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Contents VOL. 97 MARCH/APRIL NO. 2

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REAL ESTATE

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TECH

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The Reimagined Mall Activation and densification are the key elements of the mall’s new business formula. The ones that can make new elements like residential, office, and medical will win.

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REGION REPORT: The West Tech and hospitality hot spots like San Francisco and las Vegas were cooled down by COVID. Outliers like Salt Lake City and Phoenix warmed up substantially and should be targeted by expanding retailers. 4

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Specialty apparel retailer U.S. Polo Assn. diverted resources to make digital a priority during the pandemic.

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Vendor Q&A: Afterpay Ltd.’s Alex Fisher talks about the fastgrowing payment option of buy now, pay later.

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FROM THE EDITOR’S DESK

Brick-and-Mortar Still Growing

For what seems like years now, various pundits have been predicting the demise of brick-and- mortar retail. It’s a notion I’ve always dismissed as a gross exaggeration. I still do. And I say this even amid the disruption — and retail casualties — resulting from the acceleration of digital commerce and the pandemic. The fact is that even as some retailers continue to downsize their portfolio, a whole host of chains have announced aggressive expansion plans to open stores this year and beyond. (See story on page 18 for companies who are doing just that.) And many are also undertaking extensive remodeling initiatives. I’m encouraged by the fact that it’s not just the usual suspects like Dollar General and TJX Cos. that are committed to growth. Smaller companies, many of them digitally native, are also doubling down on brick and mortar. Psycho Bunny, the cult-fave edgy menswear brand, is opening 15 stores this year. California men’s apparel brand Johnnie-O recently opened its first store. And skincare company Heyday, fresh off a new round of funding, is looking to open 40 stores during the next five years. Equally encouraging are the new formats and concepts that are once again beginning to pop up. Many of these comes from familiar names. Dick’s Sporting Goods has unveiled a new brand, Dick’s House of Sport, that comes complete with high-tech batting cages, a rock-climbing wall and 17,000-sq.ft. outdoor turf field and running track that will boast an ice-skating rink in the winter. American Eagle Outfitters has begun opening standalone stores for its activewear brand, Offline by Aerie, a sub-brand of AEO’s fastgrowing Aerie division. At the same time, some well-known brands that went dark are looking to make a comeback. Toys“R” Us is under new ownership (again), with a plan to open stores

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again in North America, some in time for the 2021 holiday shopping season. The locations reportedly could take the form of flagships, pop-ups, airport locations or mini-shops inside other retailers’ stores. Also, Charming Charlie is back in business after closing all its stores in 2019. The women’s apparel and accessories retailer returned to the mall last fall and has opened six stores with plans to open another 14 this spring. Meanwhile, Payless (formerly Payless Shoe Source) is back with a new name and a plan to roll out stores across the country. New stores and remodels alike both show that the industry still very much believes in the importance of physical stores. There is no denying that the pandemic accelerated online shopping across all sectors and age groups. But as digital sales have surged, so has the role stores play in fulfilling online orders though buy-online-pickupin-store services (whether the order is picked up in the store or delivered at curbside) same-day delivery and ship from store. In this respect alone, stores are more valuable than ever.

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This month’s cover story profiles 17 exceptional female executives, the winners of CSA’s Top Women in Retail Tech Awards. The women were recognized at a virtual event during which each honoree had the opportunity to speak after accepting her award. I was struck by the collaborative and generous tone they all struck … the feeling that they are all in this together. Cynthia Kleinbaum, VP of marketing, Walmart Plus and mobile and online pickup and delivery, Walmart, put it this way: “Thank you to all of the women and leaders in all organizations who shattered the glass ceiling, allowing me and my peers to never feel like we do not have seat at the table. I encourage everyone that we do the same for the next generation of women.”

Marianne Wilson mwilson@chainstoreage.com

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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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WOMEN of the YEAR JULIE ELMORE CTO Dollar General In her current role at Dollar General, Julie Elmore is responsible for application development, software design, development processes, product delivery and development. Driving technology innovation, cost effectiveness, delivery timelines and quality, Elmore helps set the company’s strategic IT direction, development and future growth, all while monitoring changes or advancements in technology. “I’m proud of the automation, machine learning, and artificial intelligence solutions I’ve helped introduce in my career,” said Elmore. “I’m helping drive an environment that puts the customer first.” Elmore, who participates in non-profit efforts such as Girls Who Code and the Network of Executive Women (NEW), also leads by example. While the evolution of technology and logistics have changed throughout her 25-year career, Elmore’s dedication to the mentorship of other women has not wavered. “When I started my career, retail technology was full of opportunities to create space and provide opportunities for others,” she said. “Ceilings did exist. The concept of mentors, sponsors and allies has grown and made it much easier for women to succeed.”

APARNA KHURJEKAR — Chief Customer Officer Verizon Consumer Group For Aparna Khurjekar, the journey from software developer to retail technology leader has not always been easy, but it also hasn’t been dull. “I’ve had a long, circuitous, but fun route,” said Khurjekar. “I’m a technologist at heart.” Khurjekar has been in the wireless technology space for 20 years, witnessing the evolution and impact of 3G, 4G, and now 5G networks. CHAINSTOREAGE.COM MARCH/APRIL 2021

“I’ve worked across the industry and started with handsets,” she said. “I was a founding engineer on the Motorola Razr project.” In her current position as chief customer officer, Khurjekar is responsible for bringing Verizon’s products and services to the customer, as well as marketing them. “It’s a natural role for me,” she explained. “I’m responsible for processes, tools, systems and technology across all channels of Verizon.” Reflecting on how the technology industry has changed for women since she began her career, Khurjekar said initially, establishing herself was an effort. “I faced a lot of unconscious bias, especially from institutions — Ph.D’s, leaders in the industry,” she recalled. “I became a student of the business, which gave me an equal seat at the table. Knowledge is the best equalizer.”

JESSICA RINGENA — Senior VP/Chief Digital Officer Hy-Vee Inc. Jessica Ringena’s path to retail technology was not a traditional one. “I started my career in accounting, working as a CPA and senior audit manager for a national public accounting firm for 14 years,” Ringena said. She began her career with HyVee Inc. in 2015, in a financial role as corporate controller. She moved into her current position as senior VP and chief digital officer three

years ago, overseeing the company’s digital customer-facing technology teams. “Both accounting and technology are process-driven disciplines powered by data, and there are a multitude of intersections between these two areas,” Ringena explained. Her ability to implement data-driven processes and strategies proved vital when Hy-Vee had to quickly respond to the challenges of COVID-19. Ringena has overseen the launch of solutions including an employee communication app, curbside ordering platform for meals to go, improved integrations and partnerships in grocery delivery, a curbside SNAP/ EBT solution, digital pre-payment options in pharmacy and a new virtual dietitian platform. “We experienced a five-year acceleration in e-commerce volume overnight,” Ringena said. “In technology, we typically make extensive plans and live and breathe by these roadmaps. Our teams had to come together and shake things up –fast.”

AMY SMITH Chief Strategy & Impact Officer Toms Giving back has been a recurring theme throughout Amy Smith’s career. “I worked at a technology-based startup and a global non-profit focused on community engagement and volunteer service,” said Smith. “All of my experiences have helped me develop my leadership skills and land in this amazing role at Toms.” As chief strategy and impact officer at the footwear brand, Smith oversees corporate strategy (including technology), as well as managing relationships with global giving partners, measuring impact across social and environmental sustainability efforts and creating giving experiences for employees. Smith’s experiences also include being part of the retail team at Apple Computer when the company opened its first 50 Apple stores. 9


COVER STORY Top Women in Tech

“We were building from the ground up so there was a lot of opportunity to input ideas, learn, and adapt,” she recalled. Throughout her career, Smith says she has benefited from female role models, and true to nature tries to pass that fortune on to others in her own leadership role. “I try to remember always as a female leader is to support other women,” said Smith. “Let’s lift each other up every chance we get.”

ASHLEY SHEETZ Chief Marketing Officer/ Chief Digital officer At Home Group Inc. With a background including leadership positions at several advertising agencies and top-level marketing positions at retailers

including Sally Beauty and GameStop, Ashley Sheetz is has become expert in engaging the customer. “Technology is now driving the customer experience,” said Sheetz. “As more and more retailers try to connect with the customer along their journey, more women are entering the technology space. Traditionally, women have focused more on the soft side of the customer experience. You need to have empathy for the customer.” In her current role with value home décor retailer At Home, Sheetz is responsible for customer insights, experience and service, as well as marketing and PR, CRM and loyalty and e-commerce. She takes pride in the many projects she has overseen where AtHome built something new, such as a BOPIS pilot that began in January 2020.

“In March and April, store closures happened,” said Sheetz. “We had to roll out BOPIS in thousands of stores in three months. We set up curbside pickup in 48 hours.” Sheetz also touched on her expectation for true personalization at scale to arrive in the coming year. “Back in the day, personalization was putting somebody’s first name in the subject line,” she said. “You’ll see a lot take off in personalization that’s really more relevant and not about promotion, but more about serving up and curating for the customer.”

SENIOR LEADERS MISTY ALEXANDER Director, Strategy & Innovation Regency Centers Misty Alexander has always taken a customer-centric approach to her work. “I started my career in consumer insights, which was very siloed from technology,” said Alexander. “As I worked to uncover need gaps of customers and solve for them in new, meaningful ways I started bridging an interactive partnership with technology teams. To be successful, it was all about building relationships, co-creating a vision, and working daily to maintain excitement of how we could make lives of customers better.” Since those days in the early 2000s, Alexander has seen many changes, but certain industry needs remain constant. “I’ve seen Internet adoption, company 10

webpages, data collection, online shopping, smart phones, and democratized information, data and resources,” she said. “What hasn’t changed? The need for speed and technology-driven customer solutions has become more and more important. The ante is upped daily. In additional to having the ability to forge critical partnerships you need to be creative, nimble, humble, innovative and future-focused.” Recently, in her role at Regency Centers, Alexander has been focused on helping regional retailers and startups become more resilient in today’s dynamic environment. “Mapping out the end-to-end hybrid journey with technology vectors creates greater efficiencies while positioning retailers to evolve with the cultural landscape and customer desires of today,” she stated. “It’s exhilarating to create programs that support retailers in this evolution.”

DIANA BARR Director of Loyalty and Marketing Coborn’s Inc. When Diana Barr began her career with

grocery retailer Coborn’s in 2012, there were sharper lines between business disciplines. “Now, technology bleeds into all areas of the business — accounting/finance, marketing, human resources, operations and management,” she explained. “Retailing was not as reliant on technology as it is today. It has become the backbone of nearly everything we do, which requires a much broader knowledge base to ensure it all comes together harmoniously.” Barr takes pride in career achievements including being part of a team to launch an enterprise wide loyalty program and growing it to cover 90% of Coborn’s transactions. Even more, she is proud of overseeing the extracting of customer insights from the program and leveraging them in a strategic manner. With the COVID-19 pandemic accelerating MARCH/APRIL 2021 CHAINSTOREAGE.COM


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COVER STORY Top Women in Tech

customer adoption of digital technologies, she thinks many of these new behaviors will stick. “We will need to keep pace with consumers’ demand to simplify their new ways of doing things,” said Barr.

