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November/December 2018

ICSC Show Preview Shifts in Consumer Behavior Ahold Talks Tech

2019 LOOK AHEAD TO

Issues, trends and insights for the coming year


06

26

from the editor’s desk

On the level: a real estate column

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54

shop talk

TechBytes

Contents VOL. 94 NOVEMBER/DECEMBER 2018 NO. 6

CHAIN STORE AGE

C H A N N E L S > Cchainstoreage.com OMMERCE > CUSTOMERS

NEW YORK

COVER STORY

SHOW SCOOP

10

THE YEAR AHEAD A special section on what retailers can expect in 2019, with the outlook for brick-and-mortar stores, technology, the economy and real estate.

+ Yaromir Steiner

on the shrinking middle class

+ Deborah Butler on localization

+ Adam Ifshin on

secondary markets

+ Joe Coradino

on tenant curation

STEVEN GRIMES ON RPAI 2.0

+ Jeff Edison on

neighborhood centers

+ Stephen Lebovitz

on redevelopment

+ Diane Cullinan Oberhelman on mixed-use

+ Brandon Famous on

international expansion

ALSO • Top Developers by Aisle • Booth Highlights • Hot Market: Boston

23 10

12

New York Show Scoop Global retailers descend on Javits Center in New York for the ICSC’s all-important end-of-year show. We present booth highlights and a lineup of retail real estate CEOs on trending topics such as: • Localization • The Shrinking Middle Class • Redevelopment • The New Tenant Mix • International Expansion

FEATURES

20

Responding to shifts in consumer behavior is critical to retailers’ holiday — and year-round — success

45

Hot Markets: Boston Retail space in this New England hotspot grows greater and scarcer at the same time.

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 nonqualified $119 per year. $129 per year for Canadian subscribers; $225 per year for foreign subscribers, air-mail only. Single-copy price: $18. Periodicals postage paid at Chicago, IL and additional mailing offices. POSTMASTER: Please send address changes to CSA, Circulation Fulfillment Director, P.O. Box 3200, Northbrook, IL 60065-3200. Subscription changes may also be emailed to chainstoreage@omeda.com, or call 847-564-1468. CANADA POST: Publications Mail Agreement # 40612608. Canada returns to be sent to Bleuchip International, P.O. Box 25542, London, ON N6C 6B2. Vol. 94, No. 6, November/December 2018. Copyright ©2018 by EnsembleIQ. All rights reserved.

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Contents VOL. 94 NOVEMBER/DECEMBER 2018 NO. 6

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STORE SPACES

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Chain Store Age’s annual X/SPECS conference puts the spotlight on store design, construction and facilities management.

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Vendor Q&A: Christina Cummins, co-owner and managing partner of CD Maintenance Company, makes the case for a proactive maintenance strategy.

One Kings Lane takes online brand offline with first-ever flagship.

04

Technology drives customer engagement across Ahold Delhaize’s U.S. operations

Vendor Q&A Oracle NetSuite’s Matt Rhodus discusses how unified commerce delivers consistent cross-channel shopping experiences and fulfillment options.

Fast-growing, digitally-native start-up Olivela puts unique spin on retail philanthropy.

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CHAIN STORE AGE

FROM THE EDITOR’S DESK

Best Bets New York City has always been a hotbed of new retail concepts and attentiongetting stores and the past year was no exception, with openings from upstarts as well as legacy retailers. Here are some of the ones that generated the most buzz: • Amazon 4-star: The online giant’s newest physical format is like a modernday five-and-dime — but one with an extremely curated assortment. Amazon 4-star only sells items that are rated four stars or above — or are new and trending — on Amazon.com. Digital tags alongside every item show the Prime price and list price, average star rating, and the number of reviews it has received. (72 Spring Street) • Bulletin: Dedicated to helping women-owned businesses, Bulletin has evolved from a shoppable digital magazine to an omnichannel retailer with three New York City outposts and a thriving e-commerce site. The new Union Square flagship offers products from more than 60 female-led, online-only brands amid a sleek background with a feminist beat. Bulletin is emblematic of a new breed of retail. It operates with a membershipbased business model whereby each brand pays a monthly fee to rent out space to sell product. (863 Broadway) • Glossier: The upstart online beauty brand born from a blog puts its signature spin on beauty retailing with its first flagship. Awash in pale pink and red hues, Glossier is designed as a physical expression of the fast-growing brand. Customers are encouraged to try on product, engage with Glossier’s “off-line editors” (store associates), create social content, bond with fellow shoppers, and partake in any number of interactive experiences. (123 Lafayette St.) • MedMen: Cannabis goes upscale with the stylish-looking MedMen. The 2,000-sq.-ft. medical marijuana dispen06

sary has high-end design that recalls an Apple Store, complete with red-clad “geniuses” and iPads. The store reflects the upscale revolution in cannabis retailing happening across the U.S. and Canada. (433 Fifth Ave.) • Nordstrom Men’s: Nordstrom’s first freestanding men’s store combines a comprehensive merchandise assortment and custom products with a wide range of services, including include three-hour delivery anywhere in Manhattan, reserve online and try-on in-store, a shoeshine station, a tailoring department and complimentary personal stylists. Customers can get help any time of the day or night via the store’s “24/7 express” service. (235 W. 57th St.) • Princi: Starbucks makes its biggest dive yet into food with its new Italian bakery and café concept, Princi. Minutes away from Times Square, the beautifully detailed space was inspired by Princi’s original Milan location. Two large ovens, visible to passers-by, allow for on-site baking. (1633 Broadway) • RH: The upscale continues to redefine the world of luxury home furnishings with its newest location, a 90,000-sq.-ft., six-level showplace in the Meatpacking District. RH’s mastery in integrating hospitality into its retail strategy is on full display with a glass-encased rooftop restaurant and wine terrace complete with views of downtown Manhattan and the Hudson River. The strategy goes to full bloom this spring with the opening of RH’s first GuestHouse boutique hotel across the street. (9 Ninth Ave.) • Saks Fifth Avenue: Departing from department store tradition, Saks moved beauty from the ground floor of its flagship to a sleek, light-filled 32,000-sq.-ft. space on the second floor. The revamped department is a store in and of itself, boasting more than 120 color cosmetics, skincare, fragrance and wellness brands. Saks’ new beauty nirvana is about more than product. The space includes 15 spa rooms along with such services as medi-spa treatments, facials, massages, manicures, brow services, a flower shop and more. (611 Fifth Ave.)

Marianne Wilson mwilson@chainstoreage.com

CHANNELS chainstoreage.com > COMMERCE > CUSTOMERS

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Publishers of Chain Store Age, Hardware + Building Supply Dealer and Drug Store News. Subscriptions/Customer Service: For subscription problems, call (847) 564-1468, email chainstoreage@omeda.com or mail us full details, including the mailing label from the last copy you received, along with your telephone number. Write to CSA, Subscription Department, P.O. Box 3200, Northbrook, IL 60076-3200. Address changes can be made online at chainstoreage.com/subscribe. Single-copy price: $18. Circulation List Manager: Nancy Speilmann, Statlistics (203) 456-3338. Reprints: To order reprints call PARS International at (212) 221-9595, ext. 435, or e-mail LF-Reprints@parsintl.com. Minimum: 100 copies. Permissions: Materials in this publication may not be reproduced in any form without written permission. Direct permission requests to Gary Esposito, Publisher, Chain Store Age, 11-43 Raymond Plaza West, 16th Floor, Newark, NJ 07102. Contact Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 646-2600 or (855) 239-3415, or on the Web at copyright.com for immediate authorization to photocopy from Chain Store Age (ISSN 0193-1199). Editorial Calendars: chainstoreage.com. Back issues: (813) 627-6707. News Tips: Call Marianne Wilson at (212) 756-5261 or e-mail: mwilson@ chainstoreage.com. Letters to the Editor: Must include name, address and daytime phone number for confirmation. We reserve the right to edit correspondence for clarity and space. Send via e-mail: mwilson@chainstoreage.com or via mail: Marianne Wilson, Editor, Chain Store Age, 11-43 Raymond Plaza West, 16th Floor, Newark, NJ 07102

Corporate Officers Executive Chairmain Alan Glass Chief Executive Officer David Shanker Chief Operating Officer & Chief Financial Officer Rich Rivera President, Path to Purchase Institute Terese Herbig Chief Digital Officer Joel Hughes Chief Innovation Officer, Innovation Tanner Van Dusen Executive Vice President, Events & Conference Ed Several

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The Year Ahead

COVER STORY: THE YEAR AHEAD

The coming year promises more disruption and change as retailing continues to adjust to the challenges and opportunities of the digital landscape. In this special section, a look at what 2018 holds in store for brick-and-mortar stores, retail technology, the economy and real estate.

Experience Matters Physical stores are evolving, not dying By Mark Hamstra Analysts have a mostly positive outlook for brick-and-mortar retailing in 2019, although some expect downsizing to continue, along with the ongoing evolution of the physical store experience. Retailers are adjusting to technology’s increasingly important role in the shopping journey by capitalizing on the advantages that the physical store has to offer and focusing on creating seamless online and offline experiences. “I think stores are going to continue to be incredibly relevant for retailers, even though sometimes it looks as if momentum has completely shifted to digital,” said Vish Ganapathy, managing director of retail at Accenture. Retailers need to evolve their mind-set so that they no longer consider physical stores and various digital shopping options as separate channels, but instead think of them as consumer touchpoints, he added, “The customer is really the only channel,” explained Ganapathy. “If you think of it that way, and more importantly, organize your business that way, where the store is part of the brand experience, it doesn’t matter whether the customer buys it in the store or online. The objective is to support the customers’ deconstructed discovery and buying journey.” 010

Naveen Jaggi, president of retail advisory services at JLL, cited retailers such as Best Buy, The Home Depot and Target that are succeeding in the brick-andmortar space by focusing on the consumer and providing the kinds of in-store experiences their customers are seeking. “Customers still need engagement with retailers,” he said. “Retailers offer customers an opportunity to be not just entertained, but to be informed on the purchase that they’re making.” Jaggi estimated that this year’s fourthquarter retail sales will outperform the 5.5% gains of the fourth quarter of 2017, and projected an increase of 5%-plus for 2019. More downsizing: A significant question looming over brick-and-mortar retail in 2019 is the issue of store closures. Retailers announced more than 3,800 store closures during the first half of 2018, according to BDO’s “Retail in the Red” report. That represents a slowdown in closures compared with 2017, but is still a “heavy dose,” the report noted. Natalie Kotlyar, a partner and retail and consumer products practice leader at BDO, said fleet optimization “is still a big concern for many retailers.” “There’s absolutely a need for brick and mortar in the retail space today,” she said. “The question really is: How many

stores is the right number of stores for a particular retailer?” Michael Brown, a partner in the retail practice of A.T. Kearney, said significant opportunities for additional reductions in square footage remain — both through store closures and the downsizing of existing locations. “There are many legacy retailers that need to reduce their store footprint upwards of 50 percent to be able to do business they way need to do it in the future,” he said. “Best-in-class retailers are really going to be creating experiential, engaging stores that enable the consumers to visit, have a positive experience that transcends that single visit in the store and continues down their journey online and in the store in the future.” He said retailers need to look at optimizing the total cost of serving each particular market through a combination of brick-and-mortar stores, clickand-collect offerings and delivery, and tailor their presence accordingly. In-Store Investments: As part of an overall effort to improve the in-store experience and capture more sales, retailers will step up efforts around having the right people, armed with the knowledge and tools they need, analysts said. For that reason, Tim Lefkowicz, managing director of consulting firm AArete, said he expects more store-level workers to carry mobile devices that enable them to help customers take advantage of special offers and deals, for example, or help them find alternative NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


CAFES, TREASURE HUNTS AND POP-UPS

Analysts are forecasting several merchandising trends for brick-and-mortar retailing in 2019 as retailers seek to amp up the in-store experience for their customers.

