping easy and inspiring. “We want customers to have the elevated experience they expect but are not getting today,” Hartmann said. The company has already started the journey, piloting new concepts at its remodeled prototype store in Watchung, N.J. The

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store has a more open feel than the retailer’s traditional box, with better signage, destination rooms and clear, wide-open sight lines. In another big change, the location has about 25% less inventory than the standard Bed Bath & Beyond. “We’ve taken the customer experience to an incredibly new level based on their feedback, addressing some very fundamental things they told us,” said Hartmann. “It’s a refined approach that is much more shoppable. We’ve struck a great balance of finer curated assortments and reduced inventory that improves working capital and declutters the store for the customer. The response to the store has been fantastic, according to Hartmann, even amid the pandemic. Sales have increased 7% and gross profits are up 10%. “When you get increased sales from a lower amount of inventory, it’s a great outcome,” he said.

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TECH Q & A

Retailers who survived 2020 can thrive in 2021 The new shopping behaviors of 2020 may be here to stay, but retailers can scale the engagement strategies they developed during the pandemic. Salesforce is a leading cloud-based enterprise CRM platform provider that seeks to closely connect retailers with their customers and brand partners. Rob Garf, VP, strategy and insights, retail and consumer goods at Salesforce, recently spoke with Chain Store Age about how retailers can expand on existing digital transformation initiatives for continued success. We just closed out a tough year for the country and for the retail industry. What are your biggest takeaways from how the pandemic has impacted the retail landscape? One of the most powerful impacts that the pandemic has had on the retail industry is that almost every person has increased their digital footprint. This caused an upheaval of the entire shopping experience — from how shoppers discover products to how a purchase makes it to their doorstep. The surge in e-commerce traffic and orders forced retailers to engage consumers on new channels, adopt new technologies and roll out contactless shopping experiences, including curbside pickup. The pandemic has driven new shopping behavior that won’t snap back like a rubber band. Retailers must figure out how to integrate and scale new consumer expectations into their business models moving forward. Cyber Week and the holiday shopping looked really different this year as well. How well do you think the retail industry did in adapting to these unique circumstances? It was incredible to see the industry get creative and adapt as best they could to the challenges of this holiday season. Holiday shipping and order fulfillment really defined the winners and losers. Retailers were scaling their e-commerce operations, converting physical stores into distribution hubs, staffing up fulfillment centers, implementing curbside pickup and more in preparation for anticipated shipping issues. Retailers partnered with rideshare and delivery companies to expand their shipping

capacities, and used marketing campaigns and early promotions to encourage shoppers to buy earlier to reduce the shipping strains they expected to face during Cyber Week. Retailers must move from “scrappy” to “scale” to expand on the lessons and strategies they learned over the holiday season to efficiently grow. What lessons from 2020 and the holiday season should retailers carry with them into 2021? Throughout 2020, the hardest hit retailers were ones that hadn’t fully invested in their e-commerce operations before the pandemic, or didn’t have the agility to adapt their operations to respond effectively to the crisis. In 2021, retailers must double down on digital transformation. Specifically, reimagine the store and associate, push the brand to the edge and redefine their loyalty at a time when consumers crave safety, convenience and availability — and are willing to defect to other brands that provide these experiences. Above all, retailers really need to think about how they merge the physical and digital experiences to provide a seamless and personalized journey across all touch points. Curbside pickup is such a wonderful example of that, where the consumer can shop with confidence from home and then easily pick up their waiting order. What are your predictions for the retail industry in 2021? Customers will increasingly engage with brands beyond the traditional four walls of stores and on unconventional commerce platforms like social, messaging, live

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streaming and more. I call this concept “shopping at the edge,” which requires retailers to push their brands to channels that are becoming the shopping malls of this generation. Meanwhile, the roles of stores will continue to evolve to support the rise of ecommerce by becoming fulfillment centers, experiential spaces with less inventory and more. Finally, retailers will battle to own customer relationships by continuing to transform their loyalty strategies, making them more personalized and connected to the broad customer experience journey in a way that will nurture customer relationships as uncertain times continue into 2021. How has Salesforce helped retailers navigate the pandemic and this holiday season, and what can your customers expect from you in 2021? Our customers have been operating at Black Friday scale since the WHO declared a pandemic. Salesforce has been focused on helping all our customers, including retail and CPG companies, adapt to this crisis. We rolled out new technologies such as Quick Start Commerce solutions equipping businesses with the ability to start selling online fast, go direct-to-consumer, and scale during unexpected surges in demand, and expanded Salesforce Order Management globally. We also announced Loyalty Management at the start of this year to help companies develop loyalty programs that strengthen and personalize consumer relationships, turning new customers into lifelong customers. JANUARY/FEBRUARY 2021

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