ALICIA BOLER DAVIS VP, Global Customer Fulfillment Amazon Alicia Boler Davis has spent the last two years as a retail executive, but her career as an innovative business leader stretches back much further. Davis joined Amazon after spending 25 years in roles of increasing leadership responsibility at General Motors, rising to executive VP of global manufacturing and labor relations before assuming her current position at Amazon. As part of her responsibilities, Davis runs Amazon’s hundreds of fulfillment hubs across the globe, with a scope encompassing workers, logistics, processes, and advanced warehousing technology such as robotics. In the early stages of the COVID-19 pandemic, she oversaw Amazon’s adjustment of its supply chain to respond to the sudden shift in consumer demand to paper and hygiene products, which created some initial delays. Davis was also responsible for handling the e-tailer’s substantial growth in sales volume and overseeing safety efforts in distribution facilities, which have been estimated to measure a total of 320 million-sq.-ft. worldwide. She has been impressive enough in her efforts to become the first Black person and fourth woman to be named to the “S-team” of senior executives who directly advise Amazon CEO and founder Jeff Bezos, in August 2020. 12

SUSAN ESHLEMAN VP, Product & Program Management American Eagle Outfitters When Susan Eshleman started her technology career in the engineering department of a major telecom company in the late 1990s, there were very few women in the organization and no women sat on the leadership team. “I could tell things at that time were changing, though,” said Eshleman. “The pace at which technology was moving was driving more user-centric thought, and women were moving into roles on teams where they were solving some of the toughest challenges.” Since that time, Eshleman, who joined American Eagle in 2013, is pleased to see that many things have changed for women. “I believe what stands out to me the most is the community that women have formed to help other women to rise in their career to whatever level they want,” she said. “Find your tribe and then find something you love doing.” At the apparel retailer, Eshleman has been actively supporting women through the company’s Women in Technology associate network, founded in 2018. During her time with American Eagle, Eshleman has been proud to lead a group of exceptionally talented technology professionals. “Our team is always looking for ways to improve our customers’ experience as they are shopping our American Eagle and Aerie brands,” she stated. “We have transformed our team into an inspired group of curious leaders that make coming to work an adventure and a real joy.”

NICOLE GHEZALI Senior VP, Global Retail Adidas Nicole Ghezali started her career in retail as a store manager at Gap, and that suits her just fine. “I didn’t start in tech,” Ghezali stated. “I’m a retailer. I’m proud to have built my career from a store manager 25 years ago to lead global companies in retail.” Acknowledging that working on technology initiatives within her broader retail roles has always been very rewarding, Ghezali’s achievements as a retail tech executive include leading omnichannel execution at Banana Republic, including click-and-collect and ship-from-store. “We deployed those services at an early time in omnichannel,” Ghezali commented. In her present role as senior VP of global retail at Adidas, Ghezali is staying on top of accelerating changes brought by the COVID-19 pandemic. “Retail continually evolves, but the human connection is important and you can’t lose that,” she said. “Post-pandemic, consumers will crave deep, rich experiences. Augmented reality and virtual reality technology are maturing and will support rich customer experiences across the digital and physical realms.” “We must ensure we can fulfill consumer demand when and how they want,” Ghezali said. “It’s an important aspect when we create new retail experiences. We are at an anchor point of convenience for consumers.”

CYNTHIA KLEINBAUM MILNER VP of Marketing Walmart+, Mobile and Online Pickup & Delivery, Walmart Cynthia Kleinbaum Milner has faced discrimination in her career. But she sees being a woman as a professional asset. MARCH/APRIL 2021 CHAINSTOREAGE.COM

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COVER STORY Top Women in Tech

“I started my career in Mexico in the early 2000s, a time in which it would be an understatement to say that women were underrepresented across the industry, not just at the executive level,” said Milner. “That said, marketing was the one function in which women had better representation. Besides the fact that most purchasing decisions are made by women, which allows us to better understand our customers, there are innate female characteristics that make for great leaders, like being more empathetic and collaborative.” Milner takes leadership seriously, and reflected on her own accomplishments as a high-level retail executive. “If I had to pick one thing I am proudest of, it would be the teams I have built and led,” said Milner. “Being able to coach and unlock someone’s potential is one of the best feelings I have had professionally.” In the next year or so, Milner expects two technology areas where Walmart has taken a leading role – livestreaming and grocery delivery — to become focal points for retail. “I expect to see American brands adopting livestreaming as a core element of their go-to-market strategy,” said Milner. We will see the next generation of innovation in online grocery services, from driverless and unattended deliveries to fully automated micro-fulfillment centers within retail stores.”

MARY LAWLEY

VP, Store Operations Administration Tractor Supply Company As the person in charge of store operations at Tractor Supply Company, the nation’s largest rural lifestyle retailer, Mary 14

Lawley could be said to “mind the store.” She has always been on top of what’s happening in the store, beginning her career as a store manager at Walgreens and moving into high-level, store-focused executive positions at Office Depot and Tractor Supply. Among the major store technology projects Lawley has worked on during her tenure at Tractor Supply is the launch and expansion of its BOPIS and curbside pickup program. Since Tractor Supply serves a predominately rural market, it became an added convenience for shoppers using BOPIS and curbside to know that the right order (and quantity) would be there when they made a trek to the store. These omnichannel services became even more critical when the COVID-19 pandemic struck, and Tractor Supply has been growing them. Lawley is also overseeing operations of a rapidly-expanding store fleet. The company recently acquired Orscheln Farm and Home, a 60-plus-yearold family-operated retailer with 167 stores in 11 states, and plans to open 80 Tractor Supply stores and 10 Petsense locations in 2021.

LAURA LOUGHRAN

Senior VP, Technology Chico’s FAS Shoppers at Chico’s can be confident that the technology they encounter is customer-friendly. “What fascinates me the most about technology is the customer and how technology can solve real-life business challenges,” said Loughran. “One would even say I’m obsessed. Retail is in constant change. It’s an incredibly fast-paced environment. I love nothing more than being part of the process going from a concept to seeing the idea in action by the consumer.”

During her nearly 20-year technology career (including 18 years at Chico’s), Loughran said nothing made her prouder than leading and working alongside her team as they navigated the COVID-19 pandemic. “We transitioned to a remote-only workforce overnight,” she explained. “We ran a digital-first and digital-only business overnight, and launched new products in a matter of weeks.” Loughran credits Chico’s established, proprietary virtual selling tool, known as StyleConnect, with enabling its boutique associates to continue to connect with customers and successfully transact during the shutdown. Chico’s was founded by a woman and continues to be led by women, Loughran noted, and the company is committed to gender parity. “I have been extremely fortunate to have experienced nothing but positive interactions, mentoring, support and advancement in my career,” she said.

SRUTI PATNAIK

Senior VP, IT Ross Stores

When Sruti Patnaik began her career as a technology professional, there were extremely few women leaders in the field. But she never let that deter her. “I allowed my competencies, skills and aspirations drive me,” stated Patnaik. “In a room full of peers, I refused to tag myself as a woman technologist or a working mother or a colored technologist. I was a technologist and that is what mattered.” MARCH/APRIL 2021 CHAINSTOREAGE.COM


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COVER STORY Top Women in Tech Looking back on her career, which includes 20 years of leadership positions with steadily increasing responsibility at off-price retailer Ross Stores, Patnaik says her proudest achievement is her “journey” itself. “I grew up in a town in India where it was unsafe for girls and women to move around alone,” she recalled. “You needed a male member of the family to accompany you. I had a strong mother who said, ‘Do something more every day.’ In that environment, she encouraged me to push the boundaries a little more every day.” During the next year or so, Patnaik thinks the digitization of all things relating to the customer will be a driving trend in retail technology. “Customer convenience post-pandemic is a new normal,” she explained. “Retailers need to re-assess their customers’ needs, not assume what they wanted pre-pandemic is still true and adjust.

And as they do that, they need to not lose sight of their business fundamentals.”

JAN WALKER

Director of IT Cavender’s

When Jan Walker began her career in retail technology at western wear outfitter Cavender’s, she came from an accounting background and knew very little about the “tech” side of things. “Our IT department was very small and very operationally focused,” recalled Walker. “In most cases, both internally and in external meetings, I was the only woman on the team. However, I never felt isolated

or excluded because I was a woman.” Walker attributes this positive response to her supervisor and coworkers going “above and beyond” to encourage her growth. Reviewing her career achievements, she mentioned a major team effort undertaken by Cavender’s entire IT, e-commerce and store operations teams during the stressful period of COVID-19. “Working together, we were able to complete an unplanned BOPIS implementation on a legacy order management/ POS platform in only a few short weeks when the COVID-19 pandemic forced a number of restrictions on in-store shopping,” Walker said. “I believe the pandemic has escalated the adoption of omnichannel shopping avenues, but convenience for the customer is still the primary driver,” concluded Walker. “As we are able to automate more processes, we are then able to focus our resources on expanding our capabilities and offerings to our customers.”

STARTUP INNOVATORS SREE MENON

COO Tophatter

With a background including serving as GM of eBay Motors and e-commerce and online director of Americas for Dell, Sree Menon is no stranger to innovation in digital commerce. For the past four years, she has continued that trajectory as COO of Tophatter, a deal-focused e-commerce marketplace. Menon has also spent her career committed to furthering careers for women in technology by understanding the barriers and micro-inequities that they face and serving as a mentor to them. As part of that effort, she is a founding circle member of the San Francisco chapter of Chief, a private network built to drive more women into positions of power and keep them there. She is also a member of the Fourth Floor, an organization dedicated 16

to democratizing women’s access to board seats. “Brick-and-mortar brands will expand their online footprints to meet customers where they are now and e-commerce brands will develop smarter and more agile logistics and fulfillment strategies to compete,” said Menon. “Everyone will likely have to play a balancing act as they weigh trade-offs between convenience, speed of transaction, value to customer, and cost of operations.”

NEHA SINGH

Founder/CEO Obsess

Neha Singh’s ambition is about as big as that of a retail technology professional can get. “At Obsess, we have created a new type of online shopping interface to move away from the grid-based interface that is ubiquitous on every e-commerce site today, and hasn’t changed in 25 years when it was first made to sell books,” she explained. Founded by Singh, Obsess functions like

a virtual mall, thanks to leading-edge augmented reality and virtual reality technology. Other retailers also license Obsess technology to power their own lifelike e-commerce experiences. “Building the proprietary patent-pending technology that enables rendering of very photorealistic virtual stores on the web at a high resolution and fast performance has been a four-year journey,” said Singh. “I’m proud of being able to work with some of the largest brands in the world, to disrupt the digital shopping experience as we know it.” Singh sees experiential e-commerce as a major developing trend. “It will not be sufficient for retailers to just have a transactional flow online, which is already table stakes, but to create a brand experience to engage consumers,” she stated. MARCH/APRIL 2021 CHAINSTOREAGE.COM


ANALYSIS

Thriving Post Pandemic: Four Key Areas To Prioritize By Hilding Anderson In the 13 months since the start of the COVID outbreak in the U.S. there have been dramatic changes within the retail industry. Massive spikes in demand put tremendous pressure on “essential” retailers, while others faced unprecedented challenges as stores were shuttered and foot traffic declined. With health and safety top of mind and various restrictions in place, consumers’ purchases and shopping methods were altered. They shifted their spending patterns from travel and hospitality to durable goods and consumables, especially home improvements. In addition, there was a massive acceleration in the adoption of e-commerce as many consumers shopped from home. The shift to online shopping will not be changing any time soon — 74% of U.S. consumers surveyed by Publicis Sapient last year indicated that they expect to shop online more in the future. Grocery has seen historic change: Our research found that 50% of shoppers who try online grocery say they would be willing to use the service more in the future. Although we anticipate online grocery usage to gradually decrease as vaccination rollout continues, restrictions ease, and consumers begin dining out more, we believe consumer adoption will continue to grow. With the shift to online shopping and digital channels is likely to continue, there are several key areas that retailers must prioritize in order to thrive after the pandemic.