TREASURE HUNTS

The new RH flagship in Manhattan offers an immersive destination, complete with a rooftop restaurant and wine terrace.

solutions when items are unavailable in the store. “The likelihood of shoppers actually buying what they came for, before leaving the store, is going to be increased if retailers have the ability to deliver it to your home if it’s out of stock,” he said, citing AArete research showing that 70% of shoppers leave a store without buying the items they came for. Such technology could also help employees offer other solutions for out-of-stocks, such as awarding a discount to purchase an item at a later date, for example, or helping shoppers select a substitute item. Ganapathy said opportunities also exist for retailers to use data-driven technology to optimize store-level staffing, not only with the right number of workers at the right time, but to have the best-performing workers on the floor at the times when that is most needed. “There is quite a bit of correlation between customer behavior in the store and employee behavior and performance,” he added. Jaggi of JLL said he also expects a wave of investment in store-modernization efforts in the coming years as retailers seek to freshen up their

appearance to help optimize the guest experience. In addition, in-store technologies such as mirrors that allow shoppers to try on clothes or sample makeup virtually will help create a more engaging brick-and-mortar experience, particularly for younger consumers, said Kotlyar of BDO. Creating more unified and personalized experiences across channels will also be increasingly important for retailers, she said. In brick-andmortar stores, this could include leveraging data to suggest items or offer rewards at the checkout based on past purchase history, for example. Beyond technology, retailers also need to consider the convenience of the store layout for the local customer base — providing aisles that are wide enough for strollers in stores that offer infant clothing, for example, said Kotlyar. “The customer is looking for convenience, pricing and selection, and if you can offer those three things, then you are a winner,” she said. “Whether you do that through technology, customer service, or personalization through loyalty programs, that is really the key to success for retailers today.”

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Tim Lefkowicz, managing director at consulting firm AArete, said he expects retailers to increasingly seek to leverage the concept of in-store treasure hunting, although it may take years for retailers to implement this concept to its full potential, he noted. “One of the joys of consumer behavior is finding something unexpected when they are shopping,” Lefkowicz said. “That happens much more viscerally and is reported with higher levels of satisfaction when it happens in a brick and mortar environment than online.”

CURATED SETS

He also expects to see more emphasis on curated sets in retail merchandising, so that shoppers can quickly find related items that might accompany their main purchase.

IN-STORE FOODSERVICE

In-store cafes and restaurants are also likely to continue to gain traction in the year ahead, said Lefkowicz, citing the success of such efforts at Restoration Hardware and others. “I think that’s a model that we’re going to see a lot more of,” he said.

POP-UP STORES

Several analysts said they expect to see temporary pop-up retail venues continue to, well ... pop up in 2019. Pop-up stores and short-term leases provide a vehicle for retailers to test a particular mall or geographic area, said Natalie Kotlyar, a partner and retail and consumer products practice leader at BDO. In addition, pop-up venues allow retailers to generate excitement and attract customers, while testing concepts that could eventually be incorporated into brick-and-mortar locations, she said. Competitive pop-up stores can also pose a threat to existing brick-and-mortar retailers, noted Lefkowicz of AArete. “It’s easier now, more than ever, for anyone to set up their own store,” he said. “It’s going to pull [shopping] minutes away from traditional brick and mortar, and I think that’s a trend that is going to catch most brick and mortar retailers off guard.”

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COVER STORY: THE YEAR AHEAD

Emerging Technologies New technologies will continue to transform the in-store experience By Deena M Amato-McCoy Emerging technologies will continue to disrupt and transform retail operations in 2019 — especially when it comes to merging online and offline experiences. A majority (66%) of retail leaders believe that the new ways consumers shop require new investments in IT, according to “IT Spending in Retail 2018,” from RSR. As a result, they are adopting technologies that will streamline operations both online and in physical stores, as well as bridge the gap between online and offline experiences. “There is a need for speed, overall,” said Paula Rosenblum, managing partner, Retail Systems Research (RSR). “Retail time is no longer fast enough. We have to move at the speed of consumers, which has grown really fast and fickle.” As a result, retailers are opting for solutions that can improve operational efficiencies, better understand their customers’ preferences, and optimize the brick-and-mortar experience. This includes offering more customer-facing digital solutions, as well as those that manage omnichannel experiences at store-level. For retailers unsure how to engage digitally savvy customers going forward, here’s a peek into some solutions that will reshape retail in 2019 and beyond: • Applied intelligence. Data analytics are no longer just used to find patterns or optimize pricing. To survive in this transforming phase of retail, brands need to differentiate themselves with seamless personalized experiences across channels, as well as with optimal assortments, top notch-customer engagement and brand experiences at store level — and predictive analytics, including artificial intelligence (AI)-based solutions can help. “We expect to see pioneers invest in AI to support humans in transforming how legacy retail processes are performed across marketing, merchandising, promotion, pricing, placement, and store operations,” said Vish Ganapathy, managing 012

Sephora’s Kik chatbot is becoming a personal in-store shopping assistant by offering product recommendations, reviews and ratings.

director and global retail technology lead at Accenture. For example, Canadian footwear and accessory retailer The Aldo Group operates two brands, Aldo and Call It Spring, and a multi-brand retail concept, Globo. By adding an analytics-based solution, Aldo is optimizing the fulfillment of online orders from all corporate stores across its global network. Since deploying the solution, Aldo now fulfills online orders from the most profitable location. This provides the company with the ability to intelligently avoid selling from locations that are more likely to sell out, while targeting stores more likely to experience a lower demand for a particular item, according to the company. The key to success however, requires companies to approach the process “beyond robotic process automation [RPA],” said Ganapathy, who added that companies that can blend AI with gut instinct will be able “to use AI as a vehicle to drive continuous top and bottom line financial improvement.”

• Cloud-based platforms. With consumers expecting more compelling, personalized experiences at store level, retailers constantly feel the pressure to innovate. As a result, more retailers are investing in cloud-based platforms to stay on their game. It is also a cost-effective way to bring customer-facing innovations to market faster, and promises more operational efficiencies, options that keep retailers focused on top-line growth. In fact, cloud application subscriptions are a top priority for 70% of retail leaders, according to RSR’s “IT Spending in Retail 2018” study. Kohl’s is an example of a company that uses cloud computing to modernize its technology, and better compete in a digital marketplace. The department store chain made a multi-year investment to fund the migration of its omnichannel systems and applications to the cloud, and deliver a seamless, best-in-class customer experience in-store and online. The technology investment will enable

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COVER STORY: THE YEAR AHEAD

the company to replace legacy systems with those in the cloud. These are more flexible systems designed to enhance operational efficiencies and reduce long-term costs. The migration includes solutions connected with e-commerce, mobile, and business operations. • Conversational commerce. AI’s ability to learn from data, identify pat-terns and make decisions with minimal human intervention makes it an increasingly attractive platform for retailers looking to embark on conversational commerce. For example, retailers are increasingly leveraging AI-powered chatbots, digital messages that prompt customers to respond to a series of questions related to their purchase history, and then offers merchandise suggestions. For example, Sephora uses a Kik chatbot, to offer a one-on-one mobile chat experience to offer ideas on new makeup looks and identify products in tutorials to offer customers a better shopping experience. In-store, the chatbot is becoming a personal shopping assistant by offering product recommendations, reviews and ratings. Another option is to add voice-activated

devices to the mix, a move that lets customers use smart devices to shop and place orders using only their voice. The voice segment will be driven by a surge in the number of homes using smart speakers, which is on pace to hit 55% in 2020, from 13% today, according to OC&C Strategy Consultants. Using Amazon’s Alexa voice-activated AI platform, 1-800-Flowers.com enables shoppers to place orders using Alexa via the Amazon Echo, Echo Dot and Tap smart home devices and Fire TV streaming media player. Once shoppers speak their orders, 1-800-Flowers.com processes the order and arranges delivery. “Voice commerce represents the next major disruption in the retail industry, and just as e-commerce and mobile commerce changed the retail landscape, shopping through smart speakers promises to do the same,” said John Franklin, associate partner, OC&C Strategy Consultants. “The speed with which consumers are adopting smart speakers will translate into a number of opportunities, and even more challenges for traditional retailers and consumer products companies.”

• Virtual reality (VR) and augmented reality (VR) applications. Consumers are growing increasingly partial to retailers that offer AR and VR, a move that is pushing more companies to adopt the technology as a way to improve their overall digital customer experience. AR and VR offer new and enhanced ways for customers to experience merchandise, like visualizing how a product would look in their home or even on their body. Both technologies offer interesting applications and opportunities, as well as the ability to mix virtual and real elements can be game changing — especially for furniture, home décor and apparel retailers. As more companies recognize the potential of both applications, more retailers are introducing AR apps, and testing and deployment VR apps. Currently, 45% of retailers are either piloting the technologies in small areas of their business or have an upcoming pilot planned. Meanwhile, 56% of retail leaders believe that AR and VR are valuable in facilitating their company’s innovation plans, according to “Ramping Up Retail Innovation,” a study from RSR.

MACY’S VR INITIATIVE

Macy’s is going all out for virtual reality with what it called the “largest VR rollout in retail history. The department store giant is deploying VR technology to boost customer confidence in furniture purchases and help shoppers make better buying decisions — while allowing the retailer to offer a full range of furniture in a dramatically smaller space. Using the VR technology, Macy’s customers can take a 2D floorplan and transition it to 3D in real time. “Customers design their living space and, using a VR headset, immerse themselves in the virtual rooms they create,” stated Macy’s president Hal Lawton. “VR is a practical application proven to drive sales and a terrific example of combining technology and the human touch.” Macy’s tested the technology in three pilot stores, and found that VR-influenced furniture sales increased by more than 60% versus non-VR furniture sales and decreased returns to less than 2%. The retailer is partnering with Marxent on the initiative, and the technology is now in place in some 70 Macy’s stores nationwide, with another 20 locations due to come on board by January.

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Macy’s is expanding its VR furniture-shopping experience to more store locations.

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COVER STORY: THE YEAR AHEAD

Economic Forecast

The outlook is robust, but growth may be nearing the top of the roller coaster By Phillip M. Perry Retailers will enjoy brisk economic tail winds in 2019. A strong labor market should continue to inspire liberal spending, while a robust business climate fuels higher corporate profits. At the same time, economists are starting to see early signs of an inevitable correction. “The coming 12 months should be a good year for retailers,” said Scott Hoyt, senior director of consumer economics for Moody’s Analytics. “Core retail sales (which exclude the volatile auto and gasoline segments) are expected to grow a healthy 4.7 % in 2019.” Happy shoppers are driving the favorable retailing environment. “Consumers seem to be euphoric right now,” added Hoyt. “The fiscal stimulus in the form of tax cuts, as well as the tight job market, mean there are very few negatives when it comes to consumer fundamentals.” That tight labor market should constrict still further in the months ahead. Moody’s expects unemployment to drop to 3.4% by the end of 2019, down from the 3.7% recorded at the end of 2018. And it seems the tightening labor market is finally affecting wages, so shoppers have more cash to spend. Average hourly earnings are expected to grow by 3.2% in 2019, up from the 2.8% of 2018 and the 2.6% of the previous year. Wealthier consumers will support higher price tags in the months ahead, according to Hoyt. The need to increase revenues largely by boosting prices rather than moving more merchandise accelerates a retail trend that began in 2018. The robust consumer sentiment reflects the energies of a larger economy that is still growing. “The business cycle has entered its boom phase,” said Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics. The gross national national product (GNP), the most commonly accepted measure of economic growth, is expected to grow at a 2.7% clip in 2019. DECELERATION: Despite the generally sunny outlook, the GNP forecast represents a modest deceleration from the 3.0% growth 016

“The business cycle has entered its boom phase,” said Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics. The gross national national product (GNP), the most commonly accepted measure of economic growth, is expected to grow at a 2.7% clip in 2019.

anticipated when numbers are finally tallied for 2018. And the 2019 retail sales growth estimate is also a deceleration from the 5.0% surge of the previous year. “There are several reasons for slower growth in 2019,” said Hoyt. “The largest is that deficit-financed tax cuts at the start of 2018 lifted growth. No such support, in terms of an additional increase in after-tax income, is expected in 2019. Job growth will also be slower because of there being fewer available workers.” Finally, Hoyt added, interest rates will likely be higher, a factor that can have a softening effect. And to look a bit further down the track, there are signs that the fast-moving economic carriage may be nearing the top of the roller coaster. “The nation is experiencing robust economic growth, tightening labor and product markets, intensifying wage and price pressures, monetary tightening, and higher interest rates,” explained Koropeckyj. “These characterize a business cycle nearing its end, just prior to a recession.” Mention of the R-word will ring a bell for the many people who fear the decade-long bull market is getting a bit long in the tooth. Just when is that recession expected to hit? “We prefer not to forecast recessions,

which are often caused by shocks that cannot be predicted,” said Koropeckyj. “However, our forecast for 2020 includes a set of conditions that are consistent with a recession. While we do not expect the textbook definition — two quarters of GDP decline — to occur, real GDP growth is expected to slow to a crawl.” Other relevant predictions include a toorapid increase in unemployment, the cessation of job growth, flat industrial production. To help bring into sharper focus the changing operating environment — Hoyt suggested watching a number of important indicators in the early months of 2019. “I would keep a close eye on the political environment,” he said “What is going on with tariffs, and is there a risk of a trade war?” The labor market also looms large, added Hoyt. “How much are wages accelerating, and is the increase fast enough to offset any deceleration of employment growth?” Beyond that, monitor the interest rate hikes from the Federal Reserve. “At some point those will start to bite and put a damper on growth,” said Hoyt. “That will probably be an issue for later in 2019, but the faster rates go up the sooner the economy might be affected.” Phillip M. Perry is a New York-based business writer.

NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


MARCH 3-5, 2019 GAYLORD TEXAN, DALLAS,TEXAS Exclusively produced by:

chainstoreage.com

THE FOREFRONT OF PHYSICAL RETAIL

TWO BIG NAMES AT ONE BIG SPECS SHOW ROBERT HERJAVEC:

KAT COLE:

CEO & Founder of Herjavec Group, global cybersecurity firm, author, investor and TV celebrity

COO and President of FOCUS Brands, North America

KEYNOTE | Mon. @ 8:00am

KEYNOTE | Tue. @ 8:30am

A leading Shark on ABC’s Emmy-winning show Shark Tank, Robert Herjavec is more than a TV personality. As the SPECS 2019 headlining keynoter, the entrepreneurial icon underscores his commitment to physical retail as part of a motivational presentation designed to encourage the SPECS audience to take chances, take control of their futures, and stay true to their vision. “The world owes you only one thing: opportunity.” —Robert Herjavec

As the current president of Cinnabon’s parent group, FOCUS Brands, Cole drives a multinational food conglomerate while pushing employees, entrepreneurs, and businesses to see the positive and the possible. This Hooters-hostess-turnedsuccessful-executive knows that innovation and success happen when you are immersed in the action. Cole will share her most significant stories and lessons about leadership and innovation — with tips and tools that can be put into immediate action.

L E A R N M O R E A N D R E G I S T E R N OW AT W W W. S P E C S S H OW. C O M


COVER STORY: THE YEAR AHEAD

Real Estate Outlook

Will 2019 be the year the shopping center becomes the ‘consumer engagement space?’ By Al Urbanski “People used to go to our centers to shop; now they go there to do,” said Kathleen Cullinan Brill of Cullinan Properties in a discussion we had with her earlier this year. One couldn’t more succinctly sum up the transition underway in retail real estate from bazaars to experiential be-ins. A report from the Urban Land Institute and PricewaterhouseCoopers noted that consumer spending on services (not counting necessities like transportation and utilities) amounted to $4.6 trillion in the first half of 2018 compared to $2.8 trillion spent on durable and nondurable goods. “The trend in retail leasing to urgent-care medical facilities, health and fitness providers, restaurants, financial services, and entertainment venues matches the way consumers are spending their dollars,” the report stated. This “new equilibrium” of retail, the report says, will feature more but smaller stores as millions of sq. ft. of retail departs from the landscape. “There are lots of poor-quality centers and retail districts,” one developer told the report’s authors, “that have no reason to exist other than tenant demand at

the time they were built.” Major media outlets blare the details of bankruptcies and closings by retail icons like Sears and Toys R Us, ignoring the fact that more stores opened than closed last year. That trend is likely to continue as value retailers like Ross Stores and grocers like Aldi continue expanding into open-air centers and even malls. Lifetime Fitness, Home Sense, and Whole Foods are among the big names taking advantage of empty Macy’s space. AMC Theatres, Dick’s Sporting Goods, and Burlington have shown an eagerness to move into empty Sears stores, and Marshalls, H&M, and Hobby Lobby have been filling space vacated by JC Penney. At the same time that big box stores reduce their footprints, pure-play online sellers are building presences in physical shopping centers. A report from JLL said that more than 800 new stores would be opened by e-coms such as Casper, Untuckit, and Adore Me over the next five years. Increasing online businesses by the big boxes could further shrink their footprints as they re-calibrate for an omnichannel world.

BIGGEST DROPS IN RETAIL AREA BY MARKET: 2007-2018 Denver Jacksonville Las Vegas Fort Lauderdale Northern Virginia Orlando West Palm Beach Phoenix Atlanta Charleston Austin Tampa/St. Petersburg Raleigh/Durham Oklahoma City Nashville Suburban Maryland Fort Worth Dallas Charlotte Houston U.S. metro total 0.0

0.5

1.0

Source: REIS Inc., Neighborhood & Community Center Inventory.

018

1.5

2.0

Per-capita decrease in square feet

2.5

3.0

Experiential retailing promises to be a catch-phrase in the industry for years to come. Indeed, a report called “The Future of Shopping Centers” from A.T. Kearney suggested retiring the terms “mall” and “shopping center” and replacing them with “consumer engagement spaces,” or CES’s. Kearney posed that the future of retail real estate would become customer-centric, winning visitors by transitioning from old-school “push” marketing on the part of product manufacturers and retailers into “pull” techniques centered around dining, entertainment, and activities. The primary focus of the CES, said A.T. Kearney, would be consumer engagement instead of selling things, with traditional anchor tenants replaced by residential space, updated retail, and entertainment. This is not a new idea. Decades ago, forward-thinking developers like Cullinan with Grand Prairie in Peoria and Stark Enterprises with Crocker Park outside Cleveland got the idea to combine residential units, office space, stores, dining, and entertainment in community environments. Mixed-use projects will continue to address urbanization trends in which single-family home starts are down and millennials prefer town home or apartment living. Big ones opening this year and next include New York’s Hudson Yards, New City DC in Washington, and Miami Worldcenter. But the vagaries of land acquisition and zoning make mixed-used projects complicated. In its second quarter report this year, JLL counted just 92 true mixed-use projects nationwide. Ultimately, retailers have a lot to be excited about in 2019: fast-growing markets in pockets of the country like North Dallas, Miami, Boston, and Seattle; landlords willing to offer attractive shorter-term leases, and a fastchanging consumer base upon which savvy players can capitalize to build new brands. “It is easy to get caught up in the ‘retail Armageddon’ story,” concluded the Urban Land Institute/PwC report, “[but] the retail market is proving to be extremely resilient and continues to transform to compete in an ever-changing market.”

NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


MARCH 3-5, 2019 GAYLORD TEXAN, DALLAS,TEXAS Exclusively produced by:

chainstoreage.com

THE FOREFRONT OF PHYSICAL RETAIL

FEATURED SESSIONS: Step Inside the L’Occitane Experience

Thriving in the Age of Distraction Curt Steinhorst, Focuswise

Take Charge, Fight Back! — Security Protection and Fraud Prevention Robert Siciliano, Safr.Me

Paul Blackburn, L’Occitane

Passing the Torch Stephanie Jhala, Leadership Coach

Building and Preparing for Threats and Disasters Kathleen Eaton, The Home Depot

SPECS has been a big part of my career, providing continuing education, networking opps, and introductions to new methods, products and partnerships.

—Lisa Smola-Hollo, Project Manager, Growth & Development, ULTA Beauty

L E A R N M O R E A N D R E G I S T E R N OW AT W W W. S P E C S S H OW. C O M


INSIGHTS

Holiday Priority — and Beyond Responding to shifts in consumer behavior

By Jill Standish U.S. shoppers are set to spend more during this year’s holiday season, new research reveals — but retailers should not expect to benefit equally, either during the season or in the longer term. Those that focus on “the customers that truly matter” in the forms of improved engagement and personalization are likely to win a greater share of the spoils. According to an Accenture survey of 1,500 consumers, the average American expects to spend $658 on holiday shopping this year — up from $632 last year, with nine in 10 expecting to spend as much or more as they did in 2017. And yet, while consumers are becoming more optimistic, their behaviors are changing. Retailers that do not respond will lose ground. Given our current transparent environment, it is no wonder that consumers are becoming more aware of retailer’s tactics as it relates to inclusion and diversity. Millennial shoppers, in particular, expect retailers to think more carefully about issues related to age, gender, ethnicity and disability. More than half the millennial shoppers in Accenture’s 12th annual Holiday Shopping Survey said they’re more likely to shop with retailers and brands that show awareness of such issues. What does this mean for retailers? First of all, they may want to rethink their marketing messaging, focusing on more inclusive advertising. Shoppers no longer want ads that assume it’s always moms who do the shopping — and they also expect representation of people from different ethnic backgrounds, the LGBT community and those with impaired ability. Nor should retailers overlook the product mix or the in-store experience. Many consumers could be turned off by imagery that assumes they relate to just one body size 020

Shoppers no longer want ads that assume it’s always moms who do the shopping — and they also expect representation of people from different ethnic backgrounds, the LGBT community and those with impaired ability. or type. And they will expect to see staff in store that reflect their own communities. Experiences: Another important area of focus for retailers will be the rising demand for “experiences” rather than physical goods — vacations, visits to the theater, travel or dining out, for example. In Accenture’s research, 49% of shoppers said they will buy experience-gifts this year, up five percentage points from 2017, while the number planning to buy physical products fell back 11 points to 73%. Responding to that trend will require retailers to rethink their products and services — and also to reconsider the shopping experience they offer in general. If retailers can provide more in their stores than an opportunity to purchase items, they will likely see improved performance — from the fitness clothing chain that runs exercise classes to the beauty stores that offer workshops on how to apply make-up and other products. In addition, the most successful retailers will offer customers new ways to purchase their products. Social media, for example, is becoming an increasingly important shopping platform. Increasing numbers of shoppers are using channels such as Instagram to research and compare purchases, and there is also a growing demand to be able to use social media to transact.

Accenture’s research suggests that 15% of consumers plan to shop directly through social media sites this holiday, almost twice as many as the 8% who bought this way in 2017. This makes sense: As shoppers make greater use of social media to identify the products they want to buy, they do not want to have to go elsewhere online (or even offline) to complete their purchases. Analytics challenge: We can expect even more nuances around consumer behavior to emerge over time. In turn, retailers that lack the means to understand what motivates and inspires their customers risk being left behind by rivals that can remain relevant. Data and analytics tools are a big part of the answer here: They provide the means by which retailers can transition from focusing on products to making truly consumercentric decisions. Such tools offer retailers the opportunity to build a more detailed picture of their customers than ever before: who their most valuable shoppers are, what these individuals want to buy and how they want to buy it, what tempts them into stores or to make purchases online, and, just as importantly, what turns them off. As a result, smart retailers are investing heavily in data and analytics. They’re collecting more customer data, both from their own interactions with shoppers and from external sources, including social media. And they’re investing in tools that enable them to see the patterns in their data much more clearly. These analytics technologies provide not only historic explanations of why sales rose or fell, but also predictive insights about the impact of a different customer offer — and even prescriptive intelligence that helps retailers decide which course of action to take. Using the forensic techniques outlined above, proactive retailers can respond to consumers’ fast-changing needs and views in real time — and even anticipate their next moves. Doing so will enable them to secure a growing share of the customer wallet, both in the holiday season and in the years to come. Jill Standish is senior managing director and head of Accenture’s retail practice. NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


PROMAT 2019 | APRIL 8-11, 2019 | MCCORMICK PLACE, CHICAGO IL

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CHAIN STORE AGE

C H A N N E L S > Cchainstoreage.com OMMERCE > CUSTOMERS

NEW YORK

SHOW SCOOP + Yaromir Steiner

on the shrinking middle class

+ Deborah Butler on localization

+ Adam Ifshin on

secondary markets

+ Joe Coradino

on tenant curation

STEVEN GRIMES ON RPAI 2.0

+ Jeff Edison on

neighborhood centers

+ Stephen Lebovitz

on redevelopment

+ Diane Cullinan Oberhelman on mixed-use

+ Brandon Famous on

international expansion

ALSO • Top Developers by Aisle • Booth Highlights • Hot Market: Boston 23


TABLE OF CONTENTS 26

ON THE LEVEL Tapping into the deep experience of retail real estate lifers

28

WHO’S WHO IN THE AISLES A handy listing of top developers, plus booth previews

THE LEADERSHIP SERIES

34

STEVEN GRIMES/RPAI Directing a focus on density and experience

36

DEBORAH BUTLER/BUTLER ENTERPRISES Retailers and developers need to collaborate on the local brand story

