CSA - Sept/Oct 2021 by ensembleiq

September/October 2021

SPECS Wrap-UP AI Trends in Retail Rise of Essential Shopping Centers

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from the editor’s desk

On the Level: A real estate column

Contents

tech viewpoint: a retail tech column

VOL. 97 SEPTEMBER/OCTOBER NO. 5

Analysis: Effective business scenario planning by CFOs will be crucial to retail success in 2022 — and beyond.

STORE SPACES

SPECS 2021 Recap: Wrap-up coverage of Chain Store Age’s 57th annual SPECS Show, the leading retail event for store planning/design, construction and facilities management, includes the following: Breakout Retailer Awards Session Spotlights: • Technology innovations are helping to transform the construction process — from planning through execution. • A look at Dick’s Sporting Goods’ new experiential retail format, Dick’s House of Sport. • Pre-fab construction helps speed up construction cycle. • Artificial intelligence is becoming increasingly important in store development processes and across facilities management operations.

COVER STORY

TOP 100 U.S. RETAILERS Walmart and Amazon take the lead spots on Chain Store Age’s annual ranking of the top 100 U.S. retailers based on revenue.

Vendor Q&A: NEST’s Rob Almond on the evolving role of facilities management in this new era of retail.

ShopTalk: Longawaited luxury wing of American Dream opens; experiential retailer Camp transforms store in space journey.

CSA (USPS 054-410; ISSN 0193-1199), is published bimonthly by EnsembleIQ, 8550 W. Bryn Mawr Ave., Suite 200, Chicago, IL 60631, on a controlled basis to qualified retailer titles and architects. Real estate and shopping center owners and developers $75 per year. All other non-qualified in the United States: $80 one year; $155 two year; $14 single issue copy; Canada and Mexico: $105 one year; $185 two year; $16 single issue copy; Foreign: $115 one year; $215 two year; $16 single issue copy. Digital edition subscription: $55 one year digital; $105 two year digital. Periodicals postage paid at Chicago, IL and additional mailing offices. POSTMASTER: Please send address changes to CSA, Circulation Fulfillment Director, 8550 W. Bryn Mawr Ave, Suite 200, Chicago, IL 60631. Subscription changes may also be emailed to contact@chainstoreage.com, or call 1-877-687-7321. Vol. 97, No. 5, September/October 2021. Copyright ©2021 by EnsembleIQ. All rights reserved.

CHAINSTOREAGE.COM

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Contents VOL. 97 SEPTEMBER/OCTOBER NO. 4

REAL ESTATE

TECH

The Rise of Essential Centers Brands like Ulta, Sephora, Sleep Number and Bath & Body Works are moving into neighborhood centers to maintain closer relationships with regular customers and speed lastmile deliveries.

REGION REPORT: Southwest It’s a region packed with fastgrowing markets where retail vacancy rates are going lower and rents are getting higher.

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J.C. Penney, Walmart and Schnuck Markets use artificial intelligence solutions to automate and streamline front- and back-end tasks.

Tech Q&A: Keith Carpentier of Qbuster, discusses how a more connected omnichannel retail model is emerging in the wake of COVID-19.

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FROM THE EDITOR’S DESK

Grand Ambitions: Retail DTC innovators bet on stores From Authentic Brands Group’s blockbuster $2.5 million acquisition of Reebok to Etsy’s $1.6 billion purchase of popular UK fashion resell marketplace Depop, it’s been another busy year for dealmakers in the retail industry — and it’s not over yet. But more than the mergers and acquisitions, it’s the recent rush of IPOs that seem to be generating the most buzz these days. And with good reason. A number of them involve direc t-to-consumer retailers that have enjoyed star status — with many heralded as retail innovators almost since day one — without ever having to reveal many pesky financial details. But their IPO filings have, in effect, pulled back the curtain to reveal, in some cases, some illuminating insights, particularly when it comes to ecommerce and physical retail. Warby Parker — the trendy eyewear brand that has served as a model for the new breed of DTC companies that launch online first and go on to open stores while largely ignoring the wholesale channel — made its public debut in late September. The stock soared the first day, giving Warby Parker a valuation of more than $6 billion. For all its acclaim, Warby Parker has struggled to make a profit, a fact made clear in its IPO filing. It lost $22.9 million in 2018 and $55.9 million in 2020. (It broke even in 2019.) At the same time, its sales have grown, with net revenue rising from $272.9 million in 2018 to $393.7 million in 2020. For the first six months of this year, the company has lost $7.3 million (down from $10 million in the year-ago period), with sales of $270.5 million As Warby Parker looks to the future, it is betting on a traditional retail channel for growth. The company had more than 145

CHAIN STORE AGE

stores as of the end of June, with plans to open 30 to 35 new outposts by yearend and annually going forward. In an SEC filing, Warby Parker stated that its retail stores are “highly productive,” and serve as “valuable marketing vehicles for introducing new customers to our brand and driving repeat purchases and, in turn, positively impact our sales retention rate.” A similar scenario is playing out at sustainable footwear brand Allbirds, which filed its IPO at the end of August. Founded in 2014 and valued at an estimated $1.7 billion, the company has yet to turn a profit. Allbirds’ net loss totaled $14.5 million in 2019 and rose to $25.9 million in 2020. At the same time, revenue grew from $193.7 million in 2019 to $219.3 million in 2020. For the first six months of 2021, Allbirds reported a loss of $21.1 million and sales of $117.5 million. Founded in 2014, Allbirds opened its first brick-and-mortar store in fall 2017. It has since grown to 31 locations, with plans to accelerate its expansion in the future. “We have just scratched the surface of our store potential, particularly in the United States,” the company stated. “We are in the early phase of a ramp [up]towards hundreds of potential locations in the future, with strong unit economics.” The takeaway from Warby Parker and Allbirds as they look to the next stage of growth is clear: Brick-and-mortar is still the best way to attract new customers and drive return traffic and purchases once the initial web buzz has passed. A website is crucial. But it can only get a brand that has big ambitions so far. Allbirds summed it up best in their filing: “While our store channel already generates strong results on a standalone basis, the real power of our vertical retail strategy is the synergy between the physical and digital sides of our business.”

Marianne Wilson mwilson@chainstoreage.com

CHANNELS chainstoreage.com > COMMERCE > CUSTOMERS

An EnsembleIQ Publication

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

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

Editor Marianne Wilson

(212) 756-5261, mwilson@chainstoreage.com

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(978) 994-1881, dberthiaume@chainstoreage.com

Real Estate Editor and Manager Al Urbanski (646) 957-5224, aurbanski@chainstoreage.com

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Walmart, Amazon top annual ranking By Marianne Wilson

mid all the the disruption, unpredictability and shifts in consumer behavior caused by the pandemic, the American retail industry as a whole continues to demonstrate tremendous resilience — a fact made clear in Chain Store Age’s annual ranking of the top 100 U.S. retailers. The CSA Top 100, a guide to the 100 largest retailers in North America based on net revenue for their most recently completed fiscal year (for most companies, this translates into 2020), is remarkable for its stability — particularly in its upper ranks. The powerhouse companies that make up the top 10 — Walmart, Amazon, CVS Health, Costco, Walgreens, The Kroger Co., The Home Depot, Target, Lowe’s and Albertsons — have demonstrated remarkable staying power, holding on to their top spots for some time with very little movement. And that’s not likely to change anytime soon given their operating excellence (online and in-store), flexibility and agility. The retailers that make up the Top 100 have remained mostly consistent for years, with notable exceptions owing mainly to mergers, acquisitions and bankruptcies. Walmart , the world’s largest retailer and the country’s largest private employer, retained its long-standing No.1 status. Its revenue rose 6.7% to $559.1 billion in fiscal year 2020 as its heavy investments to support a seamless customer experience and increase its supply chain capacity paid off. But Walmart is facing competition for its top-of-the-class ranking as Amazon, No.2 on the list for the fifth consecutive year, gains ground. Its revenue soared to $386.1 billion in 2020 from $280.5 billion the prior year as consumers increasingly turned to e-commerce. According to a report from Edge by Ascential’s market research arm, Retail Insight, Amazon is on track to become the largest retailer in the United States within the next four years. But don’t count Walmart out. The company significantly upped its

capital spending as it looks to stay ahead of demand, improve the customer experience and increase productivity. Its massive $14 billion outlay is focused on supply chain, automation, customer-facing initiatives and technology. More than in most other years, retail success in 2020 varied widely according to retail sector. Grocers, pharmacies and discounters benefitted from (and were quick to adapt to) changes in consumer behavior and from being identified as essential services. Target’s fiscal sales growth of more than $15 billion in 2020 was greater than the chain’s total sales growth over the prior 11 years. Consumer spending also soared on home improvement projects, furniture and home goods. Wayfair’s sales skyrocketed 54.6%; Lowe’s Cos. jumped 23.8%. At the same time, most specialty apparel retailers and department stores struggled as consumers put dressing up on hold. Macy’s sales plummeted 29%. Beauty also took a hit. Ulta’s Beauty’s net sales decreased 16.8%. Sephora saw its revenues drop more than 15%. “The year 2020 was an unexpected and complex year for retail, maybe a “new normal”— with the K-shaped recovery, where some retail sectors grew top-line sales by as much as 30%, while others declined by the same percentage or more,” said Antony Karbus, CEO of HRC Retail Advisory, which was recently acquired by Accenture. ‘At the same time, the importance of digital as a percent of total sales grew at an unprecedented rate, often increasing to as much as 50% of sales.” From labor shortages to supply chain disruptions, the full story regarding the pandemic’s impact on the retail industry — and the consumer — is still unfolding. But one thing is clear: The past 18 months have dramatically reshaped the retail industry as the huge shift to online spending accelerated many of the changes that were already underway. Top-performers such as Walmart, Amazon, Target and Kroger among others, supported by deep infrastructure and omnichannel investments, have proved themselves at the top of their game in keeping up with customer demand and evolving purchasing habits.

Behind the List

Chain Store Age’s Top 100 ranks retail companies by net revenues as reported in the firm’s most recently completed fiscal year (as of press time). The metrics listed in the Top 100 include date of the company’s last fiscal year, net revenue and store count. For retailers based in North America, the data reflects the company’s total global store network (except if otherwise noted). For foreign-based companies, such as Ikea, only the figures related to the company’s North American division are provided (except if otherwise noted). The ranking contains a number of privately owned companies that do not release annual reports, financial statements or even basic details related to their operations. The metrics for these companies, which are highlighted in the listing with an E, are based on public and private reports and independent research (compiled by contributing editor Debra Hazel).

Total U.S. retail sales in 2020 increased 6.6% over 2019 to $4.02 trillion, according to the National Retail Federation, beating the previous record growth rate of 6.3% in 2004. 8

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Walmart Inc.

Bentonville, Ark

Amazon

CVS Health Corp.

Costco Wholesale Corp.

Walgreens Boots Alliance

The Kroger Co.

The Home Depot

Target Corp.

Lowe’s Cos.

Seattle

Woonsocket, R.I. Issaquah, Wash. Deerfield, Ill. Cincinnati Atlanta

Minneapolis

Mooresville, N.C.

Albertsons Companies

Apple Inc. (E)

Ahold Delhaize

Boise, Idaho

Cupertino, Calif.