Fulfillment Flexibility In order to adapt to new consumer needs throughout the pandemic, retailers had to put extra focus on contactless fulfillment methods like buy-online-pickup-in-store and curbside pickup. These offerings not only provided consumers with a safe way to get products, but also added convenience to their daily lives. As a result, fulfillment flexibility is now table stakes — consumers today expect to be able to order digitally, with the option to pick up their items in-store or have them delivered. In fact, that BOPIS or curbside pickup is the number one fulfillment preference many

consumers across various product categories. Retailers must continue to expand fulfillment options — offering curbside, BOPIS, reserve- online-pickup-in-store (ROPIS), as well as same-day delivery, while simultaneously investing in efficiency. For example, sales associate picking tools can boost your UPH up to the 60 to 80 range if you have accurate plano-grams — close to the fully automated picking technology, yet without the capital costs. Reimagining the Store The best, most profitable model for digitallyenabled stores remains an open question. Yet tantalizing hints exist. Target was able to achieve a class-leading profitability (twice its competitors) by, in part, fulfilling 80% to 90% of online orders through their stores. COVID has crystalized a view that the number of stores and the configuration of those stores must be reconsidered. Some retailers feel that they need fewer, larger stores with more significant experiences in-store and dedicated micro fulfillment areas. Canadian grocer Loblaws has invested in local and micro fulfillment for its grocery business as well. Others, such as Target, are expanding smaller footprints stores in urban locations. There is no one answer, but generally we believe fewer but larger stores is one outcome, and stores with large square footage will have a dedicated fulfillment area. Focus on Profitability Most retailers have been able to maintain profitability even as their e-commerce business has grown. They achieve this by aggressive cuts in promotional activity, an increase in pricing power due to product scarcity, and by putting off capital investments for six to 12 months. But this cannot last. Retailers are increasingly realizing that although they can sell effectively with e-commerce, trying to generate profit is much more difficult. We feel that retailers will be forced to invest in customer data — CDPs and marketing uses cases especially, and then quickly pivot to incremental high-profit revenue

sources like shopper marketing (advertising) platforms and continued cost cuts. Simultaneously, we expect retailers to make major new investments in supply chain control towers, inbound supply chain optimization and, most importantly, outbound or ‘promise to delivery’ technologies. These solutions tend to reduce shipping costs, return rates, and inventory holding costs. Data Insights With the shift to online shopping, retailers have access to more data than ever before, giving them an opportunity to build stronger relationships with customers and create additional revenue streams. Most large, sophisticated retailers use insights from data to create more personalized experiences and offerings. Some are also exploring ways to monetize their data through investments in subscription models, paid loyalty programs, digital games or digital licenses, exclusive access to physical spaces, and early access to products. Additionally, some retailers are exploring entering adjacent market areas that they had never previously considered. With consumers’ ability to switch from one retailer to another with just the click of a button, it’s critical for retailers to understand how to interpret and implement data insights to differentiate themselves from their competitors and create lasting relationships with consumers. One year later and U.S. retail has been reshaped. E-commerce has reached levels we hadn’t expected for at least two or three years from now. Over 30 major retail brands are bankrupt, and others are permanently weakened and may never recover. But, 2020 saw a 6%-plus increase in retail sales, surely a positive side as we look to emerge from COVID restrictions. With the right strategy and investments, and a relentless focus on new consumer expectations, retailers can position themselves for the post-pandemic future. — Hilding Anderson is head of retail strategy, North America, at Publicis Sapient

CHAINSTOREAGE.COM MARCH/APRIL 2021

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STORE SPACES

Retailers On The Move Store openings pick up — here are some of the companies expanding in 2021 By Marianne Wilson Not all retailers are downsizing their physical assets in the wake of the pandemic and the acceleration of digital commerce. Far from it. From discounters to off-pricers to beauty giants, retailers are back on track with expansion plans that were largely sidetracked amid the pandemic. As of March, openings were set to outpace store closures by almost 9 million square feet, according to Coresight Research. Here are 17 retailers opening stores this year — and beyond. (All numbers are for each company’s current fiscal year unless otherwise noted.)

• Aldi: The German discount grocer is

adding 100 U.S. stores, with the locations focused on Arizona, Florida, California and the Northeast.

• American Eagle Outfitters: The apparel retailer continues to focus on its intimates brand, Aerie, with plans to grow it from about 350 stores to approximately 400 locations. It expects to have 500 to 600 Aerie stores in 2023.

• Bridgestone: The network of company-

owned tire and automotive service centers, a subsidiary of Bridgestone America, is opening 58 locations.

• Burlington Stores: The off-pricer, which

ended last year with 761 stores nationwide, has expanded its long-term store count potential to 2,000 locations from its previous target of 1,000 stores. Some 100 stores are on tap for its current fiscal year.

• Citi Trends: The value retailer, which

specializes in apparel, accessories and home goods primarily for African American and Latinx customers, expects to open at least 30 stores and remodel 30 locations. With 585 stores in 33 states, Citi Trends plans to open at least 100 new stores and remodel at least 150 locations by the end of 2023.

• Dollar General: The discounter is opening 1,050 stores, remodeling 1,750 sites

Dollar General will open 1,050 stores this year and remodel 1,750 locations.

and relocating 100 stores. Looking further out, Dollar General sees the opportunity to roughly double its store count, which stood at 17,177 locations at the end of January.

• Dollar Tree: The retailer is opening 600 locations (400 Dollar Tree stores and 200 Family Dollar stores) and renovating 1,250 Family Dollar sites. • Fabletics: The activewear fashion brand is adding 24 stores, expanding its brickand-mortar presence to 74 U.S. locations by year-end. • Five Below: The value tween and teen retailer remains one of the few specialty retailers that is not pulling back on brick-andmortar growth. Five Below is opening 170 to 180 stores, up from 120 last year, and enerting enter two new states — Utah and New Mexico — as its footprint expands to 40 states. • Lidl: Lidl US is revving up its expansion along the East Coast to the tune of 50 stores, with locations in Delaware, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina and Virginia. • Ross Stores: The off-pricer is opening 40 Ross Dress for Less and 20 dd’s Discounts locations. Long-term, the retailer remains confident that Ross can grow to 2,400 stores (up from its current 1,866 location) and dd’s Discounts to 600 stores.

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• Sephora: In the largest store expansion plan in its 21-year history in the United States, the global beauty giant will open more than 60 freestanding stores and 200 shop-in-shop locations in Kohl’s stores.

• Sprouts Farmers Market: The organic grocer is adding some 20 stores this year, including 10 in the Sunshine State.

• Target: The discounter is accelerating new store openings, opening 30 to 40 stores annually. It’s also ramping up its store remodel program and will look to complete approximately 150 in time for the holiday season. It plans to remodel more than 200 stores a year beginning in 2022.

• TJX Cos.: The off-price giant’s U.S.

openings include about 30 Marmaxx (TJ Maxx and Marshalls) stores, 34 net HomeGoods stores and 12 Sierra locations. In Canada, it’s opening 22 net stores.

• Tractor Supply Co.: The nation’s

largest rural lifestyle retailer is opening namesake stores and 10 Petsense stores, as well as remodeling 150 to 200 stores.

• Ulta Beauty: The beauty giant’s plans

include 40 stores and 21 remodels or relocations. It’s also opening 100 in-store shops at Target. MARCH/APRIL 2021 CHAINSTOREAGE.COM


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Lighting Rebates: Outlook for 2021 Plenty of rebate opportunities still exist throughout the U.S. By Marianne Wilson For some time, rebates have offered retailers a strong incentive for investing in energyefficient lighting and controls. And that remains true today. Even with the increased prevalence of more energy-efficient technology, older lighting technologies such as T12s and metal halide are still being used in the United States, which means that lighting rebates are still going strong in 2021. Indeed, 2021 is shaping up to be a solid year for commercial lighting rebates, noted BriteSwitch. The Princeton, N.J.-based company helps businesses find and take advantage of the thousands of rebates and incentive programs that exist across the United States and Canada. Rebates typically improve lighting upgrade project payback by 20% to 25%, but the varies widely by technology and rebate program. As a general range, a rebate may cover 10% to 70% of the lighting product cost, according to BriteSwitch. Currently, 74% of the United States is covered by an active commercial lighting rebate program, which means most businesses in the country have a rebate available, according to BriteSwitch. The most significant change in 2021 is in Ohio, where the major utilities discontinued their rebate programs at the end of 2020. Here is a review of the current rebate landscape from BriteSwitch.

lamps (A19, PAR, BR), but it was relatively minor, with a difference of just $0.25 between this year and last year. • Fixtures: For the most part, LED fixture rebates are on par with the levels we saw last year. The only exception to this trend is troffer rebates, which unexpectedly dropped 43% versus the previous year. Troffers and retrofit kits now have the same rebate amount. It’s not clear why troffer rebates changed, but BriteSwitch does not expect to see such a significant decrease repeat itself next year. Since the rebates for fixtures can be relatively high, make sure to pay attention to any cost caps that may apply.

LEDs For the first time in years, the average prescriptive rebate for LED products did not go down year-over-year. Historically, the rebate amounts for LEDs have fallen between 10 and 20% every year, so staying flat is a huge improvement.

Controls Rebates for lighting controls have been remarkably stable over the years, especially when compared to LEDs. There has been no change in the average amount of rebates for all controls across all categories for the past 10 years. Although BriteSwitch expected to see growth in networked lighting controls (NLC) rebates the 2021 offerings are very similar to 2020. Only three new programs added additional incentives for networked lighting controls, and the average amounts are consistent with last year. That being said, 35% of all rebate programs specifically mention networked lighting controls in their paperwork, and many other utilities will consider these types of projects under custom. That means, if you have a project with NLCs, it will most likely qualify for rebates, but it is still hard to quickly target areas with the best rebate programs for networked lighting controls.

• Tubes: Rebates for LED tubes remain at an average of $4 for a 4' tube. There was a slight decline of rebates for replacement

DLC Changes In 2020, DesignLights Consortium issued new technical specifications under the new

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version 5.0, which improved upon the specs of v4.4. The DLC originally slated the v5.0 transition for December 31, 2020, but pushed it back until February 28th due to COVID. A majority of rebates, between 60% to 85% depending on the category, require DLC listing in order to get an incentive, which means certification is essential. If a program requires DLC certification and a product isn’t on the DLC website when the application is reviewed, it will not receive a rebate. While many rebate programs may have offered a grace period during DLC transitions in the past, no program has implemented such a policy so far this year. DLC v5.1 will go into effect early next year, and that will add new requirements for controllability in many types of fixtures. Longer Pre-approval, Check Processing Times Most of prescriptive and custom rebate programs require pre-approval. In response to COVID-19 and everyone learning how to work at home, both the amount of time to receive pre-approval and the time to receive checks both got longer in 2020. On average, it took 22% longer to get pre-approval (now 22 days) and 40% longer to get the rebate check (38 days). Since this trend is expected to continue in 2021, make sure to allow enough time for pre-approval before the project begins. “With tighter budgets and more conservative spending, rebates are as important as ever to getting lighting projects done in 2021,” BriteSwitch noted. “If you are working on any project this year, make sure you know if there are rebates available and what may be required. These rebates and incentives are a great way to do more with less money, and you should always leverage them.” MARCH/APRIL 2021 CHAINSTOREAGE.COM


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STORE SPACES Q & A

Better Managing FM Parts & Supplies Parts and supplies is an often neglected part of facilities maintenance. Jim Owen, senior VP of SDI, spoke with Chain Store Age about how retailers can better manage and optimize this critical element of FM to better align it with their overall strategy.