38

YAROMIR STEINER/STEINER + ASSOCIATES A shrinking middle class is changing the retail game plan

28

39

46

HOT MARKETS: BOSTON A booming, brainy population sends the vacancy rate down

ADAM IFSHIN/ DLC MANAGEMENT CORP. Why I’m bullish on secondary and tertiary markets

40

JOSEPH F. CORADINO/PREIT How we’re installing a new tenant model at malls

41

JEFF EDISON/PHILLIPS EDISON & CO. Providing the goods and services that are the last to be cut from household budgets

42

STEPHEN LEBOVITZ/CBL PROPERTIES Why mall redevelopments are well worth the cost

43

DIANE CULLINAN OBERHELMAN/ CULLINAN PROPERTIES Mixed-use projects can be very complicated, but very beneficial to retailers and developers alike

44

BRANDON FAMOUS/CBRE Big data gets larger and the world gets smaller for retailers CHAINSTOREAGE.COM

NOVEMBER/DECEMBER 2018

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ON THE LEVEL

Real Estate

e-newsletter

The premier

newsletter showcasing

THE retail LEADERSHIP real estate SERIES around the

U.S. and

the globe. Want to know who is opening stores, and who is closing? Interested in new developments coming out of the ground? What about real estate movers and shakers, and acquisitions and mergers? There’s only one place to get all the retail real estate news that matters. For editorial submissions and advertising inquiries, contact Al Urbanski, real estate editor, AUrbanski@ChainStoreAge.com

Sign up TODAY!

www.chainstoreage.com/ register 026 SHOW SCOOP

R

etailers looking for guiding wisdom often turn to titans of the industry like Terry Lundgren, Carol Meyrowitz, or Bob Nardelli. They rose to the highest levels of retail through experience won by decades of failures and successes. In these pages, CSA calls upon leaders of the companies that design and build the marketplaces where retail lives. They, too, bring decades of hard-won experience to the game. Stephen Lebovitz is one of the advance guard of developers reshaping the mold of enclosed malls as CEO of CBL Properties, the company that carries the initials of his father Charles B. Lebovitz. His piece on page 42 details the execution of his company’s plans for installing the anchor tenants of the 21st Century. A kindred spirit is PREIT chief exec Joe Coradino, who’s been selling off under-performing malls and buying back the leases of fallen-by-thewayside Sears and Macy’s stores since 2012. He’s filling them with LEGOLANDs, Burlingtons, and Dave and Busters, and is steadily building his sales per sq. ft. averages. Read his take on the new tenant mix on page 40. Live-work-play has become the by-phrase of physical retail centers, and no one has longer experience with it than Diane Cullinan Oberhelman, founder of Cullinan Properties. In the Nineties, her company’s Harbor Pointe and Eastport Plaza projects in Illinois helped define mixed-use development. She shares her insights on the format in a Q&A on page 43. Retail Properties of America, Inc. has a new

strategic vision and, on page 34, CEO Steven Grimes explains the thinking behind it. It’s centered on live-work-play and focused inside 10 major markets. The ultimate goal: to build town centers where traffic hums morning, noon, and night. Residential living is coming to Easton in Columbus and, if you know Easton, you should get to know the man behind it — Yaromir Steiner of Steiner + Associates. Do not miss his fascinating analysis on page 38 of the shrinking middle class and the role this sociological development plays in modern retailing. Stay right there and take in Adam Ifshin’s postulation on page 39 that open-air centers in secondary and tertiary markets are the strongest antidote to internet competition. Ifshin should know. His DLC Management Corp. owns scores of them stretching from Maine to Texas. Expanding on that theme on page 41 is Jeff Edison of Phillips Edison & Company, a top developer and acquirer of groceryanchored centers, the prime engine of retail real estate growth. Jeff puts his finger directly on the reason: Only 2% of grocery sales occur online, and 75% of that happens in just five major cities. Deborah Butler encompasses the whole of the retail real estate experience in one megaretail complex in Gainesville, Fla. She’s spent her whole life building (and building) upon the center her dad Clark started with a farm stand in 1939. Today Butler Plaza covers some 300 acres and more than 2 million sq. ft. of retail space and, in her piece on page 39, Butler shares her secrets of making a center special through localization. We cap off our Leadership Series on page 44 with a world view provided by Brandon Famous, who as a college grad helped grow a sportswear retailer from two locations to 24 in three years. Now the chairman of CBRE’s Global Retail Occupier Committee, Famous tells how data analytics hold the key to smart, efficient worldwide expansion for all retailers. Enjoy!

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

NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


WE LOVE OUR RETAILERS, AND WE WANT TO SPROUT IT FROM THE ROOFTOPS. Our mission is to create great grocery-anchored shopping experiences and improve our communities, one shopping center at a time. We’re thankful for our “sproutstanding” retailers who support this mission and help to create properties so appetizing, customers will want to go back for seconds. Spend some time with us as we flex our Brussels at ICSC New York Deal Making, Booth 2641. Give us a sprout at phillipsedison.com/NYDealMaking.

GROCERY FOCUSED. RETAILER CENTERED. PHILLIPSEDISON.COM | 800.875.6585

FOLLOW US:


WHO’S IN THIS AISLE

A Retailer’s Guide to Leading Retail Center Developers LEVEL 1

Cafaro 1E04 PREIT 1E15 see booth highlight Macerich 1E06 Unibail-Rodamco-Westfield 1E08 Taubman 1E13 Tanger 1E16 WPG 1E17

LEVEL 3 200s

Waterstone Properties Group #203 Bayer Properties #210 Kassin Sabagh Realty #211 Stan Johnson Company #225 Retail Centers #235 300s

Wolfson Group #303 Hutensky Capital #317 Stark Enterprises #323 Madison Commercial #335 Royal Properties #355 Rhino Realty #380 400s

ChainLinks #401 SRS Real Estate #435 500s

VEREIT #517 Thor Equities #525 Welco #543 Steiner NYC #551 The Festival Companies #563 Bennett Williams #569 600s

CBRE #621 see booth highlight Urban Edge #635 R.J. Brunelli #645 The Feil Organization #655 Urban Edge #645 SCG Retail #663 Urban Meritage #671 Encore Capital #677

700s

1800s

2400s

Ashkenazy Acquisition #745

Weingarten #1813 Paramount #1819 Ripco #1835 Goldstein Group #1863 Centennial #1877

BUTLER ENTERPRISES BOOTH #2408 see booth highlight STEINER + ASSOCIATES #2401 see booth highlight Kite Realty #2441 RD Management #2463

900s

Creatacor Experiential #955 1000s

Avison Young #1026 Encore Real Estate #1055 1100s

Howard Group #1129 Raider Hill #1155 1300s

SITE Centers #1321 Kimco #1335 NATIONAL REALTY & DEVELOPMENT CORP. #1345 see booth highlight Benderson #1353 Oxford Properrties #1363 First Hartford #1371 1400s

InvenTrust #1445 Winick Realty #1463 Trademark #1471 Wai Kai #1477 1500s

CBL PROPERTIES #1521 see booth highlight NEW ENGLAND DEVELOPMENT #1535 Charter Realty #1553 Equity Retail Brokers #1563 Fuqua #1569 1600s

WS Development #1603 JLL #1635 Vornado #1653 Atlantic Retail Properties #1663 Realty Resources #1681

1900s

Midwood Development #1907 DLC MANAGEMENT CORP. #1925 see booth highlight RKF #1949 Philips International #1963

2500s

2000s

2600s

Related Cos. #2005 GBT #2017 Regency Centers #2035 Horvath & Tremblay #2043 Hudson #2063 Madison Marquette #2069 Retail Brokers Network #2079

Brixmor #2635 PHILLIPS EDISON & COMPANY #2641 see booth highlight Spinoso #2647

2100s

Marcus & Millichap #2125 Ivanhoe Cambridge #2143 Gibraltar #2147 Breslin Realty #2155 Edgewood #2163 Thomas #2177 2200s

Rappaport #2205 Horizon Group #2213 Poag #2219 Cushman & Wakefield #2235 Katz & Associates #2263

Edens #2525 Levin Management #2535 Howard Hughes Corp. #2549 Crossman & Co. #2578

2800s

Meridian Capital #2813 RPAI #2827 see booth highlight Colliers #2835 Eastern Retail #2855 2900s

Katz Properties #2953 3000s

X TEAM RETAIL ADVISORS #3001 Hutton #3053 3100s

IRVINE COMPANY #3101 ShopCore #3125 3200s

2300s

Federal Realty #2301 Pyramid #2301 New England Retail Properties #2351 Newmark # 2319

CULLINAN PROPERTIES BOOTH #3216 see booth highlight THE OUTLET RESOURCE GROUP #3217

1700s

Starwood Retail Partners #1713 Acadia #1725 American Dream #1753 Trinity Realty #1775

Booth Briefs PREIT

MEETING ROOM # 1E15 With quality malls in compelling markets, PREIT is redefining the shopping experience — incorporating unique entertainment destinations, fresh dining options, and new and differentiated anchor offerings. Visit our booth during the 2018 ICSC New York Deal Making Conference and learn about our transformative redevelopment projects.

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NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


redefiningretail UPGRADING PROPERTIES IN QUALITY MARKETS PREIT is at the forefront of modern placemaking – combining a diverse anchor mix with the best retail brands, destination dining and unique entertainment experiences. Meet PREIT at the 2018 New York Dealmaking at 1E10 and learn about our transformative redevelopment projects in top US markets.

Philadelphia, PA

n

preit.com


WHO’S IN THIS AISLE

CBRE

BOOTH #621 CBRE helps the most prestigious brands in the world transform their real estate into real advantage. As the world’s leading commercial real estate services and investment firm, we have the expertise to serve retailers, restaurateurs, investors, owners, and developers across all retail environments. We operate at the intersection of data and the consumer experience and use the latest information and analytics to reveal market trends to demonstrate a deep understanding of consumer behavior. Visit our booth during the 2018 ICSC New York Deal Making conference to find out how our unique combination of talent, market insight, and comprehensive capabilities can help you build a holistic plan for success.

NATIONAL REALTY & DEVELOPMENT CORP. BOOTH #1345

At National Realty & Development Corp. (NRDC), we know the importance of establishing and maintaining the right merchandising mix to maximize sales for our tenants and provide the best shopping experience within our communities. For over 50 years, NRDC has been creating top-quality shopping centers, office/industrial parks and residential communities. Visit our Leasing Team at Booth 1345 to learn more about our newest development, The Shoppes at Middletown and other exciting opportunities within our portfolio of 78 projects throughout the Northeast. 1.800.932 RENT (7368) www.nrdc.com

CBL PROPERTIES BOOTH #1521

Recognizing that today’s consumer has numerous options, CBL is adapting its tenant mix to meet the demands of changing preferences and offer a wide array of experiences. Whether through transformational anchor redevelopments, turn-key solutions for etailers looking to expand into the physical channel, or investments in new technology — CBL is constantly pursuing opportunities to enhance its core assets and enhance the customer experience. Join us and visit a CBL representative at ICSC New York Deal Making on Level 3, booth 1521.

030 SHOW SCOOP

NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


ILLINOIS | MISSOURI | TEXAS | GEORGIA | NEBRASKA

CullinanProperties.com | 309.999.1700 Rock Run Crossings Southwest Suburban Chicago, IL

Streets of St. Charles Metro St. Louis, MO

TURNING REAL ESTATE IDEAS INTO REALITY For more than three decades, Cullinan Properties has been a leading provider of commercial and mixed-use real estate services. Let us show you the many exciting opportunities within our growing portfolio.

VISIT OUR BOOTH #3216 AT ICSC NEW YORK DEAL MAKING

Grand Prairie Developments Peoria, IL Burleson Commons Metro Dallas-Ft. Worth, TX

Salt Creek Commons Lincoln, NE

The Levee District East Peoria, IL


WHO’S WHO IN AISLES

DLC MANAGEMENT CORP. BOOTH #1925

At this year’s ICSC New York Deal Making Conference, meet with a team of real estate professionals dedicated to innovative solutions, continuous improvement, and successful outcomes for everyone involved. With a portfolio of more than 19 million sq. ft. of attractive retail space in 24 states, DLC Management Corp. has proven to be one of the premier owner/operators of shopping centers in the U.S. Visit booth 1925 to learn about all the exciting opportunities we have in store!