Chantilly, Va.

7-Eleven (E, US and Canada)

Dallas

Best Buy Co.

Alimentation Couche-Tard

Publix Super Markets

H-E-B (E)

Dollar General Corp.

The TJX Cos.

Pilot Co. (E)

Richfield, Minn. Laval, Quebec Lakeland, Fla.

San Antonio, Texas

Goodlettsville, Tenn. Framingham, Mass. Knoxville, Tenn

Fiscal Yearend

2020 Revenue [000]

2019 Revenue [000]

2020 Store Count

2019 Store Count

1/31/2021

559,151,000

523,964,000

11,442

11,501

12/31/2020

386,064,000

280,522,000

618

571

12/31/2020

268,706,000

256,776,000

9,896

8/29/2021

195,929,000

166,761,000

817

795

8/31/2020

139,537,000

136,866,000

21,000

18,750

1/30/2021

132,498,000

122,286,000

2,742

2,757

1/31/2021

132,110,000

110,225,000

2,296

2,291

2/1/2020

92,400,000

77,130,000

1,897.00

1,868.00

1/29/2021

89,597,000

72,148,000

1,974

1,977

2/27/2021

69,690,400

62,455,100

2,277

2,252

9/26/20120

69,461,000

68,887,000

510

12/31/2020

51,838,000

44,841,000

1,970

1,973

2/28/2020

48,311,952

18,172,000

12.973

11,800

1/30/2021

47,262,000

43,638,000

1,159

1,231

4/25/2021

45,760,100

54,132,400

14,222

14,500

12/26/2020

44,863,507

38,116,402

1,264

1,239

10/31/2020

36,816,000

26,300,000

354

340

2021 core retail sales will total between $4.44 trillion and $4.56 trillion, up from $4.02 trillion in 2020. Source: National Retail Federation

36%

of holiday shoppers plan on spending more this year — the highest number reported since 2018 — and

43%

plan to shop instore on Black Friday and Cyber Monday. Source: Roku’s 2021 Annual Holiday Consumer Shopping

The most popular social media platforms for purchases are Facebook

(34%) (23%). and Instagram

Source: CouponFollow

1/29/2021

33,746,800

27,754,000

17,177

16,278

1/30/2021

32,136,962

41,717,000

4,572

4,529

12/31/2020

29,500,000

31,000,000

950

900

Source: Company reports unless otherwise noted E: Estimate, A: Not applicable, R: Retail operations only.

CHAINSTOREAGE.COM

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31.5%

of consumers said the quality of customer service is the top factor in defining the instore experience; followed by the variety, quality, and availability of products

(29.8%),

and store layout and physical arrangement of products

(19.8%).

Fiscal Yearend

2020 Revenue [000]

1/30/2021

25,509,300

23,610,800

15,685

15,288

2/1/2021

24,157,000

20,350,000

256

248

2/27/2021

24,043,240

21,928,393

2,510

2,461

9/27/2020

23,518,000

26,508,600

32,660

31,256

12/31/2020

18,420,000

21,563,000

1,600

12/31/2020

18,361,700

17,900,800

4,774

4,758

10/3/2020

18,300,000

16,600,000

359

354

1/30/21

17,346,000

24,560,000

789

839

12/31/2020

17,056,000

15,486,000

2,080

1,930

12/31/2020

17,053,350

19,489,740

8.939

10,941

12/31/2020

17,020,000

17,674,000

1,880

2,200

1/30/2021

15,096,913

12,888,556

221

217

1/30/2021

15,031,000

18,885,000

1,162

1,159

12/31/2020

14,177,000

13,458,000

12/31/2020

14,145,156

9,127,057

6/30/2020

14,100,000

13,000,000

530

503

1/30/2021

13,800,000

16,383,000

3,715

3,919

Phoenix

1/31/20120

13,180,000

12,121,000

1,156

1,522

Menards (E) Eau Claire, Wis.

12/31/2020

12,800,000

12,070,000

Autozone

8/29/2020

12,631,967

11,863,743

21 22

Meijer (E)

Rite Aid Corp.

Starbucks Corp.

Verizon Wireless (E,R)

The Sherwin-Williams Co.

Wakefern Food Corp.

Macy’s Inc.

Aldi Inc. (E) Batavia, Ill.

Essilor Luxottica Group

Source: Raydiant

43%

of consumer and retail CEOs cited supply chain risk as the top threat to their companies’ growth during the next three years,

Dollar Tree

Chesapeake, Va.

Grand Rapids, Mich.

Camp Hill, Pa. Seattle

Basking Ridge, N.J.

Cleveland

Keasbey, N.J. Cincinnati

Charenton-Le-Pont, France #

AT&T Wireless (E,R)

Dallas

BJ’s Wholesale Club

Kohl’s Corp.

Qurate Retail

Source KPMG’s annual survey of consumer and retail company CEOs

Wayfair

Despite strong e-commerce growth, stores will continue to capture most retail sales by 2024, including

Trader Joe’s (E)

Gap Inc.

71%

of all U.S. retail sales Source: Forrester’s 2021 Online U.S. Retail Forecast,

08-17-CSA_top100.indd 10

Westborough, Mass.

Menomonee Falls, Wis. West Chester, Pa. Boston

Monrovia, Calif.

San Francisco,

PetSmart (E)

Memphis, Tenn.

2019 Revenue [000]

2020 Store Count

2019 Store Count

350 6,549

6,411

Source: Company reports unless otherwise noted E: Estimate, A: Not applicable, R: Retail operations only.

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Amazon is the world’s most valuable brand, at $684 billion, up

64%

from 2020. It also is the first half-a-trilliondollar brand, alongside Apple, at #2, valued at $612 billion, up

Ross Stores

Dublin, Calif.

EG America

Wawa (E)

Framingham, Mass. Wawa, Pa.

L Brands Inc.

O’Reilly Automotive

74%

Hy-Vee (E) West Des Moines, Iowa

Wegmans Food Markets

Source: Kantar BrandZ Most Valuable Global Brands 2021

Quik Trip (E)

The resale market is expected to double in the next five years, to $77 million.

Associated Wholesale Grocers

Tractor Supply Co.

Nordstrom

Etsy

eBay Inc.

Advance Auto Parts

Giant Eagle Inc. (E)

Office Depot

Dick’s Sporting Goods

T-Mobile

SpartanNash Companies

Bed Bath & Beyond Inc.

over last year).

43%

of consumers said they are more likely to shop with a brand that lets them trade in old clothes for brand credit;

34%

are more likely to shop with a brand that offers secondhand clothing alongside new. Source: “2021 Resale Report,” from ThredUp Inc

Columbus, Ohio Springfiled, Mo.

Rochester, N.Y. Tulsa, Okla.

Kansas City, Kans. Brentwood, Tenn. Seattle

New York City San Jose, Calif. Roanoke, Va. Pittsburgh

Boca Raton, Fla. Coraopolis, Pa.

Bellevue, Wash. Grand Rapids, Mich. Union, N.J.

Fiscal Yearend

2020 Revenue [000]

2019 Revenue [000]

2020 Store Count

2019 Store Count

1/30/2021

12,531,565

16,039,073

1,859

1,805

12/31/2020

12,254,996

5,394,880

1,634

1,697

12/31/2020

11,900,000

12,500,000

901

891

1/30/2021

11,847,000

12,914,000

2,669

2,920

12/31/2020

11,604,493

10,149,985

5,616

5,460

9/30/2020

11,150,000

10,200,000

275

265

12/31/20

10,800,000

9,700,000

106

101

4/30/2020

10,709,920

11,000,000

882

828

12/29/2020

10,634,000

9,666,303

3,200

3,000

12/26/2020

10,620,352

8,351,931

2,105

2,024

1/30/2021

10,357,000

15,132,000

369

380

12/31/2020

10,281,101

4,974,944

12/31/2020

10,271,000

8,636,000

1/2/2021

10,106,300

9,709,003

4,976

5,037

6/30/2020

9,850,000

9,350,000

488

474

12/26/2020

9,710,000

10,647,000

1,154

1,307

1/30/2021

9,584,019

8,750,743

854

850

12/31/2020

9,421,000

9,543,000

3,400

2,200

1/2/2021

9,348,485

8,536,065

156

2/27/2021

9,233,028

11,158,580

1,020

1,500

u W f

Source: Company reports unless otherwise noted E: Estimate, A: Not applicable, R: Retail operations only.

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79%

of consumers expect retailers to continue enforcing health and safety restrictions — even if the majority of Americans are vaccinated. Source: ShopKick

U.S. online sales in 2021 are expected to total between $850 billion and $930 billion; with 2022 delivering the first trillion-dollar year for U.S. e-commerce. Source: Adobe

69%

of retailers said the pandemic resulted in an increase in overall risk for their company, specifically in workplace violence

(61%)

and organized retail crime

(57%).

The top five cities for organized retail crime in the past year in order were Los Angeles, San Francisco/ Oakland, Chicago, New York and Miami. Source: National Retail Federation, 2021 Retail Security Survey

08-17-CSA_top100.indd 14

61 62 63 64

Fiscal Yearend

2020 Revenue [000]

Ankeny, Iowa

4/30/2021

8,707,189

9,175,296

2,243

2,207

Staples (E) Framingham, Mass.

1/31/2021

8,670,000

8,900,000

1,071

1,079

9/30/2020

8,450,000

9,700,000

2,377

2,400

12/31/2020

8,033,000

6,667,000

419

550

3/31/2020

7,795,000

6,858.000

131

127

12/28/2020

7,760,000

6,071,200

5,400

5,366

Casey’s General Stores

Good Neighbor Pharmacy (E)

Chesterbrook, PA

Southeastern Grocers (E)

Jacksonville, Fla.

2019 Revenue [000]

2020 Store Count

2019 Store Count

WinCo Foods (E)

Ace Hardware

Foot Locker New York City

1/30/2021

7,548,000

8,005,000

2,998

3,129

Sheetz (E) Altoona, Pa.

9/30/2020

7,532,720

7,200,000

616

608

Army & Airforce Exchange Service

2/1/2021

7,500,000

8,600,000

4,900

4,000

J.C. Penney Co. (E)

2/2/2021

7,480,000

11,167,000

650

846

Bass Pro Shops (E)

12/31/2020

6,800,000

7,000,000

152

159

Williams-Sonoma

1/31/2021

6,783,189

5,898,008

581

614

8/31/2020

6,573,350

7,860,000

1/3/2021

6,468,759

5,634,835

362

340

12/31/2020

6,280,000

6,100,000

4,500

2/1/2021

6,199,186

5,323,180

1,408

1,404

1/30/2021

6,151,953

7,398,068

1,264

1,254

1/30/20121

5,751,541

7,261,243

761

727

7/3/2020

5,746,300

4,961,400

1,450

1,509

12/31/20

5,690,000

4,838,000

259

Boise, Idaho

Oak Brook, Ill.

Dallas

Plano, Texas

Springfield, Mo.

San Francisco

Ikea North America (E)

Conshohocken, Pa.

Sprouts Farmers Market

AVB Brandsource (E)

Big Lots Inc.

Ulta Beauty

Burlington Stores

Tapestry

Academy Sports & Outdoors

San Bernardino, Calif. Nashville

Columbus, Ohio Bolingbrook, Ill. Burlington, N.J. New York City Katy, Texas

Source: Company reports unless otherwise noted E: Estimate, A: Not applicable, R: Retail operations only.