What are the big trends in FM and enterprise asset management that retailers should be aware of? Most of the major trends that we are seeing in FM are being driven by changing consumer expectations and the advent of new and disruptive technologies. Rapidly evolving consumer expectations and the emergence of disruptive technology are driving retailers to adopt new technologies enabling digitization and automation of buildings, assets and the supply chains that support them. How has the pandemic impacted these trends? The pandemic was an inflection point that amplified the need for and dramatically accelerated the demand for digitization and automation. Beyond use of ease and efficiency, consumers and retailers are finding new and innovative ways to connect and transact commerce through frictionless technology solutions. What do retailers need to know about “smart” buildings” in regard to FM parts? Smart assets (building envelope and internal assets) require a smart parts supply chain to ensure reliable performance and asset uptime. Internet of Things (IoT) technology offers tremendous opportunity in terms of condition-based, predictive maintenance for all facility assets. However, the parts supply chain needs to evolve and be fully aligned and integrated so that parts will be available when and where they are needed. Without this, FM managers may have advance visibility to asset condition and potential failures but will still be hamstrung by a fragmented, unreliable parts supply chain that is optimized for the supplier, not the FM technician. For example, an FM leader may have a real time dashboard view of an imminent

HVAC/R (critical, revenue-generating) asset failure that prompts them to triage the fault remotely and dispatch a technician preemptively. But if the HVAC parts supplier is out of stock and the lead time is seven weeks, the IoT alarm (and overall investment) is worthless. In short, a chain is only as strong as its weakest link.

technician wrench time, and the overall health and safety of the building and its occupants.

Procuring parts and supplies is an integral part of FM. How do most retailers handle it? Even though as much as 30% of a retailer’s FM budget can be attributed to parts and supplies, retail FMs have been limited in their ability to manage and optimize this critical element of their FM strategy. The fragmented nature of the parts supply base and the limited ability for retailers to aggregate and manage their supply chain has hampered their efforts. This is an area of FM that has been largely ignored or neglected but that is quickly changing. Technicians are consumers too and they, like the rest of us, are conditioned to want a B2C experience in the workplace. They want to be able to order parts and supplies with the same ease and simplicity as they request a car for hire with their Uber app.

Tell us a little bit about SDI. For 50 years SDI has specialized in developing and managing innovative parts and materials supply chain services and solutions for large, multi-site organizations. We are not a parts supplier or a software firm. We are a supply chain solutions and services company that focuses exclusively on solving problems that make FM organizations more effective and efficient. We recently launched an innovative parts supply chain solution for one of the largest big box retailers in North America.

What effect does an inefficient procurement program have on store operations? The issue and the larger opportunity extend beyond procurement alone and require that FM leaders adopt an end-to-end supply perspective and approach. Yes, aggregating and leveraging parts spend — which can be as much as 30% of the overall FM budget — through a traditional sourcing event can yield significant savings. But the larger opportunity presents itself when leaders look at the total cost of ownership and take into account how their existing approach impacts asset uptime,

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What is the biggest mistake that retailers make when it comes to parts and supplies? Accepting the status quo and continuing to ignore or neglect this critical element of their FM strategy.

How can SDI help retailers better manage their FM parts and supplies? We work collaboratively with our clients and their suppliers to develop solutions that include people and processes enabled by purpose-built technology. We start with a comprehensive assessment that includes data analysis and supply chain benchmarking and baselining and then work closely with our client to build a competing, fact-based business case for change. What benefits does the SDI solution offer retailers in this regard? Outcomes of our solutions include improved first call completion, increased wrench time, improved asset uptime, enhanced spend leverage, and data-rich, actionable analytics that allows FM leaders to fully align and integrate their parts program with their overall FM strategy. MARCH/APRIL 2021 CHAINSTOREAGE.COM


SHOP TALK inspired by the company’s heritage as well as its Heirloom Market format, with wood elements and its signature colors of red and black. … Psycho Bunny, an online cult-favorite menswear brand whose logo is a maniacal rabbit over a skull and bones, has opened at Garden State Plaza Mall, in Paramus, N.J. With 10 stores, Psycho Bunny is opening 15 new sites this year. The 1,500-sq.-ft. Paramus location is designed to catch the eye of shoppers with its prism store window composed of glass panels along with a dichroic film. The interior features a neon bunny sign integrated into a merchandise gallery wall and a large-scale LED video wall. Psycho Bunny

Fabletics

Trending stores: Activewear fashion brand Fabletics, which will open 24 stores this year, relocated and redesigned its store at Mall of America. Doubling in size to 4,000 sq. ft., the location includes an in-store pop-up dedicated to at-home rowing machine Hydrow, digital displays of Instagram content and tech enhancements that allow customers to request a different size, style or color without leaving the fitting room. Founded online in 2013 with a subscription-based model, Fabletics currently has some 50 stores. … Primark opened its first Midwest location, on N. State Street in Chicago. The 36,000-sq.-ft. store is the value-priced Irish retailer’s 12th U.S. location and one of more than 390 sites in 12 countries. The retailer has signed leases to open a new store in Philadelphia and two stores in New York. Primark Chicago is spread over three floors, with clothing for women, men and kids, along with footwear, accessories, lingerie, homeware and beauty. … Toys “R” Us has a new owner that is committed to bring the brand back to brick-and-mortar. WHP Global has acquired a controlling interest in Tru Kids Inc., parent company to the Toys”R”Us, Babies”R”Us, Geoffrey the Giraffe brands. The new owner’s plan is to open Toys“R”Us stores again in North America, in time for the 2021 holiday shopping season. The locations could take the form of flagships, pop-ups, airport locations or mini-shops inside other retailers’ stores. … The Giant Company’s new 65,000-sq.-ft. store in Philadelphia offers a dazzling array of services and amenities designed to meet the needs of urban dwellers. The two-level supermarket is located on the second floor of a 25-floor residential tower in the Riverwalk mixed-use development. It features on-site parking with curbside pick-up spots, a food hall with floorto-ceiling windows, a full-sized Starbucks, a self-serve tap wall and an outdoor terrace. The ground-level parking garage offers direct access to the store’s lobby. Designed by Chute Gerdeman, Giant at Riverwalk incorporates design elements

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STORE SPACES

Trending Topics By Marianne Wilson

ENERGY-EFFICIENT STARBUCKS BUILT IN RECORD TIME Six days. That’s how long it took to build the new Starbucks in Abbotsford, British Columbia (Canada). The store, which has a café and drive-thru, was designed, manufactured and assembled by Vancouverbased green building company Nexii Building Solutions using an energy-efficient modular system with near-zero construction waste. It is designed to reduce energy needs for heating and cooling compared to standard construction builds. The panels for the roof and walls were designed and manufactured offsite. Through optimized manufacturing and simplified

assembly, the building process reduces construction waste relative to typical industry practices. The Nexii panels are made of a proprietary material that is more thermally efficient and less carbon-intensive than concrete, according to the company. In addition, when assembled, the panels create an airtight building envelope. As a result, the Starbucks building will require less energy to heat and cool compared to standard construction builds, greatly improving energy efficiency over its building lifecycle and lowering operating costs — and significantly lowering the greenhouse gas emissions for ongoing building operation.

“Buildings and construction can have a substantial impact on Canada’s environmental goals,” said Catherine Anderson, VP of store development at Starbucks Canada. “Working with likeminded innovators like Nexii, we are excited to lead the industry in modeling the benefits of green construction and share what we learn with others to help action meaningful, global change.”

ALDI LOOKS TO REDUCE ENVIRONMENTAL IMPACT

SHEETZ MANAGES ENERGY USE WITH AI TECHNOLOGY

Aldi is embarking on a number of initiatives designed to lower emissions, reduce waste and increase recycling in an effort to substantially reduce its environmental impact by 2030. The initiatives, part of the German discount grocer’s new “sustainability charter,” include a plan to reduce greenhouse gas emissions by 26% by 2025 through a continued shift to solar and wind energy sourcing and by building out its renewable infrastructure to rely less on grey power grids. As part of a $5 billion capital investment in new and remodeled stores across the U.S., Aldi has been increasing its renewable energy building elements, including energy-efficient LED lighting and rooftop solar systems, which are currently on 111 stores and 12 distribution centers nationwide. It will add solar to warehouses in Alabama and Kansas, and also to roughly 60 stores by the end of 2022. The company sources the power through the Green-e certification program to validate its clean energy investment. In addition, all Aldi warehouses (in the U.S.) and nearly 400 stores use natural refrigerants that reduce the environmental impact by up to 4,000 times compared to common refrigerants. Aldi plans to continue to shift to natural refrigerants in all store locations.

Sheetz will leverage a state-of-the-art energy intelligence platform to manage its energy spend. The convenience store retailer will manage its energy use through Pear.ai, an energy intelligence platform offered by Constellation and its affiliate company, Exelon Generation Services. The platform provides businesses with utility expense management and centralized, streamlined access to all of its utility data, as well as meaningful analytics. Sheetz will use Pear.ai to manage its comprehensive utility footprint (power, gas and water) across all 617 of its store locations. MURAL MANIA 7-Eleven is commissioning local mural artists to bring its creative vision to life at select stores. The convenience store retailer has teamed up with Dallas-based creative agency The Ammersion Group to identify artists to create neighborhood-specific murals on interior and exterior walls of existing and new 7-Eleven stores. The goal of the program is to capture each neighborhood’s energy through inclusive on-site murals that bring connection and creativity to local communities. 7-Eleven first embarked on the massive art project at its “evolution” store in Dallas. (The evolution format is designed as an experiential testing ground where the chain can test new concepts, products and services before scaling them across the 7-Eleven system.) “It’s been a hit so far and I’ve seen my fair share of excited customers stop what they’re doing to take Instagram-worthy photos in front of the larger-than-life mural,” said 7-Eleven senior VP and chief marketing officer Marissa Jarratt. “This positive customer behavior and feedback has encouraged us to expand the concept to more stores in 2021.”

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MARCH/APRIL 2021 CHAINSTOREAGE.COM


MARK YOUR CALENDAR

ON THE LEVEL

Malls: Take the Green High Road The commercial opens with a young mom looking in her bathroom mirror putting her makeup on. “Hon!” she yells, “Get the kids together. They both need new shoes and summer clothes. You could use some new sneakers, as well. Those kicks you have are bad news.” Quick shot of his dilapidated orange sneakers, pan up to hubby. “Y’know, you’re right,” he yells. “Haven’t been able to find these in this color online.” “Right,” says wifey. “We need a lot of stuff and it’ll be quicker and better to just head to the mall, so get the kids and get the car out of the garage.” “Right!” he replies. Next shot: Dad and kids are in front of the garage door which he opens with the fob on his keychain. The door slowly lifts and all we see is a floor to ceiling pile of Amazon and FedEx boxes with the hint of a rear bumper and exhaust pipe sticking out. “Brittany!” yells hubby to wifey, “Take your time with your makeup. This is going to be a while.” Voiceover: “Last year box producers churned out 407 billion square feet of corrugated cardboard. That’s three-anda-half percent more they manufactured than the year before, which added up to 477 square miles of cardboard, enough to cover New York City and then some. So

go to the mall. You can shop for everybody and everything and nothing needs to be put in a box or on an airplane. Anyway, it’s about time for a movie and dinner out. Throw out the boxes and head to the mall! A message from Malls for Climate Change.” For my lead story this month, “Reimagining the Mall,” I spoke with a dozen or so leading developers of retail real estate and experts on the topic. Just about all of them mentioned densification of properties with offices and apartments and creating events and occasions to extend usage hours of the mall to as much as 18 hours a day. Why did no one mention the mall’s singular advantage over buying stuff online, something that increased by 20% during the pandemic? Get on the green high road, malls! It’s a politically correct advantage you have over e-coms that you’ve left lying in the garage with all those boxes. According to Statista, a digital market data company with more than two million participants, 70% of consumers between the ages of 18 and 34 worry about global warming and 75% believe that it’s caused by human activities. As it happens, these are the same human beings that made one-third of all online purchases in 2020. And that fall into the young, employed age range that marketers of fine apparel and accessories, sports gear, video games, and casual dining facilities court. So mall owners who sit on the board of the International Council of Shopping Centers, get your Climate Change Council together. Chip in on an ad budget. Help all those supposedly concerned young people walk the walk, not just talk the talk. Make them guilty whenever they pass that pile of boxes and make them go to the mall. Start producing the bumper stickers: “MALLS FOR CLIMATE CHANGE!”