STEINER & ASSOCIATES / LAKE NONA TOWN CENTER BOOTH #2401

Orlando’s Lake Nona Town Center is the most progressive mixed-use project under development in the country. Located adjacent to Orlando International Airport, the 100-acre centerpiece of the 17-square-mile Lake Nona community has established itself as a transformational development with a market-defining 4 million sq. ft. of retail, dining, and entertainment. Lake Nona Town Center developer Tavistock Development Company—together with its retail planning, leasing, and development services partner Steiner + Associates—are showcasing the Lake Nona Town Center model in Steiner + Associates’ booth.

BUTLER ENTERPRISES BOOTH #2408

For 79 Years Butler Enterprises has been developing its family owned and operated retail destination in Gainesville, Florida. It has grown from one small fruit stand to two million sq. ft. of North Central Florida’s most prominent super-regional shopping and dining epicenter. After redeveloping the 750,000 sq. ft. North property in 2016 — now 98% leased — Butler has cleared the way for the development of the region’s first upscale, mixed-use Town Center at the most trafficked interstate exchange and road-front property in the city. With anchors Whole Foods and P.F. Chang’s, as well as national and boutique retail, Butler is actively leasing this new-to-market center in the heart of its 1.2 million market population region. 032 SHOW SCOOP

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CHAINSTOREAGE.COM


PHILLIPS EDISON & COMPANY BOOTH #2641

Phillips Edison & Company is one of the nation’s largest owners and operators of grocery-anchored shopping centers. Its diversified portfolio of well-occupied neighborhood shopping centers has a mix of national and regional retailers in strong demographic markets throughout the United States. The company owns and manages more than 340 shopping centers. Phillips Edison’s proven, vertically-integrated operating platform allows it to effectively and efficiently acquire, lease, and manage its properties, resulting in a history of strong operating results and great shopping experiences. Visit our booth and join our Retail Intel series where you can weigh in on industry topics, listen to one of our new podcasts, or pick up a pair of hot pepper socks. For more information, please visit www.phillipsedison.com.

RPAI

BOOTH #2827 Meet with our high-class team on the main aisle at the ICSC New York Deal Making conference to discuss our RE/Development projects and available leasing opportunities within our diverse portfolio of quality assets. We are sure we can match your needs with the right retail center.

CULLINAN PROPERTIES BOOTH #3216

For more than 30 years, Cullinan Properties has been making a difference in the communities we serve - building relationships and developing distinctive projects that make life better for the people who live, work, and play there. We’re a multi-disciplined real estate firm that develops, manages, and owns mixed-use, retail, multi-family, office, government, industrial, and medical properties throughout the U.S. Blending visionary thinking and innovative design with attention to detail and insistence on outstanding results is why we’re known for our projects and the financial results we help our business partners achieve. Visit us at Booth 3216 to learn about the many exciting opportunities within our growing portfolio.

CHAINSTOREAGE.COM

NOVEMBER/DECEMBER 2018

SHOW SCOOP 033


LEADERS

STEVEN GRIMES

on RPAI 2.0

The big developer’s new strategy is based on two elements: density and experience.

O

ne of the largest and most forward-thinking developers of retail and mixed-use centers in the nation, Retail Properties of America, Inc. announced a new strategic initiative called RPAI 2.0 to react to megatrends affecting the industry. Real estate editor Al Urbanski recently asked the company’s CEO and director, Steven Grimes, about the prevailing winds in retail. Since 2013, RPAI has cut the number of centers in its portfolio by half. Does retail reinvention come down to a case of fewer but better centers? I would say yes, largely because we wanted to localize our business around 10 markets, from Seattle to Texas, and on the East Coast from New York down to Atlanta, and in our home base of Chicago. We want to be on the ground in these markets managing the business and have adjacencies in our markets in order to be the best we can be. The primary effort is a focus on densification. We want to create longer dwell times with experiences starting with your first cup of coffee in the morning and continuing with your morning class at the gym, working lunches, all the way until dinner and a night of entertainment.

What is the key imperative for retailers today? Branding, from Steven Grimes the internet to the mobile device to store frontage. When we purchased our Downtown Crown asset in Gaithersburg, Maryland, it was 77 percent occupied and the original developer had LOIs for big box, commodity retailers. We decided to be patient and develop a merchandising plan that was focused on smaller, boutique shop space, but we also wanted to appeal to the consumer with nationally known brands good with social interaction with their customers. Sephora is one of those. They’ve done a great job of taking what they do in-store and putting it online, tracking what their consumers do and marrying physical and digital experiences together. We recently celebrated Sephora’s grand opening and will welcome Lululemon next door in the coming weeks.

“We’re taking great care in choosing the retailers we’re eliminating and the ones we’re expanding.”

At the same time, top 20 retailers in your centers have gone from 38% to 29%. Have your tenant curation philosophies changed? You want to take great care in choosing the retailers you are eliminating and the ones you are expanding. In 2013, our top 20 retailers made up 38 percent of our portfolio. Today, our concentration is at 29 percent and no single tenant is greater than 3 percent of our annual base rent. We are parting ways with commodity-based retailers that are less internet savvy. Meanwhile, we want to expand with retailers that have really grabbed hold of omni-channel and are working to optimize both physical and digital channels. And yes, we’re not top 20 dominant. In 2013, we were at about 35% in-line and 65% anchor tenancy. Today we are sitting at approximately 50% in-line space. This gives us the ability to be agile and offer a better merchandising mix.

What are the fundamental pillars of RPAI 2.0? Densification and experience. We’ve been acquiring great real estate — predominantly mixed-use and grocery-anchored centers in the best MSAs — and our densification and growth opportunities reside in our present portfolio. Sixty-five percent of our properties are in five of the top MSAs. We see our expansion opportunities exceeding four million square feet. The modern consumer demands experience and densification brings the consumer. 034 SHOW SCOOP

Tell us about some of the pet projects you have in development that incorporate these characteristics. At our One Loudoun asset in Ashburn, Virginia, we created a unique outdoor space that includes two retail containers that are intended to serve as temporary incubator spaces. Retailers can come in and test out their concept to showcase their products at One Loudoun. If they are successful, we work with the tenant to move them into a full-time space. We continue to focus on experience-based retailers that are focused on the evolution and improvement of their brand. We see this test environment as critical because a retail cycle that used to be five-to-seven years has now been reduced to about three years. Retail brands that don’t refresh themselves every three years could be at risk. Would an online retailer share of 25% fundamentally threaten brick and mortar retail? Online is still a very small percentage of total retail sales. And we find that online purchases is closely related to physical store adjacencies. The more that retailers embrace online sales and deliver products from their stores, the better off they’ll be. Steven Grimes is director and CEO of Retail Properties of America, Inc., based in Chicago. NOVEMBER/DECEMBER 2018

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CBL PROPERTIES

CBL IS REINVENTING ITS PROPERTIES

Our properties are transforming into market-dominant suburban town centers offering our customers an exciting mix of shops, dining, entertainment, value, service, fitness and mixed uses including hotel, residential and office.

FEATURED PROJECTS Brookfield Square, Milwaukee, WI Featuring BistroPlex by Marcus Theater, WhirlyBall and restaurants Hamilton Place, Chattanooga, TN Featuring The Cheesecake Factory, Dave & Busters, retail, hotel and office Cross Creek Mall, Fayetteville, NC Featuring Dave & Busters, retail and restaurants

JOIN US. Visit a CBL representative at New York Deal Making, LEVEL 3, Booth #1521

CBL Properties 路 2030 Hamilton Place Blvd., Suite 500 路 Chattanooga, TN 37421 路 423.855.0001 路 www.cblproperties.com


LEADERS

DEBORAH BUTLER on localization

The unique qualities of locale must be made even more compelling for experience-hungry consumers.

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hen my father first started in the retail business in 1939 — which at that time meant a farm-fresh produce stand — localization was simply understanding the needs of the community, filling a market gap and providing the absolute best customer experience possible. Thinking outside the box, Dad provided curbside service that operated like an old-fashioned drive-in where the customer never had to leave the car. Plus, they stayed open seven days a week — unheard of in 1939! Our development has grown from that curbside market to the largest super-regional shopping center in North Central Florida, encompassing nearly 300 acres and 2 million sq. ft. of retail, dining, and entertainment in Gainesville, Florida. Those eight decades of growth have seen many ups and downs, trends, fads and evolutions, but we’ve always kept central the concept of localization. Since joining the family business in 1980, I’ve been on both the retail and the development side, and now that we are building the first true mixed-use Town Center in North-Central Florida, here are the strategies we’ve identified from the most successful brands in the country, as well as our own development efforts to assure relevance now and in the future. From the outside-in. Some think details come last; we think of details in strict lock step with the entire process. Our approach is to visualize the moment our consumer enters the parking lot. First detail: “Sense of Place.” Butler Town Center at Stengel Field — the name alone evokes intrigue and pays homage to its 1940s roots. A State Historic Site, the Butler property once existed as a grass airfield and military air base. Weaving the Stengel Air Field story into the fabric of the shopping center experience led to the creation of specific paver patterns, vintage-style signage, fountains that spray in a propeller motion — even biplane finials to top our stop signs. That’s the kind of detail that brings substance to the brand identity. Embrace technology. Because our location right off interstate I-75 is a gateway to the University of Florida, a leading research university with a nationally ranked hospital system, we embraced technology from the get-go. UF recruits students, professors, researchers, and physicians from all over the world and we used technology to understand the consumer patterns and help our stores retail “smarter not harder.” For example, our Lilly Pulitzer boutique store, Pink Narcissus, stocks Lilly styles and colors based on inventory

tracking tailored to this market. Gator Deborah Butler orange and blue fly out the door in a market that drives five million annual visitors to university-related events. They showcase their lines via Facebook Live runway-style “events” on their social media channel and connect on a hyper-personal level with their audience. Understand your extended market. Gainesville is the economic hub of a 14-county region and, with six state and national parks in one county, is a world-renowned travel destination for nature enthusiasts. The managers of Dick’s Sporting Goods in Butler North understand that their kayak and hiking section needs to be more diverse and extensive than a store located in south Florida. Our location on I-75 is a natural stopping point for many travelers, and our development plays to extended “stay-time.” With 50 diverse dining options and 3.5 miles of walking trails with required retention ponds, there’s plenty of reason for visitors, their kids, and even their pets to stick around. Adding murals crafted in partnership with local artists creates a cultural experience for all. Retailer-developer collaboration. As a developer, we carefully package our property’s brand story in a cohesive, compelling manner, providing information to engage and inspire new stores in the design phase. This year we opened the region’s first Whole Foods Market and, during the build process, their talented designers fell in love with the historical aeronautical element of the property. Working directly with our in-house marketing team, Whole Foods designed its café around the theme. The vintage furniture and black-and-white photography timeline that adorns the wall of the café made Whole Foods seem like a member of the community from day one. Retail real estate is truly an evolutionary process, and while our history proves the concept of localization isn’t a new one, today’s innovation and methodology has had to be more compelling, more tailored, and more development-pervasive to fit the experienceseeking, tech savvy customer of today.

“Whole Foods designed its café around our aeronautical theme and appeared to be a member of the community from day one.”

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Deborah Butler is president of Butler Enterprises, based in Gainesville, Fla. NOVEMBER/DECEMBER 2018

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NOW LEASING MONMOUTH COUNTY, NEW JERSEY’S NEW RETAIL DESTINATION JOIN WEGMANS & CMX CINEMA

OPENING 2020 The Shoppes at Middletown, located on Route 35 in Middletown, NJ is a new 340,000sf town center anchored by a Wegmans and CMX Cinema. Featuring a unique blend of boutique retail shops and specialty restaurants with outdoor dining, this vibrant retail environment will be unlike any other found in Monmouth County; one that will allow visitors to enjoy shopping, entertainment and dining in one extraordinary setting.

VISIT US AT ICSC NEW YORK DEAL MAKING, BOOTH 1345 NATIONAL REALTY & DEVELOPMENT CORP. 3 Manhattanville Road, Suite 202, Purchase, NY 10577 nrdc.com 1.800.932.RENT shoppesatmiddletown.com


LEADERS

YAROMIR STEINER

on the shrinking middle class Retail isn’t shrinking, it’s adapting to a dramatic shift in income distribution.