SEPTEMBER/OCTOBER 2021

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36%

of retailers said online returns have increased during the past 12 months;

37%

said returns have increased their operational costs.

Fiscal Yearend

81 82

Source: Adobe Digital Economy Index

Outdoor brand Patagonia has the best reputation in the United States, both in the retail sector and across all categories surveyed. Rounding out the top five in the retail category: Costco, REI, Ikea and Lowe’s. Source: 22nd annual Axios-Harris Poll 100

Racetrac Petroleum (E)

Atlanta

Camping World

Michaels Stores (E)

Save Mart Supermarkets (E)

Signet Jewelers Ltd.

Discount Tire

Source: GXO Logistics

Total U.S. online spend across all retailers surpassed $11 billion during the 48 hours of Prime Day (June 21-22). This includes $5.6 billion on day one and $5.4 billion on day two.

Demoulas Supermarkets (E)

Tewksbury, Mass.

Lincolnshire, Ill. Irving, Texas

Modesto, Calif.

Hamilton, Bermuda Scottsdale, Ariz.

Stater Bros. Markets (E)

San Bernadino, Calif.

12/31/20

5,484,700

5,904,860

552

519

12/31/2020

5,446,591

4.892,019

171

175

2/1/2021

5,280,000

5,072,037

1,120

1,274

6/30/2020

5,250,000

4,600,000

206

1/30/2021

5,226,900

6,137,100

2,833

3,208

12/31/20120

5,150,000

4,910,000

1,078

1,023

9/28/2020

5,119,000

4,507,000

170

1/30/2021

5,089,800

6,466,000

4,816

5,509

12/31/2020

5,010,000

6,052,752

1,124

1,150

1/31/2021

4,900,000

4,434,514

1,454

1,478

12/31/2020

4,850,000

4,334,000

530

532

12/31/2020

4,790,000

5,490,000

919

932

9/26/2020

4,610,500

4,202,034

197

198

9/30/2020

4,600,000

4,500,000

236

12/31/2020

4,474,667

5,267,132

1/31/2021

4,400,000

4,424,000

326

2/2/2021

4,325,000

7,750,000

250

177

1/30/2021

4,300,895

6,203,520

282

285

1/30/2021

3,759,113

4,308,212

1,078

1,095

Sephora Americas (E)

Petco Health and Wellness Company

Piggly Wiggly

Hobby Lobby (E)

Ingles Markets

Defense Commissary Agency

Under Armour

Tiffany & Co. (E)

Hudson’s Bay Company (E)

Dillard’s

100

Oklahoma City, Okla.

Black Mountain N.C. Fort Lee, Va. Baltimore

New York City #

Toronto, Ontario

Little Rock, Ark.

American Eagle Outfitters Pittsburgh

2019 Store Count

5,300,000

Memphis, Tenn.

2020 Store Count

5,600,000

GameStop Corp.

San Diego

2019 Revenue [000]

1/2/2021

Grapevine, Texas

2020 Revenue [000]

388

Source: Company reports unless otherwise noted E: Estimate, A: Not applicable, R: Retail operations only.

08-17-CSA_top100.indd 16

SEPTEMBER/OCTOBER 2021

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ANALYSIS

C-Suite Focus Areas

Effective business scenario planning is vital to success in 2022 and byond By Antony Karabus and Farla Efros The year 2020 was a complex one for retail — with the top-line sales in some retail sectors up by as much as 30%, while others declined by the same percentage or more. At the same time, the importance of digital as a percent of total sales grew at an unprecedented rate, often increasing to as much as 50% of sales. This year has continued the rapid growth of the 2020 “covid beneficiaries,” including sectors such as grocery, pharmacy, pet supplies, convenience, extreme value, auto parts, home improvement, home décor, outdoor, fitness and of course Amazon. The discretionary sectors, which had a terrible 2020 and include department stores, specialty shops and others in enclosed malls, rebounded in 2021 amid the combination of “pent-up demand” and further government aid to consumers. Many discretionary retailers are growing sales by as much as 30-50% over 2020 — and 10% or more over 2019. C-SUITE IMPLICATIONS To adapt to the new “normal environment,” new and/or enhanced capabilities are needed. These include new talent, digital, supply chain, analytics, digital marketing and inventory management. In virtually every retail company, C-suite leaders are being challenged by many significant asks for capital, systems, people, marketing spend and store remodelling to support the increased 2021 sales levels and to enable the new/enhanced capabilities. We see this as a potential threat to continued profitability levels in 2022 and beyond as the sales growth rates of 2021 will not be sustained unless retailers can gain market share from competitors. Market share gains will only be sustained if excess profits from 2020 and 2021 are invested efficiently and effectively via business scenario planning. Finding the right balance between returns to shareholders (share buy-backs and dividends) versus investing in the enhanced and/or new capabilities is crucial. Spending incrementally on additional

head-count to align with increased sales in this period is not the answer. The pent-up demand spending and government aid to consumers will end at some stage and consumers will return to more normalized spending patterns. They also will shift much spending from products to experiences such as restaurants, entertainment and travel. The underpinning of effective business scenario planning is outlined the three focus areas listed below. Retail CFO’s should champion these areas to ensure sustained financial performance improvement in our new normal environment. 1/Strong Cross-Functional Perspective and Business Case Experience The CFO should have a strong crossfunctional perspective of the business and of the key metrics that impact profitability and capital allocation, as well as the interdependence of operational metrics and how they should be prioritized. The CFO also should have an intimate understanding of how business cases for investing in new and/or transformed capabilities are developed, including what scenarios need to be considered and prioritized. This is vital as business cases must include: • the right financial baselines and metrics; • the financial and strategic benefits to be delivered from the new capabilities; • the agreed metrics to measure and track benefits realization; and • the anticipated benefits-realization timeline, with appropriate investment exit points if the business environment changes or the execution results are not aligned with plan. This will allow finance to hold operating leaders accountable for the realization of the benefits. CFO’s should allocate financial analysts to support the operational leaders in measuring and tracking progress of benefits realization versus the business case and reporting results to the executive committee.

18-19-CSA_Analysis.indd 18

The analysts will also be able to obtain the necessary financial and operating data and provide effective insight to the operating leaders on performance and how projects are tracking towards anticipated benefits. 2/Prioritizing New Capabilities and Capital Allocation Operational leader requests for additional capital and operating expenses in 2021 may at times exceed the business’ capacity. This will result in an unsustainable cost infrastructure in 2022 and beyond, given the anticipated normalization of sales growth rates, The CFO is perfectly equipped to ensure capital is directed, allocated and prioritized towards the most important value-drivers to ensure adequate funding for the most important new and/or enhanced capabilities — and to prioritize which capabilities are essential versus discretionary and potentially less crucial. 3/Managing Cost Infrastructure Through Zero-Based Budgeting Given the significant capital and operating investments needed to enable digital, omnichannel, CRM and other growth initiatives, retailers must make rigorous fact-based resource, (both human and financial capital) prioritization decisions. The CFO is well-positioned to oversee these decisions in partnership with the CEO and key C-suite executives. Zero-based budgeting is an excellent tool (rather than incremental edits to staffing and other cost budgets) to ensure the focus is on the right, prioritized investments needed to achieve the desired near and longer-term benefits. This is especially true in a rapid changing retail environment where the zero-based approach will yield much better results than using historical spend for future planning. — Antony Karabus is CEO and Farla Efros is president of HRC Retail Advisory, a leading retail consulting firm. Effective Sept. 17, 2021, HRC was acquired by Accenture and has joined the Accenture North America Strategy Team. SEPTEMBER/OCTOBER 2021

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2021

CSA’s SPECS Show Brings Store Development Community Back Together By Marianne Wilson The mood was upbeat and enthusiasm was high as the country’s top retail professionals and suppliers involved in the planning, design, construction and maintenance of stores, restaurants and non-traditional concepts gathered together at Chain Store Age’s 57th annual SPECS Show. All sectors of the industry were represented, from discounters and supermarkets to convenience stores and specialty concepts to restaurants and home-improvement centers. Non-traditional retail was also represented, including banks and medical. “We are honored to play an important role in bringing the store development community back together in-person,” Gary Esposito, SPECS chairman and VP, Chain Store Age, said in opening remarks at the show. “After many months of staying connected digitally, SPECS is here to provide the critical solutions and services that are needed to compete in this ever-changing landscape.” Held August 22 – 24 at the Gaylord Resort & Convention Center, National Harbor, Md., SPECS Show is designed to bring together retail leaders and top suppliers to learn, share ideas, foster business partnerships and solve problems. The three-day event combined insightful keynote addresses and educational sessions with plenty of networking opportunities and a dynamic exhibit floor that showcased the latest products and services. Barbara Corcoran, author, entrepreneur and an investor on ABC’s popular television show, “Shark Tank,” kicked off the formal program. Corcoran, whose rise to fame started with the creation of a multi-million dollar real estate firm from the ground up, shared her experiences on how to drive growth and succeed in business. In another keynote presentation, CNBC senior analyst and business

Barbara Corcoran, entrepreneur, author and a “shark” on ABC TV's hit show "Shark Tank," delivered the opening keynote address.

commentator Ron Insana discussed the nation’s economic outlook. “The economy is poised for continued growth over the next several years,” Insana told attendees. “The U.S. is flush with cash at the household level and the corporate level.” Sessions: Quality educational content has long been a hallmark of SPECS and this year’s show was no exception. The program, developed with direct input and guidance from retailers, is designed to provide attendees with best practices and actionable insights that they can use when they are back on the job. Many of the sessions offered continuing education credits. A wide range of topics was covered, including the use of technology and robotics in construction, next-gen sustainable materials, top remodeling trends, new energy management measures and improving air quality. One session offered an up-close look at Dick’s Sporting Goods’ new experiential store concept, Dick’s House of Sport. In

20-31-CSA_SPECS recap.indd 20

another, female executives in store development, construction and facilities discussed their leadership journey and the barriers they needed to overcome to achieve success. The show also included the presentation of Chain Store Age’s annual Breakout Retailer Awards. Four innovative brands were honored: Chipotle, Dick’s Sporting Goods and the up-and-coming Goldfish Swim School. The awards were sponsored by architectural and engineering firm HFA. As in past years, SPECS offered attendees plenty of opportunities to collaborate and network — on the show floor, in sessions and at meals and evening receptions. Retailers and suppliers also had the chance to participate in time-efficient, one-onone meetings at the Retailer/Exhibitor Information Exchange. SPECS will return to Texas next year: SPECS Show 2022 will be held March 20-22, at the Gaylord Texan Resort & Convention Center in Grapevine, Texas. SEPTEMBER/OCTOBER 2021

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Gary Esposito, SPECS Show chairman and VP, Chain Store Age, welcomed attendees to the event.

Kelly McDonald, founder of McDonald Marketing, shared insights on how to create a more progressive retail culture during her session.

Darion Cranfield, senior program manager, retail program management, Walgreens, was among this year’s session speakers.

CNBC analyst and commentator Ron Insana provided an economic outlook during his keynote address.