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REAL ESTATE

The Reimagined Mall Malls that want to make it in the 21st Century will have to achieve densification and activation — more people living or working on a property that has more things for them to do. By Al Urbanski

F

or decades, the nation’s leading mall companies ruled the choppy seas of retail in Atlanta. Brookfield’s Perimeter Mall in Dunwoody and North Point Mall in Alpharetta along with Simon’s Lenox Square in Buckhead were must-visits during holiday season and year-round. But in 2018, a new merch-laden ship launched into the bounding main and commenced firing broadsides at the lead fleet. Avalon, a luxury mixed-use center in Alpharetta with 500,000 sq. ft. of retail gross leasable area and about 70 tenants entertained 3.2 million guests from March through November 2020, according to the foot traffic analytics platform Placer.ai. During the same period, Lenox Square (1.5 million sq. ft. and 235 stores) drew 2.75 million, Perimeter Mall (1.5 million sq. ft. and 158 stores) hosted 2.7 million, and North Point Mall (1.3 million sq. ft. and 125 stores)

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served 1.5 million shoppers — less than half of Avalon’s audience. In January, North Point capsized. Brookfield gave the mall back to its lender, the New York Life Insurance Company, which hired Trademark Property to redevelop it as a mixed-use center. “A lot of malls sit on great dirt, but the product is not up to date,” said Mark Toro, chairman of Avalon’s developer, North American Properties. “Back in the Eighties and Nineties, malls were the product of the time. Then power centers became dominant. Today, you have to create a mix of uses to populate your property.”

Nearly all the developers Chain Store Age interviewed for this article agreed that the spate of mixed-use developments going up nationwide are inspired chiefly by two demographic groups — baby boomers and millennials — who desire urban-style living and amenities within walking distance of their front doors. Successful mixed-use developments are like six or eight blocks of Brooklyn or Seattle deposited in a gentrifying neighborhood of Springfield or Middletown. There are apartments and offices and stores and gyms and restaurants and bars and daycare centers, and you don’t have to get in your car and drive to them.

“A lot of malls sit on great dirt, but the product is not up to date.” –Mark Toro, North American Properties MARCH/APRIL 2021 CHAINSTOREAGE.COM


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Avalon has a four-star hotel, three levels of luxury apartments and a single-family home development, plus 750,000 sq. ft. of office space to keep the property humming all day. Even metropolitan Atlantans trek the 26 miles to Alpharetta to shop at its 70 stores (Apple, Lululemon, and West Elm among them) and drink and dine at its 27 bars and restaurants. The property employs concierges who can gather up all your purchases and have them waiting for you in your car or your apartment while you dine, and its events crew schedules 200 events a year such as Little Acorns, Punchline Comedy Night, and Fashion Row Features. “Get the residents out for coffee and workouts in the early morning, the office crowd in the mid-morning, then the lunch crowd and the happy hour crowd and the dinner crowd and the late-night crowd,” said Toro. “Malls have to activate themselves like this to survive, and I don’t know how many are up to it.”

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hen the expansive commercial real estate company Hines was pitching the city of Cary, N.C., on the Fenton mixeduse development it’s now constructing there, it took Cary’s mayor on a visit to Alpharetta to see Avalon. Hines developed the office space and built the Apple store at Avalon and wanted the mayor to see how a properly tuned mixed-use development could churn traffic all day long and collect outsized rents and sales revenues. “Being involved at Avalon, we had good interaction with North American Properties and were able to get a look under the hood of what was going on with all the separate components of the project,” said Kenton McKeehan, senior managing director and head of retail for Hines, which owns $144 billion of real estate assets across all sectors in 25 countries. Though Hines management had long practiced and benefitted from synergizing residential, office,

“Retail tenants today are pushing us to activate, to have unique mixes of tenants and programming.” – Kenton McKeehan, Hines

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and retail properties, it detected a new current in the air at Avalon. “Today’s office environment is going to change,” said McKeehan. “The office occupier doesn’t want to be in an amenity desert. He or she wants to be attached to food, service, and high quality retail. Important is enhancing the restaurant lineup, increasing outdoor dining space, and incorporating the office component as close to the retail as possible.” Hines’s CityCenterDC in downtown Washington is a 2.5 million-sq.-ft. mixeduse development. In 2019 it added The Conrad Washington, DC, hotel with 30,680 sq. ft. of street retail occupied by Tiffany and Co. and restaurants. The 92-acre Fenton project will open in 2022 comprised of 2.5 million sq. ft. of retail, office, restaurant, hotel, and multifamily residential. Its initial phase will include 348,000 sq. ft. of specialty and experiential retail. All these ingredients are essential to energize what McKeehan believes will be the

“We’re going to be at the forefront of what happens next and as for residential, it’s a home run.” – Stephen Congel, Pyramid

primary goal of mixed-use properties in the 21st Century: activation. “Retail tenants today are pushing us to activate, to have unique mixes of tenants and programming,” McKeehan said. ”Malls aren’t dead. There are going to be viable enclosed shopping centers for the rest of my life. But malls all became the same. The ones that survive will have to separate themselves from all the redundancy in the market.”

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andemic pressures led mall REITs CBL and PREIT to file for Chapter 11 protection. Both restructured their debt and emerged from their filings quickly and — like every other owner of large, enclosed

shopping centers — they are radically altering the anchors and purposes of their malls. Nearly all are pursuing an objective that must be obtained in order to achieve prime “activation.” That objective is densification — filling empty anchors and unused parking lot space with apartments, offices, and medical and life sciences facilities that house day-long traffic inside the property. CBL made a bold move in that direction in November with the opening of Live! Casino Pittsburgh in 100,000 feet of space vacated by Bon-Ton at its Westmoreland Mall in Pennsylvania. Visitors can lay bets at the FanDuel sports book and watch up to 16 games on a 45-foot LED video screen.

A Challenged Mall Lives Anew in Quincy, Illinois By Kathleen Brill

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s America’s malls became severely handicapped by COVID-19 shutdowns last year and challenged by surging e-commerce activity, press accounts generally observed that malls in secondary and tertiary markets might not survive. That, however, is not generally true. Each market is unique, and malls in many rural, tertiary markets have served for decades as primary shopping, gathering, and social centers for people living in market radii extending out 75 to 100 miles. In Quincy, Illinois, about 100 miles west of Springfield and north of St. Louis, the Quincy Mall has served as one such center since it opened in 1958. The over 440,000-sq.-ft. property’s J.C. Penney, Sears, and Bergner’s stores and wide variety of shops gave people in the region access to goods and services they used to trek to St. Louis and Springfield to find. When Cullinan Properties bought Quincy Mall in 2006, both traffic and tenant occupancy rates were high. Then in 2015, J.C. Penney closed its store. Three years later, Sears closed as well, and the Bergner’s location was closed and liquidated when its parent company Bon-Ton went out of business. Quincy Mall may have appeared down for the count. Our medical development team at Cullinan knew that Quincy Medical Group (QMG), a leading provider of medical services in town starting in the 1930s, was looking to expand its operations. It approached QMG about the available two-story Bergner’s building at the site for a state-of-the-art Cancer Institute and Surgery Center. Our medical team worked with them to obtain the necessary Certificates of Need from the state and completed construction throughout the COVID-19 outbreak, opening the first floor Cancer Institute last summer and with completion of the Surgery Center in January of 2021. The Surgery Center provides patients a low-cost, high-quality option for outpatient surgery and is one of the first centers in the region to CHAINSTOREAGE.COM MARCH/APRIL 2021

offer cardiac catheterization in an outpatient setting. Its arrival provides an essential service to people in the region, allowing them to seek cost-effective acute medical care without having to travel. The location was very attractive to QMG. Kathleen Brill Being located at a center with restaurants, retail shopping and convenient services is a big plus for its employees, patients and patients’ families. It keeps them fulfilled and keeps them close-by — of utmost importance to a medical facility. Our retail tenants — and especially the restaurants — are overjoyed to have the Cancer Institute and Surgery Center as their anchor. This new traffic stream is appealing to prospective tenants. Medical practices pick their locations carefully and stay for a long, long time. In fact, QMG has filed an application with the state to expand their presence at Quincy Town Center with a 25-bed small format hospital. We are also negotiating with a hotel group and national and local users as we expect more great concepts as we recreate the Quincy Town Center in the coming years. Our occupancy rate was just over 60% when our anchors closed due to their nationwide issues; we expect Quincy Town Center to be over 90% occupied within the next 12 months. More importantly, the rebranding of Quincy Mall is bringing a healthier attitude to the residents of Quincy, Illinois. The launch of the new brand, Quincy Town Center, even drew a crowd of local residents. This was a place where these people went Christmas shopping every year, met the Easter Bunny, where they bought their prom dresses, had their first dates. To them, Quincy Mall was always primary, never tertiary. Kathleen Brill is vice president and director of leasing at Cullinan Properties, based in Peoria, Ill 29


REAL ESTATE

“The principal traffic at malls was nights and weekends. Then they’d leave and go to dinner or the health club. It’s not the way people think today.” –Michael Powers, Tuscan Village

They can also dine at Guy Fieri’s American Kitchen + Bar or have a drink at a country bar called PBR Pittsburgh. The casino was developed by The Cordish Companies, known for its entertainment concepts near professional sports complexes such as Texas Live! Between the Texas Rangers and Dallas Cowboys stadiums in Arlington, Texas, and Jacksonville Shipyards, a joint project with the Jacksonville Jaguars. In March, Cordish was engaged by UrbanStreet Group to develop an entertainment concept for its Veridian mixed-use project under construction in Schaumburg, Ill. “We feel like the mall has remained relevant. We actually had a number of local and regional tenants open in our malls during the pandemic because we were the largest traffic generators in many markets,” said CBL’s chief executive Stephen Lebovitz, who grew up in the mall business. The letters that make up his company’s name are the initials of his father Charles B. Lebovitz, who started out in retail real estate in the Sixties with his own father and co-founded the company in 1978. “We just have to keep looking ahead with different tenant mixes in different markets and attract different types of users,” Lebovitz said. “We opened the Casino at Westmoreland and our traffic is up over what it was even prior to the pandemic.” Pyramid Management Group, which has long featured entertainment options and has an Embassy Suites hotel at its 2.4 million sq. ft. Destiny USA in Syracuse announced in February that it would be adding residential development across its 14-mall portfolio. Trammel Crow Residential has already broken ground on a 282-unit residential development next to Pyramid’s Kingston Collection mall in Massachusetts. PREIT has secured a rezoning agreement to allow the addition of more than 1,000 apartment units and hotel at its Moorestown Mall in New Jersey. The mall owner’s new 30

densification program calls for the sale of land within its properties to multifamily developers and hotel operators. It expects to add 5,000 to 7,000 apartment units and several hotels to its sites. But will amenity-hungry millennials and boomers cotton to living in hotel parking lots? “As for residential in shopping malls, I think that in most places it won’t work. But in the right places I think it will work very well,” said PREIT CEO Joe Coradino. “We have 21 malls and a third of them will get residential — all of them in Philly and DC where you could justify construction. To build these things, you have to justify the rents. Now, we have a great mall in Jacksonville where I would never build residential. You couldn’t convince people to live there.” At Pyramid, the concept of constant change was instilled in the organization by founder Robert Congel, who was the first to integrate big-box retailers like Target and Home Depot with ones like Macy’s and Lord & Taylor in the same location. The ThEATery concept it opened at Palisades Center in West Nyack, N.Y., in 1998 was one of the first successful attempts to incorporate entertainment and dining into the mall formula. Current CEO Stephen Congel led the revamping of Destiny USA into an entertainment center that draws international visitors and intends to deal with market changes in the manner of his father, who died at 85 in February. “My dad was always out to out-build the others and put creative things into the properties,” Congel said. “We’re going to be at the forefront of what happens next

and as for residential, it’s a home run, it’s a natural. Enclosed malls are going full-circle. At their beginning they were community centers. Had post offices, barber shops, grocery stores. One thing they didn’t have was residential.”