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espite a decade of sustained economic growth, retail turbulence persists. Consolidation, closures, and realignments. The emergence of new retail concepts. The clash between brickand-mortar, online, and mobile retail channels. All this has contributed to a feeling of uncertainty across the industry. Media and analysts attribute this turmoil to the impact of online and mobile sales. Experts suggest brick-and-mortar retail is overbuilt by 20%. While conventional wisdom suggests a connection between these issues, I believe it’s an incomplete explanation for what’s really happening. More stores are opening than closing. Research from IHL Group shows that “North American retailers will open 12,663 stores and close 8,828 stores in 2018, for a net increase of 3,835 store locations.” Discussing excess retail space requires important context. Most excess space is in traditional malls, a struggling sector comprising 15% of the market. In other words, this isn’t industry-wide oversupply, it’s supply-and-demand imbalance. Power centers and grocery-anchored centers are in higher demand than ever. Asymmetry is an issue, but it’s not a crisis. Imbalance also offers a silver lining: a better understanding of the power of well-executed mixed-use projects. A carefully curated retail mix enhances corollary uses. What’s behind so-called shifting consumer demands? The biggest issue is a dramatic decrease in available discretionary income, which can be directly attributed to a shrinking middle class. The trend is alarming. Between 1945 and 1980, the bottom 90% of Americans claimed 70% of all declared income. Beginning in the 1980s, changing economic policies had altered income distribution. By 2015, that bottom 90% claimed around 50% of all income— a 20-percentage-point reduction! That decrease largely came from those who traditionally spent a large portion of their paychecks on retail. Meanwhile, the top 10 % have boosted declared income by more than 65%, but their increased retail spending is comparatively minimal. Against that backdrop, the rise of discount retailers makes perfect sense. Like an ocean liner, industry momentum takes time to change course. The ‘80s and ‘90s saw continued construction, even while middle-class demand waned. With 10-year leases standard, it’s easy to see how outdated brick-and-mortar concepts kept going forward until marketplace gravity exerted its inevitable tug. Middle class shrinkage is harder on traditional retailers than it is on

“Middle class shrinkage is harder on traditional retailers than it is on online competitors.”

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online competitors. Digital accounts for just a fractional Yaromir Steiner percentage of all retail sales, and the impact of digital dollars is more complicated than is often portrayed. Onlineonly brands rarely compete directly with brick-and-mortar, and some competitive losses are offset by brick-and-mortar brands enhancing their own online and mobile platforms. With traditional brick-andmortar brands getting better at price-matching, streamlined delivery, and convenient pickup, true omnichannel retail is moving from theory to practice with remarkable speed. The current of innovation flows both ways. Growing numbers of acclaimed online-only successes now recognize that they need brickand-mortar locations to maximize their potential. Lifestyle brand Marine Layer, shoe startup Allbirds, and mattress retailer Casper are recent examples. Formerly online-only brands creatively leverage brick-and-mortar locations, with “showroom” or fitting room concepts—using physical locations to connect with new markets and audiences. As this “channel-neutral” approach spreads, it’s become clear that Amazon isn’t killing traditional retail. It’s prompting it to evolve. Online and in-line aren’t in competition. Indeed, they are increasingly interwoven. Excluding mail-order and brick-and-mortar online numbers, true online-only sales account for around 4% of overall retail sales. While that may double in the next decade, the impact should be negligible. Retail developers should proactively adapt to new demographic and industry realities. New consumer-facing technologies make it easier to shop brick-and-mortar. Target and Walmart have been reorganizing themselves as essentially in-store distribution centers. Last year, most of Target’s online holiday sales shipped from stores, not warehouses. It’ll be interesting to see how that store-network model evolves alongside the very different Amazon warehouse model. Retailers are identifying their function as efficient merchandise distributors and/or suppliers of unique/customized experiences. This emerging self-awareness inspires new concepts and forces retail developers to adjust their thinking about the environments they create. From fluidity and uncertainty comes inspiration and innovation. The future is bright and exciting—for those who embrace change. Yaromir Steiner is the founder and CEO of Columbus, Ohio-based Steiner + Associates. NOVEMBER/DECEMBER 2018

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LEADERS

ADAM IFSHIN

on secondary markets Open-air centers in secondary and tertiary markets are stores’ best bulwark against the internet. BY ADAM IFSHIN

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eaders of a certain age will recall the famous E.F. Hutton commercials in which a broker from the august firm would whisper something in the ear of someone on the street. The surrounding crowd would freeze in its tracks. Cue voiceover: “When E.F. Hutton talks, people listen.” Advisors to retail real estate investors these days all seem to be whispering: “Invest only in A centers in A markets, don’t gamble on secondary and tertiary markets.” But we believe that’s exactly where there is currently tremendous opportunity. At DLC, we have been huge buyers of centers in all types of markets, but with a contrarian focus on secondary and tertiary market dominant shopping centers. We’re leasing space to new-to-market retailers like Party City, Harbor Freight Tools and Pet Supplies Plus in places like Elmira N.Y., and Carbondale, Ill. We have not had an issue in raising capital because we’re a sophisticated organization that supports institutional capital reporting requirements. What’s more, the value creation skills of our people are, I believe, unmatched in open-air center redevelopment. And that’s another reason why (to borrow another ad slogan from Merrill Lynch) I’m bullish on secondary and tertiary markets: We’re in the consumer value real estate business. Investment experts who say stick with A properties in A markets are not wrong, but they are talking predominantly about malls. They warn about the increasing pressure applied to physical retail by high-growth online sellers. Again, they’re not wrong. But they underestimate the internet-resistance of smaller markets. Amazon is dedicated to solving the last mile delivery issue in New York City. When it does, it may profit greatly from the effort in New York and Chicago. But it is a bigger challenge to effectively solve the last mile issue in Carbondale or Elmira. At DLC, we believe the replacement for the mall in those smaller markets is not the internet, it’s the value-oriented, multi-anchored power center. The Sears, Macy’s and the Bon-Tons are not leaving because people in Elmira are buying all their merchandise on Amazon. They’re leaving because Ross Stores is

“The replacement for the mall in smaller markets is not the internet, it’s the value-oriented power center.”

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NOVEMBER/DECEMBER 2018

providing what people in these Adam Ifshin markets want and, as a result, is growing at 6%. Viable tenants in these markets are coming to our centers to be alongside Hobby Lobby, Dick’s Sporting Goods, Field & Stream, Walmart, and Target. Retailers and retail center owners in these markets have to stick to their knitting, and the two knitting needles are “convenience” and “value.” New entertainment and food and beverage tenants are becoming crucial to the survival of malls, and we have been working hard to upgrade food selections at our centers. At the Village at Allen in Texas, we have Bonefish Grill, Bar Louie, and BJ’s Restaurant and Brewhouse. But that center, in one of the fastest-growing regions in the nation, has something B and C markets lack: density. Experiential tenants with expensive buildouts in large spaces demand density, so it’s unlikely to see a Dave & Buster’s or an iFly opening anytime soon in Cheektowaga, N.Y. or Fairview Heights, Ill.. But our open-air centers in these towns will fare just fine because the consumers in these markets have always been willing to drive 50 or 60 miles to shop at regional malls, and they’ll likely make the drive to take their kids to a Crayola Experience or an IMAX movie. Retailers will continue to flourish in secondary and tertiary markets, but they have to go into them cognizant of the fact that they may need a smaller footprint or a refined concept. When retailers say to me, “But my store in your center is not going to perform at chain average,” I say, “Of course it’s not going to perform at chain average. But you’re going to pay less rent than in primary markets and you’ll have a viable business.” Many national retailers including HomeGoods, T.J. Maxx, Dick’s, Burlington, Planet Fitness, LA Fitness, Kirklands and many more believe this and are opening with DLC. I also tell them the cost of an Amazon Prime subscription does not cover the cost of the service of Amazon Prime. At some point, Amazon’s going to have to charge for the service and the households making $60,000 in smaller markets won’t be willing or able to pay that true cost. They will, however, be willing to drive to a nearby DLC center and shop in your store. Adam Ifshin is CEO of DLC Management Corp., based in Elmsford, N.Y. SHOW SCOOP 039


LEADERS

JOSEPH F. CORADINO on the new tenant mix Retail centers are evolving from shopping destinations into social destinations.

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ver the past several years, as the industry has experienced significant transformation, a new age of retail has emerged. Department store closures have opened new opportunities to re-imagine anchor tenants and an array of unique concepts and innovative segments are refreshing the traditional shopping experience. For retail real estate owners with foresight into retail trends and proactive strategy to enhance their portfolio, properties are shifting to become multipurpose social destinations for consumers in the community. To put it simply, malls are not the same as they were 10 years ago and shouldn’t be burdened by an outdated definition. A new model has risen — one that prioritizes socializing with shopping; blends a rich variety of retail, dining, and entertainment tenants; and enhances the overall consumer experience. And at PREIT, it’s this mix of diversity, coupled with flexibility, that’s helping us truly redefine the mall. There’s no cookie-cutter template for malls anymore. Success lies in a diverse and dynamic roster of tenants that range from shopping to experiential concepts. As consumers crave more social experiences, successful malls are driving traffic and sales with restaurants, entertainment concepts, fitness studios, grocery stores, salons and spas, and everything in between. Beyond experiential tenants, an array of retail segments is also diversifying the shopper journey, from off-price to fast-fashion retailers changing the game. PREIT’s Plymouth Meeting Mall, for example, is a shining example of the mall of the future. Half of the tenancy is dedicated to dining and entertainment, with concepts such as LEGOLAND Discovery Center, 5 Wits, and Dave & Buster’s complementing the mall’s retail and dining offerings. In addition, Burlington was recently announced as a new anchor tenant, aligning with the growing national trend of off-price retail. This continues the rich history of the property. It was one of the first malls to add Whole Foods as an anchor tenant in 2010, underscoring its vision for a differentiated mall platform nearly a decade ago. Beyond shopping and dining, densification is the next major frontier for shopping center owners. By adding residential, of-

“There’s no cookie-cutter template for malls anymore.”

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fice, or hotel room units to a property, owners can diversify their revenue Joseph F. Coradino streams, enhance asset value and increase capital. Simultaneously, they offer built-in shopping, dining and entertainment offerings for on-site residents, workers and guests. Growing alongside this trend is the addition of co-working spaces at retail centers. 1776, the largest network of incubators in the Northeast Corridor, recently partnered with PREIT to form a space at the Cherry Hill Mall that will focus on innovation in retail. This collaboration not only offers the mall as a unique experimental lab for 1776 entrepreneurs, but it also further differentiates the mall property among other retail centers in the region. Through smart partnerships and innovative thinking such as this example, retail properties can transform into community impact centers. Just as traditional shopping centers are transforming their tenant models, traditional lease agreements are evolving as well. As brands consider their brick-and-mortar presence, they’re looking for arrangements that fit their needs, and the answer is not always a one-size-fits-all approach. At PREIT, we’re focused on being flexible to optimize space and time leveraging pop-ups, kiosks and other formats to satisfy demand — particularly for ecommerce companies expanding to physical retail. We recently announced that revolutionary in-home fitness experience Peloton opened a 300-sq.-ft. kiosk in center court of Cherry Hill Mall, offering customers the opportunity to test the technology and immersive class content. By welcoming an array of solutions, mall owners can help cultivate tenants that are new to the mall environment and cultivate longer-lasting relationships in the process. It may take some creativity, but collaborating with tenants can be a win-win-win for retail owners, tenants, and shoppers alike. The industry has truly evolved over the past several years, and continued transformation is still on the horizon. But a thoughtful, diverse, and well-curated range of tenants can hold the key for a continued bright retail future. Joseph F. Coradino is chairman and CEO of PREIT, based in Philadelphia. NOVEMBER/DECEMBER 2018

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LEADERS

JEFF EDISON

on neighborhood centers The next best option to online purchase and delivery is a shopping center three miles from home.