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20-31-CSA_SPECS recap.indd 21

The Breakout Retailer Awards were presented at SPECS. L to R: Gary Esposito, Chain Store Age; Michael Budzisz, Dick’s Sporting Goods; Tabassum Zalotrawala, Chipotle; William Moorman, Goldfish Swim School; Marianne Wilson, Chain Store Age; and James Owens, HFA,

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2021

Accepting the awards on behalf of their companies were, left to right, Michael Budzisz, Dick’s Sporting Goods; Tabassum Zalotrawala, Chipotle; and William Moorman, Goldfish Swim School.

Breakout Retailer Awards Honor Innovation By Marianne Wilson

Chipotle Mexican Grill, Dick’s Sporting Goods and Goldfish Swim School took top honors in Chain Store Age’s annual Breakout Retailer Awards, which were presented at SPECS. The awards are designed to recognize retail, restaurant and non-traditional specialty concepts that are investing in growth and innovation in the physical space and reaching out to — and engaging with — consumers in new ways and redefining their industry segments. Executives from the three winning companies were on hand at SPECS to accept their awards, and also to share insights into their companies and what lies ahead during a panel discussion. Representing their companies at the presentation were: • Michael Budzisz, VP of visual merchandising. Dick’s Sporting Goods; • William Moorman, VP of construction, Goldfish Swim School; and • Tabassum Zalotrawala, chief development officer, Chipotle Mexican Grill. Here is an overview of this year’s winners. Chipotle Mexican Grill The past 18 months has proved that nothing is off the table when it comes to innovation for Chipotle, from express drive-thru lanes to pick up windows. The chain was one of the first restaurant brands out of the gate to open a digital-only restaurant. Customers order in advance via the brand’s website, app or third-party delivery partners. They pick up their orders in a space that is designed to include all of the sounds, smells and kitchen views of a traditional Chipotle restaurant Chipotle was also a pioneer in the mobile space. It was one of the first restaurant brands to offer mobile ordering, starting in 2008. It’s come a long way since then, evolving into of the industry’s most digitally-savvy players. With customer convenience as a trigger, Chipotle has succeeded in seamlessly connecting its digital and physical operations. The company remains firmly committed to growth. It is opening 200 new restaurants this year, and more next. 22

20-31-CSA_SPECS recap.indd 22

Dick’s Sporting Goods The nation’s largest sporting goods retailer is in the midst of one the most innovative and busy years in its 73-year history. Among other projects, Dick’s is adding soccer shops to its namesake locations and remodeling its Golf Galaxy stores. The retailer has also entered the outlet space, opening clearance and outlet stores under several different banners. But Dick’s most ambitious initiative was the opening of a new store concept earlier this year, called Dick’s House of Sport. The 100,000-sq.-ft. store offers customers a truly experiential shopping experience — it’s filled with multi-sports activities that customers can participate in — inside and out. Of the store’s many features, one of the most popular is its outdoor turf field where Dick’s hosts clinics, sports camps, product trials and other events. The field (part of which will convert to an ice-skating rink in the winter) is open year-round for customers to enjoy. Dick’s isn’t finished yet. It recently opened another new concept, the outdoors-focused Public Lands. Goldfish Swim School Founded by a husband and wife team, Goldfish Swim occupies a very specific niche in the fast-growing swim school industry: It provides swim lessons and water safety instruction to infants and children, from four months to 12 years old, in a warm, nurturing environment. The company’s growth in recent years has been fueled by franchising but its main priority has remained unchanged from day one: educating kids on water safety while teaching them how to swim and respect the water — and to have lots of fun while doing it. With shiver-free pools, tropical-inspired décor and a viewing area for families, Goldfish has an inviting atmosphere that makes kids feel at ease. The success of its model has been made clear these past 16 months, during which it opened its 100th location, signed 19 franchise agreements, and entered four new states. Goldfish Swim has put itself in the fast lane for growth. It currently has more than 120 locations and over 130 in development. SEPTEMBER/OCTOBER 2021

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SAVE THE DATE!

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SESSION SPOTLIGHT:

The Smart Job Site:

Tech and robotics transforming construction

By Dan Berthiaume

Technology innovations are helping to transform the construction process — from planning through execution. That was the theme of the SPECS session, “The Smart Job Site: Tech and Robotics in Construction,” during which a panel of experts shared insights on how tech solutions are helping companies better manage construction projects with benefits that include increased efficiency, better communications and increased efficiency. Chris Varney, executive VP of testing at inspection and certification company Bureau Veritas, discussed how robotic drones can create interactive 2D and 3D site images. “You can look at images of a facility offline and share them with colleagues, vendors, and contractors,” said Varney. “Using drones, you can create a site map with issues noted on high-resolution imagery.” Varney said retailers can also leverage photo mapping capabilities of robotic drones and drill down on any high-resolution picture to obtain more information.

optimizing the path to a goal. Another area Walch touched on was AI-based fraud detection. “With pattern recognition, AI can spot abnormal behaviors right away,” she said. “This has been a hot issue in the construction supply chain in the past year. Humans have limits and need rest; they can only process so much data at once. Robotics doesn’t always mean ‘intelligent,’ but you can apply it intelligently.” Ron Schmelzer, managing partner and principal analyst of Cognilytica, said the word “robot” comes from a Slavic word meaning “to work.” He said AI allows robots to move beyond performing unchanging, repetitive tasks to understanding the world around them and moving and communicating. (Schmelzer referred to this type of trainable, smart robot as a “cobot.”) “Robots and autonomous tools are helping augment the human workforce on sites to help with labor costs and keep the project on time,” Schmelzer explained. “The more you have a cobot repeat a

AI-enabled robotic drones can be used to automate tasks such as assessing properties for post-storm damage and identifying stresses on pavement with thermal imaging. Drones can also assist with generating unbiased pricing estimates for scope of work documents. “We still love our photos,” he added. “Bureau Veritas does a ton of inspections. Drones let you do remote inspections for facilities you may not be able to enter due to COVID-19.” Varney said AI-enabled robotic drones can also be used to automate tasks such as assessing properties for post-storm damage and identifying stresses on pavement with thermal imaging. He also explained how drones can assist with generating unbiased pricing estimates for scope of work documents. “Technologies such as 3D virtual reality, 360-degree photography and AutoCAD can help create as-builts,” said Varney. “You can virtually perform punch list inspections, pre-bid walkthroughs, and mark up PDFs.” Kathleen Walch, managing partner and principal analyst of AIfocused research firm Cognilytica, said AI-based robotic AI technology can assist retailers in making sense of unstructured data. “Unstructured data is not labeled, such as emails, virtual messages, photos and videos,” said Walch. “Eighty to 90 percent of the data companies have is unstructured.” Walch said retailers can also leverage AI technology to support automated chatbots, which facilitate conversations between humans and machines. In addition, she said with predictive analytics, AIenabled robotic systems can make a lot of goal-oriented decisions by 24

task, it keeps iterating and learning variability. Cobots are used for tasks ranging from picking and picking to bartending.” In construction, Schmelzer said retailers can employ intelligent cobots to assist humans with on-site tasks such as bricklaying, pouring concrete, installing drywall and surveying construction sites. “With an intelligent machine, we can achieve greater levels of productivity,” he said. “We can improve accuracy, reliability and relevance, and eliminate drudgery and dull tasks. According to Schmelzer, cobots can also assist retailers in achieving greater scale, enabling continuous monitoring and auditing and extracting more value from data. In addition, Schmelzer also discussed applications for AI in construction, noting Cognilytica data which indicates 16% of construction firms are adopting AI in their business for an average 50% increase in profits. He said AI can also be used to aid construction tasks such as schedule optimization, identifying unsafe worker behavior via image recognition, comparing design plans, improving building information modeling and forecasting and prioritizing potential risks. “With the global labor shortage, robots have really taken off during the COVID-19 pandemic,” Schmelzer concluded. “Companies can’t hire enough people, but the work doesn’t go away.” SEPTEMBER/OCTOBER 2021

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2021

SESSION SPOTLIGHT:

Inside Dick’s House of Sport

By Al Urbanski Dick’s Sporting Goods in Knoxville, Tenn., had always done a decent business, but its annual sales never landed it in the top tiers of the Pittsburgh-based company’s network of 700 locations. This year, however, Knoxville could rank among the top-selling Dick’s stores in the nation. The reason? The retailer last year closed its former location in the Eastern Tennessee city and transformed the space into the second location of its new experiential concept, Dick’s House of Sport. Michael Budzisz, VP of visual merchandising, Dick’s Sporting Goods, discussed the new concept at the SPECS session, “Dick’s Sporting Goods: Leveraging Lighting, Flooring and Signage for a Better Experience.” Budzisz told attendees that top executives at the company had long discussed developing a prototype that could capitalize on Dick’s phenomenal growth during the past decade. Finally, Michael Budzisz is VP of visual merchandising at Dick’s Sporting Ed Stack—chairman, chief merchanGoods dising officer, and son of founder Dick Stack—said, “If you had to build a store across the street that would put Dick’s out of business, what would you build?” “That comment formed every decision we made about the House of Sports from that moment on,” Budzisz said. “We started out developing the plan with a concept agency, but pretty soon we brought it in-house.” The first House of Sport opened in April 2021, in Victor, New York, followed by the Knoxville location in June. The format offers customers a hands-on shopping experience and It’s filled with multi-sports activities that customers can participate in — inside and out. Budzisz discussed the Knoxville location at SPECS. The 100,000-sq.-ft. store features a sports arena-styled jumbotron that carries news and scores of local sporting events. Digital signage arrays are deployed throughout the space, conveying messaging on everything from back-to-school deals to brand information. To the left of the entrance is the largest footwear deck Dick’s has ever built (it includes a separate Jordan Shop.) Many of the features are consistent with the New York location, from the indoor climbing wall to the dedicated in-store shop for cleats to the golf section, complete with a putting green and a virtual hitting bay. In addition, both locations boast a high-tech batting cage and outdoor turf field ( with an Olympic -grade running track) where Dick’s hosts classes, clinics, sports camps, product trials and other events. The Knoxville turf field is made of recycled ocean plastic.

With a space so vast and full of merchandise, said Budzisz, signage is crucial. “We use graphics on the perimeter for navigation and we did the same thing within the footwear deck,” he said. “We also have tickers as well as graphics to make strike points to grab attention.” He added that lighting is used not to just illuminate product, but also the signage. Following are some of the custom treatments Budzisz’s team and their suppliers created especially for House of Sport. •New porta-walls. The porta-wall is found in nearly all Dick’s Sporting Good stores. It’s a fixture with mannequins and product on either side, a bench on one end and a dressing room on the other. One of the first things Budzisz, a Home Depot veteran, was asked to do when he joined Dick’s was to create a new version. The original was stick-built, but the new version has metal stud walls that can accept magnetic graphics, making it easier for store staff to swap out signage as seasons rotate. There are four pads in House of Sport and each has a porta-wall in the middle of it. •The House of Cleats. Dick’s is the biggest seller of sport-specific cleats in the country so the section received special attention with its own dedicated in-store treatment. Because the functional bottoms of cleats are more important to competitive users than the fashionable tops, Dick’s created a display wall that has the shoes pointing up toward the ceiling so that the cleats themselves are presented to shoppers. To learn how they feel, athletes can lace them up and jog around on grass turf floor featured in the department. “This is one section where we decided to use lighting in a different way and shined lights down onto the cleats from above,” Budzisz said. “Not only does it draw you in to the cleat designs, but shoppers can also see the department from the back of the store.” •The golf department. Golf is not only a big seller at Dick’s, it’s a big deal inside the company. Founder Dick Stack—still involved with the company he founded in 1948—is passionate about the game. All the wood in the department has a darker, richer wood finish to it. “Dick [Stack] is enthusiastic about golf and likes rich, warm wood tones in the section,” Budzisz said. “It’s actually great to have a leader in the company so well connected to a sport.” In the near future, more Americans are likely to be connected to a House of Sport. In the question-and-answer segment of the SPECS session, Budzisz was asked whether the company planned to elevate any other existing stores to the 100,000-sq.-ft.-plus format. “Yes,” Budzisz said, “but it’s a moving target. We’ll have one opening in Minnetonka [in Minnesota] in the spring and one or two more are planned. But we figure to start hitting a stride in 2023.”