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osh Poag’s dad, too, was an innovator. But Dan Poag wasn’t a fan of malls. Dan was a developer of grocery-anchored centers in the Southeast in in the early 1980s when Kroger dropped out of a project it had originally agreed to anchor. “He was really upset,” said Josh, who’s now the president and CEO of the company his father founded, Poag Shopping Centers. “He said he was done with anchors and needed to work out a concept that works without the anchors.” That’s what led to the development of the lifestyle center, a term coined by Dan Poag and his then partner Terry McEwen for centers like Evergreen Walk in Connecticut and Aspen Grove in Colorado that house national specialty stores and restaurants with unique designs on sidewalked streets with greenspace, gazebos, and front-of-store parking spaces. “My brothers and my friends and I used to hang out at the mall. Mom and dad hated going there, so he was the right person to create the lifestyle center,” said Josh. “In the current environment, I’m very optimistic as to how we’re positioned. One of the newest trends in retail is e-coms extending their brands to brick and mortar. Our centers are so much more conducive to that than malls.” Another whose background prepared him to help establish the mall’s successor is Michael Powers, who over the last 25 years served as a leasing director at Glimcher, Easton Town Center, Simon, and Starwood Retail. Since 2018, he’s been directing the leasing for one of the most expansive and innovative mixed-use projects in the nation, Tuscan Village. Going up in Salem, N.H. on 170 acres that was the site of Rockingham Park — the racetrack

“My dad said he was done with anchors and needed to work out a concept that works without the anchors.” – Josh Poag, Poag Shopping Centers

MARCH/APRIL 2021 CHAINSTOREAGE.COM


that catered to Boston pony-players for 110 years — Tuscan Village will offer 700,000 sq. ft. of retail, 2,000 residential units, two regional medical facilities, 1 million sq. ft. of office and lab space, and more than 15 restaurants. Oh, and a 6-acre lake. “We had planned for 600 residential units. Then the pandemic hit. Demand for apartments literally doubled. We went from 600 to over 1.200 units, many of them already occupied,” said Powers. Retail tenants in the first phase, some already open, include Arhaus, Williams Sonoma, Pottery Barn, and Old Navy. Mass General’s 70,000 sq. ft. facility will do surgery, diagnostic imaging, and primary care. And L.L.Bean will be renting kayaks on the shore of that lake. “I think properties like this and Easton and Avalon have the same drivers. It’s less emphasis on the automobile and more emphasis on time and efficient utilization of your property,” Powers said. “The principal traffic at malls was nights and weekends. Then they’d leave to go

“I’m feeling pretty good about the future. You have iconic malls like our Cherry Hill Mall that will always be malls.” – Joseph Coradino, PREIT

to the office, go to the health club, go to dinner. It’s not the way people think today.” Over four decades as a retail real estate developer, Ralph Conti has developed classic enclosed malls at DDR and outdoor centers at Kimco. He segued into mixed-use development at Avalon as a partner at North American Properties, then struck out on his own to build the 160-acre Celebration Pointe mixed-use project in Gainesville, Fla. What he’s learned for certain over the years is that the state of physical retail is not going to be determined by the developers, it’s going to be determined by consumers.

“It doesn’t matter what I think or what the retail real estate industry thinks. It’s all about your consumers,” Conti said. “The millennials starting families, the retirees selling their houses and seeking an easier lifestyle. What do they want? Sophisticated research is available to us, and you have to understand everything about your customers before you put a shovel to the ground.”

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ast August, when COVID-19 cases were in summer decline, the real estate research company Coresight published a report that received a lot of publicity in

5Qs for CBRE’s Adam Cummings on Chief Issues for Mall Tenants As a lawyer, Adam Cummings spent most of his career negotiating leases for national retailers such as Godiva, Sur La Table, AT&T, and even the establishment with the nation’s most famous bar T-shirt — Martha’s Vineyard’s Black Dog Tavern. Since joining CBRE in 2016, he’s focused his efforts on tenant representation for retailers in malls and outlet centers. We asked him what those tenants should keep top-ofmind as these centers re-shape their formats in an omnichannel age. The primal design of the mall was two or 3 anchors — paying little rent or owning their properties — that delivered high traffic to highrent-paying stores in the corridors connecting them. That’s no longer feasible, is it? I think it’s still feasible, but with players in those anchor spaces that you haven’t traditionally seen. You’ll see those spaces filled by a combination of fitness, entertainment, and restaurants. And you won’t see as much of anchors owning their spaces or holding long ground leases. Mall owners will be able to create income from spaces that they couldn’t have before in a lot of instances. As department stores decline and online shopping rises, how are real estate managers at national retail chains reacting? What they have realized is that they need a good combination of online and brick-and-mortar. As for the mall components they choose, they need to work with developers that have a long-term outlook, that are differentiating their tenant mixes and programs to local markets. For years, malls have been pretty much the same. You’d walk into one and pretty much know which national tenants you were going to see. So to get people to come back, you need to create mixes that include local brands and ecommerce brands that appeal to people in specific markets. CHAINSTOREAGE.COM MARCH/APRIL 2021

How’s the battle raging on co-tenancy clauses? It’s too early to tell. We just came through a year with a lot of store closures and there are certain to be many more. Because of government programs and rent deferrals from lenders, many closures have been Adam Cummings delayed. It’s very important from a tenant perspective to know what’s going to be occupied and what’s not, and it could be another six months until we have a grasp of what tenant lists are going to look like. In what fundamental ways is a 2021 retail store lease different from a 2011 lease? The typical mall lease term had been 10 years. Now we’re seeing more five- and seven-year leases. It’s a little more complicated for some of the new tenants in fitness and entertainment. They want the flexibility of a short-term lease, but they have high build-out costs and want to have a guarantee they’ll be able to stay long enough to amortize those costs over the course of their lease. They’ll be looking for more options Landlords are asking tenants to count online sales picked up in stores as in percentage-of-sales contracts. Fair or not? That’s not entirely new. Before the arrival of online sales, there were clauses in some sales percentage leases that carved out catalog sales. Landlords argued that all sales being put through the register should count as sales in that store. But some retail tenants have been able to counter that by arguing that the BOPIS buyers are added store traffic that will likely visit other stores in the mall and buy other things. 31


REAL ESTATE

“The most dominant malls occupy the best real estate across the United States and will become mixed-use campuses.” – Steven Levin, Centennial

which it predicted that 25% of malls would close within a year. Most executives in retail real estate didn’t entirely disagree with the assessment. What they didn’t like about its coverage was that the average interpretation of Coresight’s call cross-media was that “all malls will fall” instead of “most malls will stay.” “I kind of come out in the middle of that. I see markets where they’ll stay and markets where they won’t. I started closing malls eight years ago,” said Joe Coradino, who then had undertaken a strategy of only keeping malls that could do average sales of $500 per square foot. “But the truth is I’m feeling pretty good about the future. You have iconic malls, like our Cherry Hill Mall that will always be malls. I think in places like that we are going to have great traffic when the pandemic’s over. It’s going to be the Roaring 20s.” One of the long-known — but often unstated — facts about retail in America is that there’s just too much of it. In the Eighties, with capital abundant and new suburban housing developments springing up like dandelions in April, developers followed to supply them with big box centers, malls, and neighborhood centers. Way too much was built and not all of it is destined to survive. “Pre-pandemic there was just too much retail no matter the format. We’re approaching 50 square feet per capita whereas in Canada it’s only 15 square feet,” said Todd Caruso, senior managing director of retail services at CBRE. Greg Maloney, the president and CEO of JLL’s retail unit who’s been in retail real estate for 35 years, feels the pandemic shed a topical light on a retail phenomenon that is not new. “You read that 50% of malls are going to be gone and people are just eating soundbites. We’ve heard it for 50 years,” Maloney said. “The news says we closed a mall when what we did was re-adapt it to changing demand. That’s what’s happening now.” 32

One busy re-adapter is Steven Levin, the CEO of Centennial, whose super-regional malls last year began a program called Shop Now! that allows customers to shop entire malls online like they shop Amazon and pick them all up at the mall with a single transaction or have them delivered. “Malls absolutely still have validity. The most dominant ones occupy the best real estate across the United States and will become mixed-use campuses,” Levin said. “They’ll be 18-hour-a-day destinations where people can shop, dine, and be entertained as well as live and work. The projects that deliver unique placemaking and activation will be as will be as iconic a part of America’s landscape as traditional malls were in the past.”

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early 30 years ago, Limited Brands founder Les Wexner decided the huge parcel of land he owned off of Interstate 270 in Columbus would make a better retail destination than a distribution center. His plans for a combination of shops, restaurants, hotels, and apartments made some eyes roll. Today, more eyes of mall owner-operators are focused on Easton Town Center. The 1,300-acre devised downtown does more than a billion dollars in business each year and just opened a new urban district with a 40,000-sq.-ft. Restoration Hardware gallery, an Arhaus, and an Aloft hotel. Still to come are luxury apartments.

Yaromir Steiner, who helped design and build Easton and whose Steiner + Associates manages the property, thinks that traditional malls have great assets like their size and locations and challenging liabilities such as their construction and tenant make-ups. “You’ve got 50 to 100 acres of land in a place that is accessible. That’s their strength. Any property of that size that’s easily reachable is valuable for development,” Steiner said. “If you have a mall that’s strong, with anchors in place, those department stores have control rights. You have this big, valuable site that you would like to reconfigure, but the anchors can make it difficult.” He figures that A malls like Simon’s Del Amo Fashion Center in Southern California and Macerich’s Tysons Corner in suburban Washington, D.C., can introduce residential space and progressively achieve densification. C and D malls will have a hard time of that in their current states and, he felt, will most likely go away in the next two to three years and then be completely redeveloped. “A hundred acres is a lot of land, and you can turn it into a neighborhood. The trick is you can’t do it by just patching it up,” Steiner said. “My definition of a neighborhood is a place you can move to twice in a lifetime, so you can’t do it just with a single line of residential. You need rentals, town homes, and retirement homes.” Kenton McKeehan of Hines has long labored to synergize retail, office, and residential real estate and said that it’s a process that constantly has to be re-evaluated. “There are always going to be malls where residential or offices don’t want to play,” he said. “We believe the world is going into these more integrated environments, but it’s super hard to get them done right.”