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ven mall developers think “supermarket” now when building or redeveloping a center, but Jeff Edison has been taking advantage of grocery’s traffic-building might for decades. With more than 200 grocery-anchored centers nationwide, Phillips Edison & Company continues to be the leader in redefining the neighborhood center, as was apparent in a recent talk between Edison and real estate editor Al Urbanski. Neighborhood centers take up nearly four billion square feet, about four times the space of either malls or power centers. Describe their importance in modern society. Grocery-anchored centers remain the cornerstones of their local communities, and their importance has not abated even as e-commerce has disrupted every other area of retail. They provide the daily necessities and activities that are hard or impossible to find online — grocery stores, fitness studios, hair and nail salons, restaurants. Online sales account for less than two percent of total U.S. grocery sales, and 75 percent of those sales come from five major cities. Meanwhile, grocers are adapting, operating more analytically and implementing strategies to complement the in-store shopping experience. We believe this will cement the grocery-anchored center as an internet-resistant focal point in the community.

“Groceryanchored retail is generally agnostic to market conditions.”

Grocery-anchored centers now come in many configurations with many different tenant curations. What are you excited about with the new tenants at your centers? The experience-driven economy continues to propel the retail industry forward, and we’re seeing retailers and property owners continue to place an emphasis on creating experiences that appeal to changing consumer preferences. One of the more exciting retail trends we’ve noted in recent years has been this drive toward curating wellness experiences. Going beyond just having a gym, these wellness experiences could feature any combination of retailers, including boutique fitness studios, juice bars, and healthy food shops and restaurants’, among others. The key, as always, is to tailor the retail mix to suit the local market. We like to describe it as being locally smart. CHAINSTOREAGE.COM

NOVEMBER/DECEMBER 2018

Are there any retail segments that could be benefitting more with a bigger presence in Jeff Edison necessity-based centers? There is always an opportunity to make creative use of available space in neighborhood centers, and specialty leasing for pop-ups can be a valuable tool that benefits both the retailer and the shopping center. Introducing creative and immersive experiences not only allows brands to test new concepts, but hosting these retail experiences can draw additional foot traffic and local interest to the shopping center. A recent JLL report on clicks-to-bricks retailers shows 820 new physical stores being opened by online retailers in the coming year. Do you expect to see more of them in your centers? In our view, the rise of online retailers opening physical stores validates the importance of brick-and-mortar in an increasingly internet-based world. People want to see, touch, smell, taste, and hear the products they’re buying, and if you can create a custom experience in the process, you’ve won the day. While many of these retailers have tested brick-andmortar concepts in core urban markets where they can generate greater buzz, we would be interested to see if these concepts begin to spread to neighborhood centers as the strategies prove to be successful. In addition, when you’re talking about online purchases and delivery, it’s expensive to deliver the last mile. The next best option is to be able to get that product less than three miles from home. The economy has been booming and local industry is picking up in several regions. Where are you seeing more demand for neighborhood retail due to population and income growth? Demand for local retail has remained consistently strong owing to the long-term fundamentals supporting this asset class. One of the characteristics we like most about grocery-anchored retail is the fact that it’s generally agnostic to market conditions. After all, people have to eat. We find that grocers do well in all economic cycles, and our small stores continue to benefit from that consistent traffic. That is, after all, what sits at the core of necessity-based retail, making it a stable, long-term investment. These centers provide the goods and services that are consistently needed and are the last to be cut from people’s budgets. Jeff Edison is chairman and CEO of Phillips Edison & Company, with corporate offices in Cincinnati, Salt Lake, New York, and Atlanta. SHOW SCOOP 041


LEADERS

STEPHEN LEBOVITZ on redevelopment

Mall redevelopments can take up to three years and cost as much as $10 million, but they’re worth it. BY STEPHEN LEBOVITZ

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he recent wave of anchor store closures has everyone buzzing about what mall landlords will do with all that empty space. Many are fearful of the challenges that a dark anchor store may present. The truth is, landlords have been preparing for these store closures long before they made headlines. In late 2013, we proactively purchased the Sears locations at two of our premier properties for redevelopment. We wanted to do something truly transformative — bring in a mix of dining, entertainment and new-to-market retail that would underscore each property’s dominant position in its market and set it apart from the competition. At CoolSprings Galleria, a 1.1-millionsq.-ft. super-regional center located in a booming and affluent area of Nashville, we welcomed Music-City firsts like American Girl and King’s Bowling and Entertainment — a unique restaurant, bar and entertainment operator — as well as dining experiences such as The Cheesecake Factory, Connors Steak and Seafood, and Kona Grill. Following the opening, the additional traffic drawn by the new attractions resulted in an 18% increase in sales per sq. ft. at the entire center, and that growth has only continued. In 2012, prior to the redevelopment, sales per sq. ft. at the property were $459. At the end of 2017, they were $526 and have continued to increase in 2018. All of this is proof positive that the benefits of investing in redevelopments reach far beyond the four walls of a former anchor space. In 2017 we purchased five Sears, two Sears Auto Centers, and three Macy’s stores for redevelopment. This proactive approach gives us control of the space while we evaluate plans to convert the underperforming stores into new retail, dining, entertainment, or other uses. To date, we have completed a redevelopment at one former Macy’s with construction underway at another former Macy’s, one of the former Sears and both Auto Centers. We expect to start construction on two additional former Sears in 2019. CBL is not alone in its proactive approach to recapturing under-

“Landlords have been preparing for these store closures long before they made headlines. ”

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performing anchor Stephen Lebovitz locations for redevelopment. Since 2017, PREIT has replaced five Sears locations and has reached an agreement to recapture a sixth. Similarly, Washington Prime Group proactively gained control of eight Sears locations in 2018. While recent bankruptcy activity has increased the pace of store closures and accelerated our redevelopment schedule, the real estate that is becoming available is well-located with excellent visibility, access and infrastructure. As a result, we have been able to attract high-quality replacement users and new concepts. We are working with a number of non-traditional uses through partnerships. Other developers, be it multifamily, storage or hotel, recognize the value of the real estate we have and are coming to us to take advantage of it. What’s more, we’ve seen great cooperation and partnership by municipalities. Brookfield Square in Milwaukee is a fine example. We purchased the Sears store there as part of the 2017 sale-leaseback transaction. The City of Brookfield invested in the project by purchasing land for a conference center and hotel, which broke ground in October. This will be a significant draw to the area and will complement the broader redevelopment, which includes a luxury dine-in movie theater and WhirlyBall. Similar to the success experienced at the project at CoolSprings Galleria, we’ve made tremendous progress with our anchor redevelopment program over the past three years. On average these projects take 18-36 months to complete and require an average investment of $8-10 million dollars. It’s a reasonable price to pay when you consider the average project return on cost is between 7-10 percent and this doesn’t even give any credit for the positive impact on the rest of the property. It is understandable that the natural reaction is to worry when these stories break, and no landlord likes vacancies. Yet we see these vacancies as extraordinary opportunities to reinvest in, strengthen and transform our core assets. Stephen Lebovitz is president and CEO of CBL Properties, based in Chattanooga, Tenn. NOVEMBER/DECEMBER 2018

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LEADERS

DIANE CULLINAN OBERHELMAN on mixed-use

A live-work-play pioneer lays out the fundamentals of the format

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nique is a word commonly misused in our culture, but it is correctly applied when referring to Diane Oberhelman. After working in real estate for just seven years, she founded Cullinan Properties in 1988 and remains one of the few female chief executives in retail real estate. What’s more, her company has always developed office and residential properties in addition to retail, ideally positioning it to develop live-work-play centers. Oberhelman has set the bar high with projects such as the Streets of St. Charles and The Levee District in East Peoria, so we asked her to share some of her tenets of mixed-use development. How did Cullinan Properties get started in mixed-use? In the mid-Nineties, we developed Harbor Pointe and Eastport Plaza in East Peoria — a mixture of townhome condominiums, offices, retail, and a 580-slip marina. At about the same time, we developed Weaver Ridge Golf Club in Peoria — an upscale golf club and housing community. Grand Prairie Developments in Peoria really placed Cullinan Properties on the national map. While the project was primarily retail-driven, we established the highest apartment rental rates in the market due to the synergies of having entertainment, fitness options, restaurants, and shops all within walking distance. Now you can’t build a successful shopping center without some multi-family options.

“The possibilities for tenant types at mixed-use projects can be truly limitless.”

Describe the ideal mixed-use center. The center should provide a good mix of any number of elements that could include, but not be limited to, retail shopping, dining options, entertainment, residential living, and offices. The possibilities for tenant types at mixed-use projects can be truly limitless, and developers need to get creative. Grocery stores, medical, offices, civic uses, and new forms of entertainment can all be welcome additions. But just as important is the walkability of the property and aesthetically appealing landscaping and gathering spaces. Events are also critical to the success of mixed-use centers. Events introduce the property to new guests and provide our tenants with opportunities to market themselves. Our success as a landlord is tied to the successes of our tenants. Give us an idea of the time and effort that goes into creating something like the Streets of St. Charles. It can be very complicated, yes. Understanding what the market will bear, knowing the needs of a community’s residents, and obtaining support from local, state, and federal officials is critical. Much of the master plan for Streets of St. Charles had been realized since 2007, CHAINSTOREAGE.COM

NOVEMBER/DECEMBER 2018

when it first went into planning stages. To date, the 26-acre project consists of 309 multi-family apartment units, two hotels, office buildings, a movie theater, more than a dozen Diane Cullinan Oberhelman restaurants, and multiple local and national retail shops and services. However, there needs to be a degree of flexibility to change as the market changes and the project nears completion. It’s essential to be able to adapt to shifts in multi-family housing needs and retail climate changes. Where do you start? With the need for residential? The opportunity for retail? The rejuvenation of a promising neighborhood? Those are all good places to start. Developers need to understand the market demands and look for ways to tie in multiple mixed-use elements to offer consumers a property that is a “place maker.” Whether it’s a project that enables consumers to live, work, and play, or a project that offers conveniences for those who live on site or work on site — those desired elements need to be top of mind when planning. What do you find to be a good mix of local and national brand retailers in these centers? It varies by development. Larger, national names can act as an initial draw to attract consumers to the property, while the smaller, local businesses may be what keep them coming back time and again. Locally owned businesses are the lifeblood of our communities, and can be a terrific complement to a mixed-use project. The retail market is indeed evolving, and so to keep up with consumers’ demands for richer experiences when shopping brick and mortar, national retailers are going to need to create those unique experiences for their shoppers in brick and mortar stores. Why should retailers want to have a presence mixed-use centers? Physical retail is critical to so many retailers, including online sellers. A retail brand can be heavily influenced by the property in which it locates. Retailers that covet a premium brand identity need to be in dynamic, mixed-use developments since these are thriving properties. The energy generated by a great mixed-use property benefits the retailers as the shoppers are engaged and inspired by their environment. And sales at our mixed-use properties tend to be well ahead of national store averages. Diane Cullinan Oberhelman is chairman and founding partner of Cullinan Properties, Ltd, based in Peoria, Ill. SHOW SCOOP 043


LEADERS

BRANDON FAMOUS

on international retail expansion Data and analytics provide expanding retailers with global reach. BY BRANDON FAMOUS

M

odern, forward-thinking retailers now are taking a more focused approach to international expansion, guided by analytics, to grow their store base along with their online operations. They’re equipped with more information about their customer base from multiple sources, and they’re finding a wider range of opportunities for store sites. Granted, factors such as the trajectory of regional economies, capital flows, and geopolitical events still have significant influence on international expansion. But data now has taken its place among those leading influencers. It is an integral part of retailers’ efforts to determine their ideal balance of effective online operations and stores in the right locations. A game-changer in this regard — for both international and domestic expansion — is data analytics, specifically massive mobile data. This essentially is mobile-phone tracking, often on an anonymous basis. Monitoring the movement of mobile phones can help a retailer or retail-center owner gain insights such as the average demographics of people visiting a specific location in a specific timeframe, where they spent most of their time in a center, and from where they arrived at the center. This type of data is invaluable for retailers and retail landlords alike in making multiple critical decisions, including determining a given store or center’s trade area and clientele; where to open, close or remodel stores; how to position the merchandise and retailer mix; which customers to market to and where and when to set a store’s operation hours, among other considerations. Retailers and others then cross-reference demographic data to massive mobile data by determining the census tracts from which most phones visiting their property are coming. That data then can be combined with what retailers know about their customers’ online purchasing habits to create a more thorough picture of the retailer’s clientele. Massive mobile data brings substantial value in domestic retail expansion, and even more so in international expansion into countries where the service is available. Foreign retailers expanding into the U.S. now have a data-focused tool to help them study markets and locations that likely are entirely new to them. And

many already are Brandon Famous familiar with the concept. European companies were early adopters of massive mobile data. Equipped with such a data analytics tool, modern retailers also have the advantage of knowing that they might not necessarily need to spend heavily to open a huge flagship store for branding purposes. The growth of e-commerce and social media now has allowed retailers to do much of their brand building online. They still need stores to allow customers to sample the product and experience the brand, but perhaps not as many stores or stores not as large as in the past. Several international retailers entering New York City have opted to open small flagships in trendy submarkets such as SoHo. Gentle Monster, the South Korean retailer of fashion eyewear, opened its first United States store in Soho in 2016. Among many others debuting in the U.S. with small stores in New York submarkets are British premium apparel brand Sunspel, Hong Kong jeweler Ame Gallery, Japanese furniture store Kamarq, and premium clothier Eleventy. Another option increasingly available for expanding retailers are larger spaces vacated by struggling retailers such as Sears Holdings Corp. and defunct chains such as Sports Authority. In some cases, these spaces will allow international retailers to crack previously inaccessible markets due to high costs. Such big-box locations also will be scouted by expanding entertainment uses such as Smaaash USA, the dining hall and gaming center concept founded by Indian entrepreneur Shripal Morakhia. That’s also the case for Round 1 Entertainment Inc., the Japanese bowling-and-amusement operator. Overall, this supports an optimistic outlook for international retail expansion, albeit at a slightly slower but more efficient pace than in years past.