SEPTEMBER/OCTOBER 2021

20-31-CSA_SPECS recap.indd 26

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SESSION SPOTLIGHT:

Pre-Fab Helps Retailers Cut Construction Time

By Al Urbanski

One evening last year in West Jordan, Utah, a woman was driving home from work on the same route she took every day. As she passed a Dutch Bros coffee shop, she became alarmed. She pulled over, called the local police, and told them she had driven by an empty lot that morning on her way to work, and now there was a brand-new coffee shop there. “I got a call from the West Jordan police who told me, ‘There’s a woman who drove by and saw your store tonight and she literally thought that aliens built the place,’ ” Aaron Harris, VP of real estate and construction for Dutch Bros., told attendees at SPECS. “When she had passed our site on her way

to work in the morning, it was empty. We had finished all the site work and that day the cranes erected the entire building. We went from having an empty piece of dirt to a complete building inside of 12 hours.” Harris shared the story, which reflected Dutch Bros’ rapid expansion, at the SPECS session, “How Modular/Pre-Fab Construction Can Meet Retail Needs,” which also included Walgreens director of facility standards David Dillon and Focus Brands VP of design and construction Kevin Kilgore. All three panelists, two of whom have only just begun experimenting with pre-fab construction methods, said the No. 1 reaction

of co-workers when they hear about it is, “Gotta be cheaper, right?” The answer to that question, according the panel, is a qualified, “Not necessarily.” Prefab processes have more certain outcomes, less guesswork and reduce construction waste. But the main reason why “pre-fab” is on the to-do list of nearly every retail chain construction manager has to do with the ongoing shortage of skilled construction labor. The shortage had a significant impact on the completion of retail square footage last year. “Construction advanced only 1% over the last couple of years,” Kilgore noted. Dutch Bros., which recently raised $484.2 million in an IPO and sees potential for 4,000 locations, currently operates nearly 500 coffee shops in 11 Western states. The majority of the locations are drive-thru only, with one or two lanes, and average about 930 sq. ft. each. Harris told attendees that he and his crew have built close to 20 shops using pre-fab construction. “We didn’t go into it trying to save money, but to save time,” he said.

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To date, Harris has been able to complete pre-fab store constructions 19 days earlier than stick builds put up by standard construction crews. His goal is to create a methodology among his own workers and his suppliers that can be uniformly executed in a standard program. “My job is to get the job done and start making money,” Harris said. “I was with Popeye’s for 11 years and worked in lots of places with bad weather. You have a very tight window to construct there and you want to lay the slab and get it done quick. We’re doing that with pre-fab, but the problem is developing a program that will work consistently.” Dillon told attendees that an initial pre-fab project executed by Walgreens didn’t cost less. But it came in about six or seven days early and demonstrated that using panelized pre-fab methodology had every segment of the delivery model moving faster. Dillon added that he thought it could be possible to cut costs by 10% or even 15%. But similar to Harris, he said that current prefabrication efforts are more about creating a

new construction dynamic that can be accepted and developed by the construction trades. “We’re asking people across multiple work streams to change how they operate,” Dillon explained. “If we can all get aligned to what the methods are, we’ll all see benefits.” Harris agreed. “I’ve always wanted to try something different,” he said. “Panelized, modular, or a 3-D printed building—let’s try it. But in order for it to be accepted, there needs to be education. GCs [general contractors] need to have an education requirement for modular certification.” Harris and Dillon agreed that these are the early days with regards to pre-fab construction. “The pre-fab industry itself needs to mature,” Harris said. “There are probably four or five manufacturers that can actually build what I want.” Harris noted many [pre-fab] manufacturers will say they can build a hotel, an office building — or one of his 930-sq. ft. Dutch Bros stores. He doesn’t buy it. “To them I say: ‘Well, no you can’t. Be an expert at one thing and do it better than anyone else.’”

Four Types of Pre-Fab

Prefabricated construction consists of using factory-made building components that are transported to building sites and put together to create a structure. There are four types, which are listed below. •Panelization: Factory-made walls, floors, and roofs are attached to a structure that already exists. •Volumetric: The stacking and joining of factory-finished modules come together to form a substantially complete building. Usually, only bolting and interconnection of building services is required at the site. •Modular: Entire sections of a project that include plumbing, electric, and everything else needed for a functioning building are joined together on-site. It requires the least amount of on-site work. •Component: A constituent part of a building is manufactured as an independent unit, subsystem, or subassembly that can be added to an existing structure.

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2021

SESSION SPOTLIGHT:

Artificial Intelligence Comes to Retail Construction

By Dan Berthiaume Artificial intelligence-based technology is being integrated into store construction and store development projects, transforming the retail construction industry in the process. Speakers at the SPECS session, “How to Use AI in Construction,” discussed how AI is becoming increasingly important in store development processes and across facilities management operations. Ron Schmelzer, managing partner and principal analyst of AI-focused research firm Cognilytica, said AI technology is delivered in many different “patterns” which can be applied to construction activities in different ways. “AI-equipped drones can spot issues on a site,” he explained. “Also, with AI you can classify and categorize documents. And with

contractors,” she said. “By using virtual reality technology ahead of time, franchisees can minimize their change orders. Virtual reality can show them how their plumbing and electricity work. It makes the project more efficient and saves change fees.” SITE SELECTION Panelists also explained how AI and machine learning technology can serve as an invaluable aid to the all-important task of site selection. “The first part of targeting a retail market is knowing who your customer is,” said Dan Wirtz, president of commercial real estate firm Windsor Realty Group. “Finding them has been a challenge for many years.”

“random” data to the process. “Their approach is, ‘I’ve been here 25 years and I know where the store should go,’” he said. “You’re using somebody’s opinion [in that type of approach] instead of zeroing in on intersections of data.” Cognilytica’s Schmelzer reviewed some additional ways retailers can utilize AI to enhance site selection. “With AI analytics, you can identify who the target customer is and how far they are willing to travel to get to your store,” he said. “You can figure out what retailer you want to be like and mirror another retailer serving that target customer.” Schmelzer also described a new AI-enabled portable, fully automated convenience store

AI technology is especially helpful in assisting franchisees who are first-time entrepreneurs and not familiar with managing construction projects. AI-based predictive analytics, you can analyze supply chain patterns and forecast potential issues that are anomalous with the patterns.” In addition, Schmelzer added, AI technology can help automate processes around ordering and invoicing. Mandy Rowe, director of franchise development for True Rest Float Spa, said the chain employs AI technology to help its franchisees design and build locations. (True Rest Float Spa offers customers a 60-minute, luxury float session in a private suite.) “Franchisees in individual locations can use AI to help select store features such as paint color and tile,” Rowe said. “They can also look at virtual floor plans. We use predictive modeling to assist clients with real estate services.” According to Rowe, AI technology is especially helpful in assisting franchisees who are first-time entrepreneurs and not familiar with managing construction projects. “First-time franchisees often generate a lot of change orders, which frustrates the general

However, retailers can now leverage AI technology to track local consumers via their mobile phone usage. “You can draw a box around a location and find out who your customers are, when their peak shopping hours are, when they are at home and at work,” Wirtz said. “You can know who they are, and segment them by understanding their demographic, lifestyle and habits.” Leveraging this highly individualized data on consumers in a specific locale, Wirtz said retailers can learn where to locate their stores to maximize sales, traffic and repeat customers. According to Wirtz, a lot of his company’s retail clients are leveraging AI, but not analyzing enough data points. “You can put AI into any model and overlay it on any geographic area,” he said. “A retailer can obtain specifics from A to Z and eliminate underperformers.” Wirtz said retailers who aren’t AI tools to assist with site selection are basically applying

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concept that is being used in China. The store, which is smaller than an Amazon Go “Just Walk Out” self-checkout location, is shaped like a shipping container and only accepts one shopper at a time. “You unlock the store with a mobile app and are recognized by your bank account,” said Schmelzer. ‘Cobots” In another type of AI deployment, robots are increasingly being used as tools to streamline retail construction workflows. Schmelzer discussed the rising prevalence of the use of “cobots” — trainable robots designed to work alongside humans — in retail construction. On construction sites, cobots are being used to assist humans with jobs such as bricklaying, pouring concrete, installing drywall and surveying. This helps retailers speed construction, reduce costs and limit injuries to human workers. SEPTEMBER/OCTOBER 2021

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STORE SPACES Q & A

Facilities Management Takes Center Stage Facilities management has taken on increased importance during the past 18 months amid concerns about customer and health safety. Chain Store Age spoke with Rob Almond, CEO of NEST, a pioneer of the integrated facilities management industry in the United States since 1994, about the evolving role of FM in the retail industry. How does NEST see the in-store shopping experience evolving in this new era of retail? The in-store shopping experience can only be as great as the staff you have in place and the quality of the facilities your customers are in. Let’s talk about staff first. In this environment of labor shortages and high demand for skilled staff, retailers should look hard at the employee experience first. When you create a positive work environment with a motivated team, that climate will be passed down to the customers. It also puts you in a position to attract more talent to work for your company. As for facilities, if you don’t have a clean and safe environment for employees and customers, it’s hard to execute the next levels of your customer experience strategy. With a partner like NEST, we can ensure you have the appropriate resources to maintain a first-class facility and scale up and scale down as needed based on emergency cleans, weather events, COVID spikes, unpredictable foot traffic and more. On the COVID front, NEST is nimble enough to provide a custom strategy, region by region, based on what is happening in a specific market. Do you think the increased store safety measures/best practices that came out of the pandemic are here to stay? We’ve learned so much since the start of the pandemic. In addition to many of the safety protocols remaining, we’re seeing new strategies evolve that were a byproduct of an early COVID response. An increase in buy online, pickup in-store and curbside pickup were accelerated because of COVID. But 18 months later, we’re seeing people continue to utilize those services out of convenience.