“Many malls have 100 acres of land in a place that is accessible and that’s a strength. You can turn that into a neighborhood. The trick is you can’t do it by patching it up.” – Yaromir Steiner, Steiner + Associates

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REGION REPORT: WEST

The Best and Worst in the West

Las Vegas is still hurting. Phoenix is still growing. Sacramento’s the place to find some warehouse space. And Salt Lake City is where you’ll find some of the folks who bolted from L.A. and San Francisco. Marcus & Millichap’s regional experts give you the lowdown on prices, rents, and availability in the West. By Al Urbanski LAS VEGAS America’s adult playland took a gut-punch from COVID-19. In April, Las Vegas’s unemployment rate was 35%, compared to a national average of 15%. In September its hotel occupancy rate, normally at around 90% that time of year, was 47%. Lots of folks have been migrating to Las Vegas and its rental vacancy rate during the third quarter was the lowest it’s been since 2005. But more than 10% of tenants missed their rent payments in September, signaling a future increase in vacancies, according to Marcus & Millichap. The Las Vegas economy gets an annual New Year’s boost from the January Consumer Electronics Show that draws 180,000 people, but it was cancelled this year. Other aced-out conventions and hotel closures cost the loss of 125,000 leisure and hospitality jobs in April. Though casino re-openings in June and July returned about half of those people to work, hotel occupancies remained low. Some 582,000 sq. ft. of new office space was delivered in 2020, more than half of it accounted for by the Raiders’ headquarters and training facility in Henderson. More than 320,000 sq. ft. of retail space is expected to be delivered in 2021 — 200,000 sq. ft. of it as part of the new Area 15 retail and entertainment facility. Retail asking rents, meanwhile, rose by a dollar in Q4 to $20.34, and prices for single- and multi-tenant retail buildings rose from 4.5% to 5%. And as is the case nearly nationwide, retail companies seeking more warehouse space will find it difficult in Vegas. The absorption of nearly 750,000 sq. ft. of it in Q3 lowered vacancies by 40 basis points to 5.7% Las Vegas’s Q4 2020 Key Numbers Vacancy rate: 7.5%: Avg. cap rate: 5.8% Avg. single-tenant price per sq. ft.: $494 Avg. multi-tenant price per sq. ft.: $317 Avg. asking rent per sq. ft.: $20.34

Las Vegas

LOS ANGELES L.A., too, was harshly affected by the pandemic. It lost some 727,000 jobs last March and April, making its unemployment rate the highest in the nation. Almost 200,000 of those came back in May and June, but just 40,000 more returned during Q3. The retail vacancy rate reached a seven-year high of 5.7%. Empty spaces in multi-tenant centers rose to 5.8%, while single-tenant availability increased by 50 basis points. Los Angeles County’s vacant retail stock grew by 1.4 million sq. ft. from July to September. Not as many residents appeared to be fleeing Los Angeles as they did other major U.S. cities during the pandemic. After vacancies increased across all apartment tiers in Q2 2020, the metro registered net absorption of more than 1,800 units during the summer, holding the apartment vacancy rate fairly steady at 4.8% Offices, however, were fairly empty. Vacant stock rose by nearly 6 million sq. ft. from July to September, pushing vacancy up 160 base points to a nine-year high of 15.7%. Asking rents for retail space rose nominally to $32.34 cents in Q4, and the average

marketed rate was up 1.7% over 2019. For buyers of retail space, prices rose 4% to 5%, just as in Las Vegas. The average price of multi-tenant properties was $505. Los Angeles’s Q4 2020 Key Numbers Vacancy rate: 5.7% Avg. cap rate: 5.3% Avg. single-tenant price per sq. ft.: $526 Avg. multi-tenant price per sq. ft.: $505 Avg. asking rent per sq. ft.: $32.34 ORANGE COUNTY A wave of subdued retail space development that started in 2018 continued in Orange County, California, with a mere 39,000 sq. ft. of space completed in the first nine months of 2020. Construction had begun on an additional 135,000 sq. ft. in Q4, however. Its economy strongly dependent on tourism and packed office buildings, Orange County was daunted by nonessential business closures beginning in March and April, when 275,000 jobs were shed. The office-using segment recaptured nearly half its jobs from May to September, though leisure and hospitality businesses remained on hold. Both Disneyland and Knott’s Berry Farm remained closed, not expecting to return to full operations until this summer.

CHAINSTOREAGE.COM MARCH/APRIL 2021

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REAL ESTATE Retail vacancies increased by 445,000 sq. ft. from July to September, moving the county’s vacancy rate to 4.7%, 70 basis points above its average across the previous five years. Average retail asking rents rose 3.2% to just over $28 per sq. ft. Prices of multi-tenant properties edged up slightly to $451, while single-tenant prices rose 7% to $511 — not surprising since single-net lease sales of well-located QSR properties with drivethroughs have increased in demand during the pandemic. Orange County’s Q4 2020 Key Numbers Vacancy rate: 4.7% Avg. cap rate: 4.9% Avg. single-tenant price per sq. ft.: $511 Avg. multi-tenant price per sq. ft.: $451 Avg. asking rent per sq. ft.: $28.36 PHOENIX Expanding retailers not paying close attention to this thriving metro could be making a mistake. Asking rents in Phoenix decreased by 2.3% between March and September to $15.90, with marketed rates dropping the most in Downtown Phoenix and Scottsdale. Yet, counter to what’s happening in major metros like New York and Boston, residents are not leaving Arizona’s largest city but flocking to it. Phoenix led the nation in net in-migration during 2019, when 77,000 new residents added their names to the city’s 1.6 million population. Single-family home prices are rising, appreciating by nearly 7% last year, the highest rate among metros tracked by

the Case-Shiller Index of home prices. People are working and retail space is readily available. Local employers cut 218,000 jobs in March and April. That was a reduction of 10% — five points lower than the national average — and 124,000 positions had been re-established by September. In the first three quarters of 2020, nearly a million sq. ft. of new retail space was completed, outpacing 2019’s total. Shutdowns and market challenges during the pandemic caused the average retail rent asking price to decrease by 2.3%. Sale prices for multi-tenant centers did not rise over the 12-month period ending in September. Single-tenant assets rose by just 3%. Phoenix’s Q4 2020 Key Numbers Vacancy rate: 8.5% Avg. cap rate: 7.1% Avg. single-tenant price per sq. ft.: $415 Avg. multi-tenant price per sq. ft.: $266 Avg. asking rent per sq. ft.: $15.90 PORTLAND Portland is one of the cities that welcomed hordes of tech professionals fleeing Frisco and seeking lower rents. A decline in apartment inventory and high demand drove average rents up 1% to $1,439 a month. In San Francisco, where the average rent was over $2,600, the vacancy rate jumped 160 basis points to 9.6%. That trend drove rents for desirable retail space a touch higher, to $19.70 per sq. ft. New retail space completions have been sparse over the past three years in the Phoenix

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metro, and developers completed less than 100,000 sq. ft. in 2020’s first nine months. Only 215,000 sq. ft. is underway for 2021. Vacant stock increased by 200,000 sq. ft. in Q3, driving the vacancy rate up 20 basis points to 4.3%. And while that’s a comparatively low rate in the West region this year, it’s the highest Portland’s registered since 2017. Portland’s Q4 2020 Key Numbers Vacancy rate: 4.3% Avg. cap rate: 6.1% Avg. single-tenant price per sq. ft.: $359 Avg. multi-tenant price per sq. ft.: $300 Avg. asking rent per sq. ft.: $21.11 SACRAMENTO Retailers with significant e-commerce operations looking for distribution centers in California might want to take a look at the state’s capital. New construction completed during the first three quarters of 2020 grew Sacramento’s industrial stock by 1.4 million sq. ft. That’s more than what came on the market in the previous eight quarters, and at least another 2 million sq. ft. promises to be available in 2021. Despite the rise in industrial space availability, marketed rents for industrial space fell less than 1% to $7.17 per sq. ft. That, according to Marcus & Millichap, was because a high percentage of the stock that came on the market was lowerquality space. Sacramento has been one of California’s fastest-growing cities in recent years, and the pandemic has not turned back that tide. During the height of the pandemic in Q3 2020, every submarket in the Sacramento metro except Davis reported a decline in apartment availability. The absorption of more than 3,000 rental units in the third quarter lowered the metro vacancy rate 70 basis points to 2.7%. Vacancies were greater in the retail stock, up 20 basis points to 6.8%. Developers completed 300,000 sq. ft. of retail space in the 12-month period ending in September. Sacramento’s Q4 2020 Key Numbers Vacancy rate: 6.8% Avg. cap rate: 5.8% Avg. single-tenant price per sq. ft.: $377 Avg. multi-tenant price per sq. ft.: $254 Avg. asking rent per sq. ft.: $18.11 MARCH/APRIL 2021 CHAINSTOREAGE.COM


REGION REPORT: WEST SALT LAKE CITY Utah’s capital boasted a strong economy throughout the pandemic. More than 110,000 jobs were lost at its beginning, but 76,000 were returned from May through September. Unemployment was just 4.9% in September, one of the lowest rates of any major metro in the nation. Salt Lake City was a primary escape metro for folks looking for lower house prices and wide open space. In-migration topped 14,000 people in 2020, the highest growth posted in three years. Construction is underway on the addition of 6,800 rental units in the area. Corporate residency is another story, however. After new office space totaling more than a million sq. ft. was completed in the first two quarters of 2020, additional deliveries through September dropped to only 337,000 sq. ft. Net absorption of a negative 917,000 sq. ft. in Q3 drove the vacancy rate to 11.9%, the highest level since 2014. Retail space is available and modestly priced. Asking rents declined slightly during the first half of 2020, then rebounded by 1.8% to $16.61. Salt Lake City’s Q4 2020 Key Numbers Vacancy rate: 5.7% Avg. cap rate: 6.0% Avg. sale price per sq. ft.: $335 Avg. asking rent per sq. ft.: $16.61 SAN DIEGO Retail spread was slow here in 2020. Developers added less than 100,000 sq. ft. in Q3. The 300,000 sq. ft. of redevelopment of Horton Plaza ended up accounting for an full third of the metro’s entire 2020 retail pipeline. The retail vacancy rate climbed 50 basis points on a quarter-over-quarter basis to 5.3% and the county’s vacant stock expanded by 650,000 sq. ft. Four submarkets achieved positive marketed growth rate (led by East County’s 6.7% gain) and the average asking rent adjusted nominally to $24.81 per square foot. A plus for retailers doing business in San Diego is the composition of the work force. Of the 230,000 jobs lost during March and April, fewer than 10% fell in the finance, professional services, and business ser-

San Francisco

vices that accounted for 25% of the metro’s pre-pandemic employment base. San Diego held on to a healthy percentage of highpaying jobs throughout the health crisis. San Diego’s Q4 2020 Key Numbers Vacancy rate: 5.3% Avg. cap rate: 5.0% Avg. single-tenant price per sq. ft.: $467 Avg. multi-tenant price per sq. ft.: $433 Avg. asking rent per sq. ft.: $24.81 SAN FRANCISCO In December, Elon Musk announced that he’d be moving Tesla’s headquarters to Texas. (The Lone Star State does not tax income or capital gains.) Indeed, many residents abandoned San Francisco during the pandemic, dropping its average one-bedroom-apartment rent from $3500 to $2660, according to Zumper’s 2021 Rent Report. While Marcus & Millichap’s Research Services unit found the employment outlook in some sectors appeared murky, it envisions a bright future. The professional and business services sector lost only 5.3% of positions during the pandemic and M&M expects hard-hit sectors such as restaurants, leisure, and hospitality to make full recoveries. Still, the office vacancy rate climbed 640 basis points to 14.4%, the highest annual rise in the country. At 4.7%, the retail vacancy rate was 150 points above the year-earlier level and asking rents of $41 per square foot were down 6.3%. New construction hasn’t added to the rising rate. Since ground-floor retail accounts for most new builds, less than 10,000 sq. ft. of new space came on the market in San Francisco during the first three quarters of 2020.