Facilities management took on increased importance — and newfound respect — during the past 18 months. Do you think that will continue? The additional attention to sanitation, janitorial and safety will be top of mind well into the future. Those areas were always thought of as important before the pandemic, but not to the level we’ve seen since it started. So yes, that line of thinking is here to stay. At NEST, we continue to guide our customers on how to maintain a sanitized and safe environment. We also believe new store layouts that focus on the customer experience will also continue. Is the country’s labor shortage impacting the trades involved in facilities maintenance? There is no doubt the trades are seeing a labor shortage across many industries. At NEST, we’ve made it a priority to support the trades from a grassroots level. This year, we sponsored and helped organize a young women in construction camp in Philadelphia. I think the labor shortage in the trades will only get worse if we don’t educate and highlight the benefits of the skilled trades as a meaningful and rewarding career path. What are the benefits of working with NEST? We view our clients as partners and, over the years, they have told us why they like to work with NEST. Some of those reasons include that we offer a true partnership; we work to understand our clients’ business and even rate our own performance to improve. Also, retailers look at NEST as an extension of their FM team, allowing their

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in-house FM department to focus on more strategic initiatives. Many retailers focus on a tactical approach to their FM. We’re strategic. Through our analytics and insights, we can implement tactics more deliberately that lead to cost savings for our partners. Other benefits include that we excel at service delivery and sourcing and provide more advanced reporting that ties directly into financial statements. And NEST does not charge technology subscription fees to clients or independent service providers. What are the key differences between integrated facilities management and an in-house approach? There are positives and negatives to each approach. The key difference with an in-house model is the inefficiencies with scaling and adapting. IFM allows you to streamline your facilities management processes and leverage financial savings in an efficient manner. At NEST, our IFM approach utilizes data analytics to track trends and streamline a retailer’s operation. It consolidates staff, contractors, service providers, KPI tracking and projects into one easy-to-use, datadriven platform. What are some of the most common mistakes you see retailers making when it comes to their FM programs? We often see retailers going with the lowest bidders rather than the best fit. The lowest bidder strategy frequently results in more costs in the long run. We also see retailers working under an hourlyrate model and have outdated reporting systems. Those are two more mistakes that IFM can fix. SEPTEMBER/OCTOBER 2021

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SHOP TALK Trending stores: The Avenue, the art-bedecked luxury wing of the massive American Dream retail and entertainment complex in East Rutherford, N.J., has opened its doors. The two-level, 300,000-sq.-ft. space features a curated collection of brands, with the opening round of tenants including Hermés, Dolce & Gabbana, Mulberry and New Jersey’s only Saks Fifth Avenue. The Instagram-worthy common area includes lush gardens (a glass atrium fills the The Avenue space with natural light), koi ponds, luxe “sitting salons” and oversized sculptures (created by designer and potter Jonathan Adler) with topiaries. In a separate court area, rainbowcolored banners created from silk, organza and chiffon appear to float from the ceiling. The Avenue will eventually have about 20 stores, with openings expected during the coming months and into next year. … Value-priced Irish retailer Primark continues to expand its U.S. footprint, opening opened a 34,200-sq.-ft. store in Fashion District Philadelphia in downtown Philly. It’s the company’s 13th U.S. location, with upcoming stores due to open at Tysons Corner Center, Tysons, Va., and Green Acres Mall, Valley Stream, N.Y. … Allbirds is expanding its footprint as it prepares to go public. The ecofriendly, digitally native footwear brand opened its first physical store in 2017, and has since expanded to 31 locations (includes 12 global outposts). In documents filed with the SEC, Allbirds said it is in “the early phase of a ramp towards hundreds of potential locations in the future.” … Family-friendly experiential retailer Camp, which blends merchandise with themed hands-on activities, has transformed its 10,000-sq.ft. Manhattan flagship into a space-themed, digitally-enabled adventure. The ticketed Cosmic Camp features interactive games, skill-based challenges and live performances. Working with experiential solutions provider Future Colossal, Camp ’s space-age journey is fueled by augmented reality and projection mapping technology. The retail space, called “The Canteen,” features about 1,000 items, much of it spacethemed. Camp currently has six locations, with four more due to open by yearend. It expects to double its store count to approximately 20 locations by the end of 2022. … Nike has opened the second location of its Nike Live concept, in Seoul, South Korea. The three-story, 24,000-sq.-ft. store bridges digital and physical retail to create immersive store CHAINSTOREAGE.COM

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Nike

experiences, with a design identity that reflects the host city. It’s the first Nike door to offer “Inside Track,” an interactive RFID-enabled table where shoppers can compare details such as product benefits, footwear technology and online reviews for any two shoes in the store by simply placing them on the table. Hyperlocal products are displayed in the store’s “City Replay” zone, which also has a repair station where customers can repair and/or customize old or worn Nike products.

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ON THE LEVEL

Occupancy costs range widely Our story about essential centers in this month’s real estate section is a story that business writers rarely get a chance to write. Change is always in play in consumer markets. Populations shift. New tastes stir new products. But global pandemics stir panic, and wide shifts in consumer behavior. Grocery-anchored centers had long been good investments for institutional investors. But in mid-2020, neighborhood centers and power centers became the survival tents of a frightened populace. Things had been changing in physical retail but last year the pace of that change got a 1,000-volt supercharge. Retailers in home products and groceries had banner years. Fitness centers and automotive aftermarket stores are still clawing their ways back. Over the past two years, Datex Property Solutions, a business intelligence platform for real estate owners and investors, has been tracking the rents paid by both national and regional retailers and, throughout, collection rates were both high and low depending on what category the chain played in. “August 2021 rent collection trends do look markedly better than they did in August 2020,” said Datex CEO Marc Sigal. “Collections for last month eclipsed 92%, which is 12% ahead of the same month last year.” Datex also tracked sales per sq. ft. figures for chains and paired them with rental costs to determine how the plague of the pandemic affected occupancy costs within individual retail categories. The results showed wide

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variances in the profitability outlook for different players. To wit: • Fast Food: Retail Sales have shown real growth over time, up 29% over 2019 numbers, and occupancy costs are down 14% in that same time, showing how some categories are not only immune to the pandemic but strengthened by it. • Fitness: This is an interesting category in that, while rent collections have rebounded to 88%, up 58% year over year, they are still down 9% from 2019. And sales across fitness chains have been were down more than 25% compared to 2019, sending gyms’ occupancy costs up a scary 67%. This is a category that remains under stress. • Pet Supplies: Players in this category are perennial 95%-plus rent payers. They can afford it because their sales are up 57% over 2019 and have been 26% higher than the same period last year. This has resulted in average occupancy cost declines of 38% versus 2019 and 17% versus 2020. • Sporting Goods: For a category that has shown some volatility in terms of timeliness of rent payments, it’s showing health in retail sales (up 68% over 2019, 75% over 2021, and 24% over the past couple months). That’s driven occupancy costs down by two-thirds, suggesting continued growth for the category that is arguably pulling dollars from the fitness segment. “There’s a saying that you manage what you measure, but I’d take it even further and say that the very act of measuring changes the way you manage,” Sigal said. “It would be worth it for all the players in retail to dig deeper, because the lessons being learned from COVID spread wide. Consumers are getting educated, retailers have to re-factor for the new rules, landlords need to drive best practices, and municipalities have to pitch in wherever they can.”

Al Urbanski aurbanski@chainstoreage.com @AlUrbanski (Twitter)

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REAL ESTATE

The Rise of Essential Retail Centers

Why are brands like Sleep Number and Ulta expanding into neighborhood centers? Three reasons: steady traffic, closer contact with customers, and last-mile delivery ability. By Al Urbanski

It’s Monday Night Football, Lions vs. Packers. Publix itself is an important owner On ESPN2 Peyton and Eli Manning are exof grocery-anchored centers perimenting with a new way to call a football game. Aldi, meanwhile, is sponsoring the broadcast with a spot that highlights its new slant-roof stores (just like Lidl’s) and ends with the tagline, “You can’t let your friends spend too much on groceries.” It’s a newnew-wave merge of 21st Century football and 21st Century retail: a pair of Super Bowl QB brothers changing the way football games are broadcast supported by a growing supermarket chain pledged to provide essential goods at low cost. COVID-19 shined a bright light on groceryanchored centers. With enclosed shopping centers largely shut tight in the height of the pandemic, supermarkets in smaller neighborhood centers met the needs of consumers within three-to-five-mile radii and their owners held on tight to them. Investor’s acquisitions of grocery-anchored centers declined to a deal total aggregate competitor Lidl for space in thriving neighborhood centers of $4.5 billion in 2020, a 26% drop from 2019, according to CoStar, Longtime leaders of the supermarket business had record years. a commercial real estate information provider. This year, the transKroger reported an increase in net income from $1.66 billion in 2019 action volume rose to $6.1 billion, very close to 2019’s total. to $2.56 billion in 2020, according to First National Realty Partners, Aldi will be showing up in neighborhood centers both existing and and Albertson’s net income nearly tripled to $1.89 billion. new in the years ahead, as new neighborhoods themselves continue “Any business that was deemed essential during the stay-at-home to take shape in high-growth states in the West and the South such mandates was able to remain open for business and pay rent. That as Washington, Arizona, Texas, and Florida. With 2,100 stores, Aldi caused buyers of retail assets to become more focused on groceryis on track to become the third-largest grocery retailer by store count anchored shopping centers as a hedge against any future lockdowns by the end of 2022. And just out of the gate with 18 stores, Amazon and increasing inflation,” said Kevin Fryman, executive VP of Hanley Fresh is likely to be competing with Aldi and its fellow German Investment Group, which provides market information, and brokers retail acquisitions and dispositions. Non-essential retailers, too, including Ulta Beauty, Sephora, and Sleep Number—mall and urban retail tenants—increased their presence in grocery-anchored centers “We’re adding between 15 in vibrant neighborhoods to give them closer access to their and 20 outparcels a year. Our best customers. larger tenants have been very “What brands like Sephora and Ulta are increasingly recognizing is that you cannot beat the foot traffic generreceptive to this.” ated at shopping centers like the ones we own,” said Bob —Brian Finnegan, VP of leasing at Brixmor Myers, COO of Phillips Edison & Company. “The average 36

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Brixmor's San Dimas Plaza in California

drive-thrus in centers situated near busy intersections, so those properties were quickly snapped up, and at competitive prices. But, not long into the pandemic, town officials made made turnabouts on drive-thrus, pretty much nationwide. Public demand for takeout food and outdoor dining spaces became so great that municipalities across the land loosened up their strict policies. “We anticipate that curbside pick-up and drivethru will play a significant role in the layout and design of shopping centers moving forward,” said Phillips Edison’s Myers. “Prior to the pandemic the ability to add drive-thru was largely contingent upon local zoning restrictions and allowances and often required significant effort to approve. Now we’re seeing zoning committees increasingly approve these modifications because of strong consumer demand.” Fryman of Hanley Investment believes this trend will have a huge impact on how grocery-anchored centers will be designed and operated. “We are already seeing the development of more quick-service drive-thrus with less café and restaurant space and more drivethru lanes, which can impact the design of a shopping center,” he said. “The use of these outparcels for fast-food or coffee allows the developer to increase the center’s cashflow or sell the net-leased investment.” Widened foodservice options have been a dominant trend across all segments of retail real estate, and all operators of grocery-anchored centers contacted for this story hailed local government officials eas-

American visits a grocery store approximately twice per week. There is no other category that gets this kind of live access to consumers. By introducing smaller format stores in grocery-anchored shopping centers and opening store-within-store concepts – as Ulta is doing with Target – these retailers are meeting their end users where they are, and where they shop most often.” Owner-operators of grocery-anchored centers are tracking the retail winners and losers during the pandemic to see which ones can fit in their centers as enduring tenants and traffic-builders. In a September Bank of America presentation, Kimco CEO Conor Flynn said his company was paying close attention to which retailers made critical investments to reinvent their value propositions during the pandemic. This “What brands like Sephora and Ulta year, Kimco merged with Weingarten and became are increasingly recognizing is that you the one of the nation’s largest owners of groceryanchored centers with 559 properties. cannot beat the foot traffic generated at “If you think about it, the highest-traffic locashopping centers like the ones we own.” tions are near the entrances of supermarkets. —Bob Myers, COO of Phillips Edison There’s no location better than that,” Mike Makinen, the COO of neighborhood center owning up on drive-thrus. er ShopOne, told Chain Store Age in an interview earlier this year. “There is no doubt that the outparcel has become the crown jewel of the neighborhood center and so it’s great that municipalities are Another big driver? Drive-thrus seeing the importance of drive-thrus on these pads,” said Alan Roth, Single-tenant net lease properties favored by QSR and fast-casual senior managing director of the East region for Regency Centers. chains sold quickly in the past year and at competitive prices, ac“We are seeing opportunities that historically had problems getting cording to research from real estate broker Stan Johnson Company. municipal approvals.” In the second quarter of 2021, $8.4 billion in investment sales were Outparcels allow developers like Regency, which owns and operates reported, a 20% increase from Q1 and 72% higher than the same time last year. Some of the highest profile transactions were Amazon- 406 properties in the U.S., to widen its tenant curations. A section on its website invites potential lessees to search “second generation leased properties. spaces” across its portfolio in three categories: restaurant, medical, Net lease properties, for which renters agree to pay property taxes, and salon. were in high demand during the pandemic among well-capitalized Brixmor, rated the fifth largest holder of retail real estate with some food and beverage chains like Starbucks, Chipotle, and McDonald’s. 500 properties totaling 87 million sq. ft., has a long history of introProperties with drive-thrus were especially desired. ducing new dining concepts at centers anchored by Publix, Acme, Municipalities have long been averse to approving too many CHAINSTOREAGE.COM

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REAL ESTATE Trader Joe’s, Stop&Shop, Kroger, and Giant Eagle, among others. A search on its listing of pads and outparcels turned up 133 open spaces. In the right centers, it uses outparcels to add larger and higher-priced food and beverage operators such as Iron Hill Brewery in Newtown, Penn., and Hampton Social, a three-story restaurant with a “Rosé All Day” lounge on the first floor, in Nashville. “One thing that we’re fortunate to have is very large parking fields. We’re adding between 15 and 20 outparcels a year across our portfolio,”said Brixmor’s senior VP of leasing Brian Finnegan. “Our larger tenants have been very receptive to this. They recognize the amount of traffic that a Panera and a Starbucks can bring to shopping centers.”

Regency's Belmont Chase in Ashburn, Va.

The outposts of last-mile delivery Because grocery-anchored centers are widely spread and narrowly focused, not all could accommodate three-story restaurants and brewpubs—but all might have the opportunity to serve as lastmile delivery bases in the omnichannel era. Kroger and its allied brands Harris Teeter, Ralphs, and King Soopers grew their online sales 116% to $10 billion in 2020, and the company has stated that it intends to double that number by 2023. Walmart’s

The grocery-anchored power center Just across the road from Simon’s Orlando Premium Outlets sits one of the first ground-up constructions of retail real estate to have appeared in Florida’s third largest metro for some time. You can tell it’s new because O’Connor Capital’s Vineland Pointe has two zones separated by a parking lot. On Vineland Pointe in Orlando one side is what you’d expect from a power center: Burlington, Marshall’s, Ross Dress for Less. There’s also a Lucky’s Market, technically making it a grocery-anchored power center. It’s the other side of lot that’s different. There, six buildings in a V-shaped configuration with a greenspace at the bottom form a dining district that groups Chipotle, Chicken Salad Chick, MOD Pizza, and Panda Express. Still to come in phases two and three will be Cheesecake Factory, Chik-fil-A, and an Alamo Drafthouse Cinema. The same consumers who shop and dine and hang out at swanky town centers hunt bargains in power centers. Why wouldn’t they want a beer or a bite there, as well? Regency Centers’ Mellody Farm in Vernon Hills, Ill., (one of Chain Store Age’s Top 10 Retail Center Experiences of 2021) polled the suburban Chicago town’s affluent populace to see what they’d want in an open-air center. What they got was Whole Foods, Nordstrom Rack, and West Elm along with a restaurant lineup featuring Lazy Dog, Café Zupas, Roti Mediterranean, City Barbecue, and Shake Shack. “Restaurants are always in the highest demand in any retail center,”said Joe Parrot, senior VP of retail services at CBRE. “They appeal to the highest percentage of people.” –Al Urbanski

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online revenues grew 79% in its fiscal year ended in February 2021. Walmart, No.1 on Progressive Grocer’s Top 100 supermarket list and Kroger, No. 3, now have to spend the next decade contending with No. 2 Amazon. It gained that position with its acquisition of Whole Foods, but Amazon doesn’t enter any business without the expectation of becoming No. 1. It aims to nudge its way into the top spot with Amazon Fresh. Google Amazon Fresh and one finds a listing that reads, “Amazon Fresh – Same Day Grocery Delivery,” not standard supermarket claims like “Lowest Prices” or “Freshest Meat & Produce.” After ordering online (a list can be read to Alexa), shoppers select two-hour windows in which to receive their deliveries. Packaging created specially for Amazon Fresh keep items at proper temperatures. As a result, startups like 1520, JOKR, Getir, Gorillas, and Fridge No More have begun offering rapid deliveries of grocery orders by opening offices in neighborhood shopping centers and industrial parks. 1520 promises deliveries within 15 to 20 minutes. JOKR’s motto is “Groceries. In the moment.” and promises deliveries in 15 minutes. Gorillas promises to arrive with your order in only 10 minutes. And Getir—a Turkey-based service that has collected $1 billion in three funding rounds this year—eliminated itself from the race by promising to show up at people’s doors simply “in minutes.” “Kroger’s announcement of partnering with Instacart solves their need for last mile home delivery. HEB, the leading grocer in Texas has acquired Favor to serve their online purchase delivery needs,” said Naveen Jaggi, president of retail advisory services at JLL, a global real estate services firm. “This tells me that the other major anchors from Publix to Albertsons to Whole Foods will all have to match their competitors with similar, dedicated services offering. Add to the mix Gorillas, Fridge No More, and Jokr, who all want to locate in neighborhood centers to deliver in 15 minutes or less.” Regency’s Alan Roth, who’s spent 25 years in the business, allowed that the pandemic had an historic effect on grocery-anchored centers but noted that big changes were already under way prior to the onset of COVID-19. “We started seeing new tenants with dual approaches coming into our centers years ago,” Roth said. “Look, the one thing that’s been constant in this business is change.” SEPTEMBER/OCTOBER 2021

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9/30/21 10:01 AM

REGION REPORT: SOUTHWEST

REAL ESTATE

New residents will drive retail demand in Texas and beyond

In most markets in the Southwest, vacancy rates are falling and rents and prices are rising, says Marcus & Millichap research. By Al Urbanski AUSTIN Marcus & Millichap expects Austin to be one of the 10 least vacant major markets at the close of 2021, something that will support the fastest annual rent climb in the state capital since 2017. The reopening of attractions like Typhoon Texas has prompted greater demand for retail space, with foodservice tenants currently signing the most leases. Vacancies fell by 20 basis points during the first two quarters to 4.6% and asking rents or $22.41 were a tad above the same time last year. Multi-tenant properties have traded most frequently in Georgetown and in South and Far Northwest Austin. Rises in single-tenant transactions occurred in Central Austin, Bastrop County, and Round Rock. Austin’s Q3 2021 Key Numbers Vacancy rate: 4.6% Avg. cap rate: 5.8% Avg. single-tenant price per sq. ft.: $516 Avg. multi-tenant price per sq. ft.: $370 Avg. asking rent per sq. ft.: $22.41 DALLAS The vacancy rate here jumped by more than a full percentage point in the first six months of this year, but has since held steady in the upper 6% range. Single-tenant property sales raged during the pandemic, accounting for almost 90% of total retail

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absorption, which registered at 1.2 million sq. ft. Single-tenant asking rents rose above pre-pandemic prices in Q2. Strong population growth in Far North Dallas and North Central Dallas has fanned the flames of retail growth, and 400,000 sq. ft. of new GLA is expected to be added in the second half of 2021. Dallas’s Q3 2021 Key Numbers Vacancy rate: 6.8% Avg. cap rate: 5.9% Avg. single-tenant price per sq. ft.: $540 Avg. multi-tenant price per sq. ft.: $299 Avg. asking rent per sq. ft.: $17.10 HOUSTON Rising gas prices have fueled employment and population growth and Houston expects a household expansion of 5.5% over the next five years. While retail property sales dipped by 6% in the midst of the pandemic last year, they increased by 7% at year’s end. Space may be hard to find for retail chains wanting to expand here, as new projects larger than 100,000 sq. ft. are 75% to 100% pre-leased. These include the open-air Houston Farmer’s Market north of the city center and Regal Cinemas and Life Time Fitness near the Woodlands. Houston’s Q3 2021 Key Numbers Vacancy rate: 6.6% Avg. cap rate: 7.5% Avg. single-tenant price per sq. ft.: $322 Avg. multi-tenant price per sq. ft.: $288 Avg. asking rent per sq. ft.: $18.10 PHOENIX Retail completion will fall below 1 million sq. ft. this year, the first time since 2018, and new construction needs to pick up in a metro that has been pegged as one of the top 10 U.S. cities for population growth through 2025. Retailers should look to expand in the East Valley and Pinal County

Phoenix

submarkets where residential sprawl is in play. Losing residents are North Phoenix and North Scottsdale, where retail space availability has increased by nearly 500 basis points. Phoenix’s Q3 2021 Key Numbers Vacancy rate: 8.7% Avg. cap rate: 5.9% Avg. single-tenant price per sq. ft.: $440 Avg. multi-tenant price per sq. ft.: $260 Avg. asking rent per sq. ft.: $16.46 SAN ANTONIO Availability of retail space was up year over year in half of this metro’s 12 submarkets in Q2, and eight of them posted drops in rent. Retail space absorption in South San Antonio during the January through June 2021 period equaled almost 150,000 sq. ft., the highest six-month log since the first half of 2016. As a result, the vacancy rate plunged by 90 basis points over the first two quarters. Employment will be fueled by expanding companies that include Amazon and Navistar, a good indication of future growth in retail demand. San Antonio’s Q3 2021 Key Numbers Vacancy rate: 5.8% Avg. cap rate: 5.9% Avg. single-tenant price per sq. ft.: $459 Avg. multi-tenant price per sq. ft.: $270 Avg. asking rent per sq. ft.: $16.60

SEPTEMBER/OCTOBER 2021

9/30/21 10:02 AM

TECH VIEWPOINT

Every Tuesday

Retailers Extend Their Presence With Ghost Kitchens

The premier newsletter showcasing technology and multi-channel, seamless retailing.