San Francisco’s Q4 2020 Key Numbers Vacancy rate: 4.7% Avg. cap rate: 5.3% Avg. single-tenant price per sq. ft.: $582 Avg. multi-tenant price per sq. ft.: $584 Avg. asking rent per sq. ft.: $41.01 SEATTLE-TACOMA Real estate trends were volatile in the home of the retailer that made the most of the pandemic, Amazon. REI made a bold decision to scale down and sold its justcompleted headquarters campus to Facebook, giving Zuckerberg & Co. an additional 400,000 sq. ft. of space in Bellevue. Boeing, meanwhile, decided to move production of its 787 Dreamliner to South Carolina. More than 300,000 jobs were shed in the SeattleTacoma metro through April 2020, launching its unemployment rate from 3% to 16%. Still, pickings remained slim for retailers in this burgeoning market. COVID-19 repercussions caused a slight uptick in the Q3 vacancy rate to a still-tight 3.2%. By submarket, the rate ranged from 2.5% in Downtown Seattle to 3.9% on the Northend. Asking rents rose 1.6% to $21.76 per sq. ft., while sale prices on retail properties rose by 7%. Developers ramped up construction during the summer and finalized 209,000 sq. ft. of new retail space between July and September. More than 140,000 sq. ft. of that landed in the tony lakeside section of Bellevue, tenanted by Target and PCC Market. Seattle-Tacoma’s Q4 2020 Key Numbers Vacancy rate: 3.2% Avg. cap rate: 6.1% Avg. sale price price per sq. ft.: $5437 Avg. asking rent per sq. ft.: $21.76

CHAINSTOREAGE.COM MARCH/APRIL 2021

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Contactless Payment Heats Up As Spring Begins An increasing number of retailers are deploying innovative, touch-free methods for customers to make in-store and online payments. Perhaps not coincidentally during a time in which COVID-19 transmission rates remain high, Amazon, Hudson’s Bay, Hudson, and Alltown have all recently launched or expanded the use of technologies that enable contactless payment. Beyond increased hygiene, all of these deployments also offer customers the benefits of greater omnichannel convenience and security, which will remain in demand even as virus concerns inevitably wane. Let’s look more closely at how these four retailers are welcoming the warm season with contactless payment innovation. Amazon Initially introduced by Amazon at two of its Seattle-area Amazon Go stores in September 2020, Amazon One is a proprietary technology designed to let customers use their unique palm signature to pay or present a loyalty card at a store. Over the past few months, Amazon has been gradually adding Amazon One payment at select Amazon Go, Amazon Go Grocery, Amazon Books and Amazon 4-star stores in and around Seattle. To sign up for Amazon One, first customers insert their credit card in an in-store Amazon One device or kiosk. Next, they hover their palm over the device and enter their mobile phone number to complete sign-up. Since no two palms are exactly alike, customers can register both palms. In seconds, a process of proprietary imaging and computer vision algorithms capture and encrypt a customer’s palm image. Amazon One uses the information embedded in a customer’s palm to create a unique palm signature that it can read every time the customer uses it. Hudson’s Bay Canadian department store retailer Hudson’s Bay is introducing a new, digitally-integrated

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Mastercard, powered by digital financial services provider Neo Financial. The card will offer no annual or over-limit fees, cash back on everyday purchases, and enhanced service support through a customized app. Customers will be able to apply and open an account in minutes from their phone, and the card will include enhanced service and safety features that include utilizing a phone’s facial recognition technology directly through the Neo Financial app. In minutes, customers may be approved, load their card to their digital wallet, and immediately start making purchases. As part of this offering, Hudson’s Bay will introduce tap-and-go contactless payment at its cash desks later this year. Other card features will include proactive security alerts and notifications as well as the ability to freeze or replace a card and turn off online transactions, directly from the app. Hudson Travel retailer Hudson has opened the doors to its new contactless shopping format, Hudson Nonstop. Located post-security at Dallas Love Field Airport, the 500-sq.-ft. store, which has a single point of entry and exit, utilizes Amazon’s “Just Walk Out” platform. Customers enter with a swipe of their credit card or using “Tap to Pay,” select the items they are looking for and then walk out. After they leave, customers are charged for the items they walked out of the store with. The space is designed for one-way traffic and eliminates checkout-line friction to manage crowd control. Hudson plans to expand the format to additional airports across North America in 2021. Alltown Alltown, which operates over 70 convenience stores across New England, is now offering direct payment for fuel via mobile device at all 30 of its gas stations in Massachusetts. The retailer is utilizing PayByCar, a payment solution that enables consumers to purchase gas from their car without handling cash, a credit or debit card or a mobile app. PayByCar recognizes the E-ZPass electronic toll transponder (used by 35 million consumers in 17 states) of a customer’s car and sends a text to their smartphone. Customers then reply with the pump number and PayByCar automatically turns that pump on, registers the transaction, charges a pre-enrolled payment card, and sends an e-receipt. Customers who do not have an E-ZPass toll transponder can use PayByCar’s own non-toll sticker to enroll.

Dan Berthiaume dberthiaume@chainstoreage.com MARCH/APRIL 2021 CHAINSTOREAGE.COM


TECH

Specialty Retailer Weathers Pandemic With Digital Commerce By Dan Berthiaume

U.S. Polo Assn. diverted resources to accelerate its digital strategy U.S. Polo Assn., the official brand of the United States Polo Association, is strengthening online commerce and distribution, as well as corporate communications. Chain Store Age spoke with J. Michael Prince, president & CEO of USPA global licensing, the company that manages U.S. Polo Assn., about how the global brand has successfully managed omnichannel operations during COVID-19. U.S. The company, which operates branded stores around the world, sells apparel for men, women and children, as well as accessories, footwear, travel and home goods. What challenges did COVID-19 pose to US Polo Assn.’s retail business? We have 1,100 mono-brand stores and sell merchandise in 180 countries. We had record growth in 2018 and 2019, and in the first quarter of 2020. Then, at the height of the pandemic, 85% to 90% of our stores were closed. Particularly, high-tourist traffic areas continue to struggle. We had to divert resources to accelerate our digital strategy that was already in progress. Supply chain was also an issue. We were unable to launch new product in a timely manner and existing product sat for long periods of time. Essentially, every aspect of our global retail and operational business was challenged. How has U.S. Polo Assn. been overcoming these challenges? Constant communication became a priority across the board, internally and externally. From our leadership team to our associates to our partners and vendors, we provided regular updates through virtual town halls and other meetings and messaging. We have also been constantly providing reassurance and guidance to our global partners — making sure they know that we CHAINSTOREAGE.COM MARCH/APRIL 2021

are with them, support them and will do all we can to help their businesses get through these trying times. From a financial perspective, we have reprioritized projects, initiatives and investment to maximize the best opportunities. Externally speaking, the pandemic brought new urgency to the global deployment of our e-commerce sites in regions that didn’t yet have them. We moved up e-commerce launches in Mexico, Panama, Guatemala and other Latin American regions, as well as in the U.K., Germany and Italy, to address changing needs and expectations. For markets that already had ecommerce, like the U.S. and Turkey, we strengthened the strategy and refocused marketing to online. We became highly focused on expanding distribution channels and making the online experience better for our customers around the world. How is retail different today than it was pre-COVID-19? Great brands are available across many channels of distribution and delivered to consumers how and where they want them, with each channel supporting the other. We must go to where the customer is and accept that it’s ‘anywhere commerce,’ even more so now than ever before. In addition, less money is being spent on traditional advertising, with more being spent on digital and social. Finally, we have all seen a behavioral shift back to basics and comfort. Brands like U.S. Polo Assn. that are approachable, comfortable and classic

have a great opportunity to appeal to consumers through this time. Looking ahead to post-vaccination, what can retailers do in-store and online to meet the needs of the ‘new normal’? Prior to the pandemic, U.S. Polo Assn. had been moving toward experiential in-store shopping with our high-tech ‘high energy U.S. Polo Assn. store,’ and now we know we must offer experiential shopping both in store and online, alongside excellent customer service through the customer lifecycle. We know that consumers have a choice, and we must all work to exceed their expectations across the board. The metrics of the efforts we have taken include our global e-commerce business nearly doubling, along with maintaining some 1,100 stores globally. We are also opening new doors in what we project to be better markets despite closing some other doors; and growing social media followers more than 20% in 2020, passing 5 million followers across multiple platforms. 37


TECH Q & A

Buy Now, Pay Later – The Future of Payment Is Now By Dan Berthiaume

A digital-friendly way of paying for purchases via installments is becoming a hot trend in retail payment. Instead of paying the full price of a purchase when checking out with a credit or debit card, shoppers can break the total purchase into smaller payments — often without interest — that can be billed to an account of their choosing by using a service called buy now, pay later (BNPL). Chain Store Age had a conversation with Alex Fisher, VP of retail for leading global BNPL platform Afterpay Ltd., about the different advantages this payment method offers. How would you define buy now, pay later (BNPL) purchases? With BNPL, customers can break up their purchases into smaller payments, rather than paying the full amount upfront. Consumers are increasingly turning away from expensive credit cards which are loaded with interest and fees, preferring instead to use their own money and pay over time, interest-free. Because of this new consumer inclination, BNPL is becoming the preferred way to pay online and in stores — especially among younger generations. How can BNPL solutions help both customers and retailers? BNPL encourages customers to spend money responsibly by avoiding expensive credit and instead, paying over interest-free installments. It empowers customers to buy the things they want and need in a way that is aligned with their spending preference, and within their budget. On the retailer side, we can take a look at how Afterpay helps our retail partners to delight their customers with our flexible, interest-free payment method, aiding in conversion, increasing key retailer metrics like average order value (AOV), basket size and sales volume, and decreasing returns. Retail partners receive the full amount of each purchase upfront, and Afterpay takes on the full risk of repayment.

What specific advantages does BNPL technology deliver in the brick-andmortar environment? Shoppers can now enjoy the same BNPL experience they know and love online in stores, shopping their favorite retailers, paying in interest-free installments and taking their purchase home right away. In the case of Afterpay, this experience lives in our app, so customers can also check their pre-approved spending limit and calculate their payments all from the same interface to ensure they’re spending responsibly. And customers love that it’s a safe, contactless payment option. In addition to influencing the key sales metrics such as conversion, AOV, basket size, total sales volume and return rate, BNPL can also drive foot traffic into stores. Afterpay’s customers report that the top deciding factor in where they choose to shop is whether a retailer offers Afterpay. How will BNPL fit into the “new normal” of retailing as the pandemic gradually comes under control? Over the last year, we’ve witnessed an acceleration in consumers’ movement away from credit to debit, led by Gen Z and millennial shoppers who have demonstrated a strong preference to pay for puchases with their own money over time instead of expensive credit cards and loans, which often lead down a rabbit hole of revolving debt and fees. Approximately 90% of all Afterpay’s

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global transactions are made with a debit card. As Gen Z matures and their spending power grows, so will the use of BNPL as a primary form of payment. What technology solutions does Afterpay offer retailers seeking to offer a BNPL payment option? Launching Afterpay in stores is a light lift for retailers, and provides them with a safe, contactless payment solution to offer to their customers. Since customers access the Afterpay Card via Apple or Google Pay, there is no additional integration time or cost required of the retailer. By partnering with Afterpay in-store, merchants are more easily able to meet this new consumer demand of a seamless omnichannel experience. Additionally, our in-store payment solution is helping drive the adoption of safe and seamless shopping experiences. According to a recent survey of Afterpay in-store shoppers, 32% of customers had never used contactless payments prior to trying it with Afterpay. And beyond the benefits of Afterpay as a payment method, our retailers also see us as a full-funnel marketing partner, helping to drive awareness, consideration, and conversion. Through the peak holiday shopping period in December 2020 alone, Afterpay’s Shop Directory, our website and app where we feature our merchant partners, drove nearly 45 million referrals to partner sites. MARCH/APRIL 2021 CHAINSTOREAGE.COM


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