Ghost kitchens are appearing more and more — and making believers out of the retailers who open them. A ghost kitchen is the food service equivalent of a dark store — a location that prepares food for delivery, without providing dine-in service. Although the concept has been around for several years, ghost kitchens have been gaining momentum throughout the pandemic, as more consumers are turning to online delivery of prepared meals to eat at home. Ghost kitchens can offer retailers some important benefits. Here are three of the most important ones.

From e-commerce and mobility to in-store technology and social media, Connected Retail keeps retail executives in the know about the fast-paced, ever-evolving world of retail tech.

Expand the brand For quick-service retailers, ghost kitchens offer a way to extend brand presence (and sales) without having to build, rent, maintain or staff a fullfledged store. Fast-food hamburger chain Wendy’s is partnering with Reef — the largest operator of delivery kitchens in North America — to open and operate 700 delivery kitchens during the next five years across the U.S., Canada, and the U.K. The rollout follows Wendy’s successful test of eight delivery kitchens in Canada in late 2020. Nathan’s Famous, the iconic hot dog restaurant chain, is taking a slightly different approach to growing its brand via ghost kitchens. The company is partnering with Ghost Kitchens Brands to open 100 non-traditional locations across the U.S. and Canada by the end of 2021, with the majority of kitchens inside Walmart stores (more on Walmart’s ghost kitchen plans below). Some locations will go beyond the strict definition of ghost kitchens by providing seating. All of the sites will offer take out and third-party delivery.

Expand the assortment Retailers operating outside of the foodservice vertical are also investigating the possibilities offered by ghost kitchens. Grocery giant The Kroger Co. is partnering with ghost kitchen startup Kitchen United to provide customers freshly prepared restaurant food for takeout or delivery in select stores. An off-premise kitchen (powered by Kitchen

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United) at participating Kroger stores will feature up to six local, regional or national restaurant brands. Customers can place an order for pickup or delivery using the Kitchen United website or app. They can also order in-store at Kroger, using a dedicated kiosk. Restaurant staff will prepare the orders and delivery service fees will be determined by third-party providers. This is not Kroger’s first agreement with a ghost kitchen company. In 2019, the retailer partnered with ClusterTruck, a software platform that powers delivery-only kitchens, to deliver fresh meals on-demand with no service or delivery fees at two Midwest stores. And Walmart is pursuing a larger ghost kitchen strategy with Ghost Kitchen Brands that goes beyond in-store Nathan’s Famous locations. Following a successful launch in Walmart Canada, the discount giant will partner with Ghost Kitchen Brands to open ghost kitchens in additional locations in U.S. Walmart stores during the coming months and into 2022. Walmart’s ghost kitchens will offer meal pickup or delivery available from up to 25 brands. The first ghost kitchen located inside a U.S. store is open in Rochester, N.Y., while the Canadian rollout includes a store in St. Catherine’s, Ontario. Expand the test markets On-demand delivery platform DoorDash is taking the ghost kitchen concept up a notch with the new DoorDash Kitchens Full Service offering, which provides fast-food retailers with a hosted storefront. Through the service, DoorDash takes on many of the tasks associated with opening and operating a storefront such as hiring, meal prep, procuring equipment, and sourcing ingredients. According to the company, DoorDash Kitchens Full Service is designed for small fast-food and quick-service retailers that want to expand in or test new markets without having to invest in the usual overhead that would be required. Facilities provide delivery and pickup services for multiple restaurants. DoorDash manages the day-to-day operations of the facility, with restaurant partners receiving a portion of the revenue in return. Where it makes sense, some partners may choose to sell their products wholesale to DoorDash, which also provides a traditional ghost kitchen offering.

Dan Berthiaume dberthiaume@chainstoreage.com SEPTEMBER/OCTOBER 2021

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7/14/21 4:03 PM

9/30/21 10:02 AM

TECH

Artificial Intelligence Spotlight Retailers smarten up across the enterprise By Dan Berthiaume Retailers are leveraging artificial intelligence technology to drive innovation online, in-store and in the distribution center. AI solutions are popping up at every point in the retail enterprise to automate and streamline a wide variety of front- and back-end workflows. Here is a closer look at three recent significant retail AI deployments. J.C. Penney transforms e-commerce The J.C. Penney Co. is deploying smart predictive technology to better understand what asists shoppers in making purchase decisions. The department store retailer is leveraging AI technology from Metrical in an effort to drive e-commerce transformation and improve its online customer experience. Since deploying the Metrical predictive AI platform, Penney has experienced a 40% increase in new cart creation, an 18% reduction in cart abandonment and a 10% improvement in revenue on targeted visits. Feeding billions of data points into a series of unique behavioral models, J.C. Penney utilizes the Metrical solution to determine and create targeted value-adds for e-commerce customers, such as special opportunities, substitute products or additional services, depending on individual consumer preference. An industry first for Schnuck Markets Regional Midwest grocer Schnuck Markets has committed to a multi-year, full-scale roll-out that will bring Simbe Robotics’ autonomous shelf-scanning “Tally” robots to all 111 Schnucks locations in the United States. The deployment, which builds on previous expansions, will make Schnucks the first grocer in the world to utilize AI-powered inventory management technology at scale. Schnucks first piloted Tally in July 2017, expanding it to additional stores in 2018 and 2020. The roving device traverses store aisles up to three times per day and autonomously captures on-shelf data including inventory position, price accuracy and promotional execution. By incorporating Simbe’s solution into chainwide operations, Schnucks said it will gain even greater visibility into store conditions, with deeper levels of business insights as the retailer prepares to adjust to the quickly evolving landscape of a post-pandemic world. “We are facing a ‘new normal’ in the grocery industry, and Tally has been instrumental to ensuring we continue to provide an exceptional store experience while rising to meet new operational challenges,” said Dave Steck, VP of IT infrastructure and application development, Schnuck Markets. “By deploying Tally to all stores, we are fully operationalizing these insights into our supply chain and expanding our ability to leverage real-time data to make revenueimpacting decisions. CHAINSTOREAGE.COM

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Schnuck Markets will bring Simbe Robotics “Tally” robots to all U.S. stores.

Walmart automates pallet management Walmart is applying AI to the palletizing of products in its regional distribution centers. Since 2017, the retail giant has worked with Symbotic to optimize an automated technology solution to sort, store, retrieve and pack freight onto pallets in its Brooksville, Fla., distribution center. Under Walmart’s existing system, product arrives at one of its RDCs and is either cross-docked or warehoused, while being moved or stored manually. When it’s time for the product to go to a store, a 53-foot trailer is manually packed for transit. After the truck arrives at a store, associates unload it manually and place the items in the appropriate places. Leveraging the Symbotic solution, a complex algorithm determines how to store cases like puzzle pieces using high-speed mobile robots that operate with a precision that speeds the intake process and increases the accuracy of freight being stored for future orders. By using dense modular storage, the solution also expands building capacity. In addition, by using palletizing robotics to organize and optimize freight, the Symbotic solution creates custom store- and aisleready pallets. Walmart expects to save time, limit out-of-stocks, and increase the speed of stocking and unloading. This solution follows tests of similar automated warehouse solutions at a Walmart consolidation center in Colton, Calif., and a perishable grocery distribution center in Shafter, Calif. Walmart plans to implement this technology in 25 of its 42 regional distribution centers.

SEPTEMBER/OCTOBER 2021

9/30/21 10:02 AM

TECH Q & A

Adapting To The Rise Of Connected Retail

Chain Store Age recently interviewed Keith Carpentier, managing partner, Qbuster, about how a new, more connected omnichannel retail model is emerging in the wake of COVID-19. Qbuster solutions include an interactive call-forwarding solution designed to speed the throughput of customers waiting in lines at brick-and-mortar stores, as well as the Qsafely virtual queue app and Aisle Buyer, a new way to empower customers to shop the aisles with their mobile device and receive text-based updates of their order status. By Dan Berthiaume

What single word would use to sum up the challenges facing retail? If I had to choose one word, it would be friction. There are several major challenges facing retailers today, including labor shortages, rising operating costs and a sharp escalation in organized retail crime. Addressing these challenges while driving sales feels like an impossible task. Unfortunately, the most common response at retail has been to lock up more and more products. The unintended consequence of this is friction. Having to walk around and find staff to get help is friction. Having to wait while they get a key to open a display case is friction. Having to rip off a product tear sheet only to find the product is out of stock after waiting in line is friction. Having to be escorted to checkout (and ending the shopping journey) after an associate gets the locked product is friction. Anything that comes between the customer and the seamless purchase of goods and services is friction. I will concede that some of the big e-commerce players have done a brilliant job of removing friction and there are several structural advantages that they enjoy. Brick-and-mortar retail needs to adapt some of these winning strategies and combine them with their strengths. What competitive advantages do you think brick-and-mortar retail has over pure e-commerce? Brick-and-mortar retail is experiential and can engage all the senses. E-commerce is limited predominantly to one sense, the sight of a small jpeg. Physical retail also has an advantage when it comes to high cube, high value and complex product. These product classes are difficult to display and expensive to fulfill.

Shipping cost and product theft also make them difficult for pure ecommerce. Complex product similarly poses a unique challenge. Customers love choices, but too many (especially of a new / complicated product) may lead to purchase paralysis. Having samples, trained staff or other communication tools will help brick-and-mortar retailers convert sales. What are some of the hottest current omnichannel retail trends? It has been said that COVID-19 forced 10 years of retail evolution into 10 months, and many of these changes have now been adopted as standard operating practice. With the rise of connected retail, customers can engage products in the store aisle, from their home or just about anywhere on their mobile device. Customers still like the social, experiential and immediate fulfillment benefits of shopping or picking up in-store. Connected, or omnichannel, retail is bringing brick-andmortar and e-commerce together. It is no longer a binary equation, either in store or on line. Customers can now have the best of both worlds. The trend in connected retail envisions the store functioning as a fulfillment center as well as a showroom, experience hub and service center. This is impacting all areas of the store, including operations, store design, merchandising and loss prevention. The fulfillment process is also evolving, as high-frequency products are relocated to front-end lockups to reduce theft and pick time. How has Qbuster helped retailers adapt their stores to emerging trends since the advent of the COVID-19 pandemic?

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Space planning and store layouts were not designed for pandemics or social distancing. COVID-19 completely upended the standard models that retailers have relied upon for decades. Stores had to track, control and manage the number of customers in store, increase the space allocated to customers and fixtures, and manage staffing / labor challenges as never before experienced. Qbuster leveraged its expertise in queue management and digital merchandising to help dozens of retailers onboard new technology solutions like Qsafely, Aisle Buyer, and Customer Call Forward. Each of them helped keep customers and staff safe, improved retail efficiencies and drove profits. Our Stanchions.com division was also at the forefront of pandemic response by providing customer guidance stanchions to hundreds of retailers as they struggled to manage customer flow. What developments have had a significant impact on Qbuster? The most obvious answer is COVID-19. The resulting rapid adoption of digital technologies and the need for social distancing drove demand to both Qbuster and our Stanchions. com division. Another recent major development has been the move to our new facility. Previously, our Qbuster and Stanchions. com divisions were in different locations. The move was scheduled for early 2020, and when COVID hit, it sat largely empty, as we pivoted to remote work. Now, however, we are back in the office, and we have a beautiful, purpose-built facility that brings everything together under one roof and gives us room for continued growth. SEPTEMBER/OCTOBER 2021

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