“Massive mobile data can help retailers learn the demographics and favored destinations of visitors to a center.”

044 SHOW SCOOP

Brandon Famous is chairman of CBRE’s Global Retail Occupier Executive Committee NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


Hot Markets

BOSTON

A fast-growing and educated population tills fertile ground for retailers By Al Urbanski “Boston is experiencing the boom it lost to its lowest point in a decade at 2.7%, out on to Silicon Valley 20 to 30 years according to Marcus & Millichap. ago,” said Tim Thompson, Boston reLeading retail deliveries in 2018 gional manager for Marcus & Millichap. include Dorchester’s South Bay Center, Indeed, the home of Harvard, MIT, as well as The Hub on Causeway. The Northeastern, and Boston University single biggest retail arrival will be the is feeling the effects of a regional 197,000-sq.-ft. Wegeffort to keep its intellectual stock mans going up in Framintact by growing its high-tech ingham. Most of the new and life sciences infrastructure. space is coming available Boston’s population has swelled in core Boston and the by more than 100,000 in the past southern suburbs, yet five years — nearly an overflow vacancies there remain situation for a city with a populalow despite the increased tion under one million. rate of completions. Long-anticipated downtown “There’s been a douprojects are forging ahead. bling of completions Ground was broken this year on over 2017,” said Thompthe 1.1-million-sq.-ft. Fenway son. “It’s really interCenter at Brookline and Comesting to see vacancies monwealth Avenues. Going up on going down while we’re the site of the old Boston Garden adding supply.” is The Hub on Causeway, which Thompson sees foreign will bring 1.5 million sq. ft. of investment and imshops, restaurants, offices and migration by educated —Tim Thompson, residences to the area. And 16.5 foreigners playing a key Boston Regional million feet sq. ft. of residential, role in Boston’s growth. Manger for Marcus and Millichap hotel, laboratory, and retail is “Harvard’s continuing being planned for the site of the education department is shuttered Suffolk Downs racetrack on crowded with people from other counthe busy Blue Line near Logan Airport. tries. Walk down Newberry Street on a Retail construction will exceed 1 milgiven day and you’ll hear five different lion sq. ft. for the second consecutive languages spoken,” he said. “Boston’s year, and the absorption of 1.3 million changing. It’s becoming more of an sq. ft. of retail pushed the vacancy rate international destination.”

“There’s been a doubling of completions over 2017. It’s really interesting to see vacancies going down while we’re adding supply.”

CHAINSTOREAGE.COM

NOVEMBER/DECEMBER 2018

boston By The Numbers

1.2

million sq. ft. retail GLA to be completed in 2018

2.7%

vacancy rate

$36

average asking rent per sq. ft. downtown

4%

increase in asking rent over previous year

123,800

population increase 2013-2017

$87,768

median household income Source: Marcus & Millichap SHOW SCOOP 045


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STORE SPACES

Spotlight on X/SPECS By Marianne Wilson Brick-and-mortar retail was very much in the spotlight at Chain Store Age’s X/ SPECS 2018 conference, which focused on the evolution of physical retail in today’s disrupted environment from a design, build and facilities perspective. The 16th annual event, held at the La Cantera Resort & Spa in San Antonio, Texas, brought together retail executives from some of the nation’s top retail companies, including Ulta Beauty, Walmart, Forever 21, Whole Foods Market, Walgreens, and Meijer, along with such newer retailers as Warby Parker Brands. The restaurant category was represented by such brands as Chipotle Mexican Grill, Jamba Juice, Firehouse Subs and Zoe’s Kitchen. Top suppliers in store planning/ design, construction and facilities management were also in attendance.

keynote presentations, Steve Dennis, president of SageBerry Consulting, gave an eye-opening look at how retail is being reimagined in the age of Amazon. An enthusiastic advocate of brick-andmortar, Dennis told the audience that

physical retail “is definitely different but far from dead.” In other presentations, Eric Russell, director of construction for L Brands, parent company of such brands as Victoria’s Secret and Bath & Body Works, discussed

Program The X/SPECS agenda combined top-level speakers with business networking. In Starbucks Corp.’s Melissa Pateras at Face2Face. X/SPECS’ lineup of speakers included L Brands’ Eric Russell.

Jim Pagano of Boston Barricade, left, with Forever 21’s Daniel Cronin.

CHAINSTOREAGE.COM NOVEMBER/DECEMBER 2018

047


STORE SPACES Kelly McDonald followed her keynote with a supplier-only workshop.

Keith Isoldi of Chipotle Mexican Grill at Face2Face.

From left: Bridget McCormick Lackey, J.C. Penney; Marilyn Brennan, Egan Sign; Tracy Scanlan Zaslow, Luxury Brand Holdings; and Annette Debiec, Egan Sign, on the store tour.

The Buckle’s Lori Koeppe at a networking breakfast.

how to impact change in a retail organization via long-term partnerships and efficient resource applications, giving realworld examples from his own experience. Another speaker, marketing and customer service expert Kelly McDonald, gave a thought-provoking address on how generational differences and workforce diversity can be leveraged toward a more progressive retail culture. McDonald followed her morning keynote presentation with a marketing and sales workshop for non-retailers. The supplier-only workshop, entitled “How to Market and Sell to People Not Like You,” was new to the X/SPECS program. This year’s event also featured a tour of The Shops at La Cantera. The open-air shopping center is home to a diverse and stellar line-up of retail tenants, ranging

048

Walmart’s Christie King caught up with Michael Ecke, Benjamin Moore.

from such department store mainstays as Nordstrom and Neiman Marcus to specialty giants H&M and Anthropologie to new and emerging brands like Riley Rose and Altar’D State. X/SPECS also gave retailers plenty of chances to network with suppliers in oneon-one, or “Face-2-Face” information exchanges. Suppliers also had the chance to share solutions with retailers in a wider setting via theater-styled presentations. For more photos, visit chainstoreage.com/xspecs2018. NOVEMBER/DECEMBER 2018

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STORE SPACES Q & A

Maintenance Update

As with so many things in retail, an offensive strategy in facilities maintenance will yield better long-term results than a defensive one. Temporary fixes will ultimately result in larger overall costs, noted Christina Cummins, co-owner and managing partner, CD Maintenance Company.

Q What new trends are you seeing when it comes to retail store and/or restaurant maintenance? Large retail company are moving to bigger national service providers as a one-stop shop to ease burden of management. At the same time, smaller chains are looking locally for self-performing service providers.

proactive allows for a more consistent annual budget spend and less wasted money on temporary spend. A proactive strategy is a time-tested lesson in areas of HVAC and refrigeration. Extending it to other trade lines in turn gives similar results with the same positive outcomes for budget allocation, savings and health of store image.

Q What do you think is the biggest mistake or oversight that retailers make regarding facilities maintenance? The biggest mistake is that when cutting budget cost, the majority of repairs are done as a temporary fix. Doing this requires secondary repairs, which adds to a combined larger overall cost. This is opposed to a blended permanent fix that can add additional integrity and longevity to the repair.

Q Is there anything stores can do to recover more quickly when natural disaster strikes? Retailers should have a strong pre-disaster prep with a good vendor partner in place to track, update and assist with early warnings and shifts in expected disasters. This includes giving vendor partners advanced approval to plan and create priority for the locations before the disaster hits. When advanced warning of possible damage is available, having pre-determined vendors on alert allows them to move in quickly to begin the recovery process.

Q Is there one area that tends to get overlooked? Yes, the back-of-house or employee-facing areas. Maintaining these areas helps promote employee morale by making them feel they are just as valued as the customers they are servicing. Employees will show loyalty, to an employer that shows them loyalty promoting enhanced customer service and company appreciation. Take care of your employees and your employees with take care of your customers. Q Why is it so important to be proactive as opposed to reactive with regards to maintenance? Proactive services keep overall costs down, extending the longevity of overall appearance to give a consistent brand identity that customers come to expect from their choice of shopping experience. Also, being 050

Q Tell us about CD Maintenance Company and the services it provides. We are a woman-owned and womanoperated, nationally focused, full service, commercial facility maintenance company driven by a passion to change the industry standard. Our ample resources and skill sets allow us to offer our clients a wide range of custom designed options to best fit their company’s initiative regarding how their organizations facilities are managed and maintained. Q What distinguishes CD Maintenance from other facilities companies? CD Maintenance’s main differentiating factor is our self-performing hybrid

handyman systems, which allow our company to give large company national coverage with small company personal treatment. We mold our service plan to meet the needs of our clients fitting into their boxes instead of forcing them into ours. This gives them more flexibility to reduce overall budget costs with transparent results. Our clients gain the opportunity to improve brand imaging without raising overall budgets or increasing personal workloads. Q Can CD Maintenance help a retailer reduce its maintenance spend? Yes. Our outside-the-box thinking and approach allows for our creative solutions to cut reactive tickets and spend by carrying over a proactive approach to more than the common standard this industry has come to know. We work alongside our clients with fluid transparency to determine wants and needs, creating long-term positive impact to overall store satisfaction budget dollars. By overcoming each hurdle together, we are able to pave a new road to success. Q What are the key attributes a retailer should look for when selecting a facilities services partner? Retailers should find companies that are able to respond to a single phone call, pulling from a large network and knowledge base to provide the right resolution for long-term permanent repairs. It’s important that a service provider care and respect each location as if it were their own while building relationships on all levels from the ground up. This gives open communication on all levels for conventional and unconventional solutions. NOVEMBER/DECEMBER 2018

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Opento toall allgeneral generalcontractors. contractors.Retailers Retailersand andarchitects architectsattend attendat atno nocharge! charge! Open Visitretailcontractors.org retailcontractors.orgfor forupdated updatedinformation informationand andregistration. registration. Visit RCA is a national organization of high caliber contractors united to provide a solid foundation of ethics, quality, and professionalism in the retail industry. Retailers look to our members for Integrity, Experience, and Stability. US: 800-847-5085 | Intl: 703-683-5637 | retailcontractors.org


STORE SPACES

Clicks to Bricks

Online home décor retailer One Kings Lane opens first flagship

052

The store is designed to feel like a home, with bedrooms, dining spaces, seating areas and a kitchen.

Photo credit Cheng Lin for One Kings Lane

One Kings Lane is among the latest digitalfirst companies to make the leap to physical retail, with the home furnishings and décor brand opening a Manhattan flagship that combines online and offline shopping. The company was founded in 2009 as a flash-sale start-up. But since being acquired by Bed Bath & Beyond in 2016, One Kings Lane has evolved into a multifaceted, omnichannel home brand. The company’s transformation is on display in its stylish flagship, which combines a variety of price points and products — ranging from One Kings Lane’s exclusive collection to vintage, antique and oneof-a-kind pieces to items produced via partnerships — with professional design services. The assortment is curated to fit the aesthetic and needs of the local neighborhood, with lots of small-space solutions for apartment living. The two-level, 3,500-sq.-ft. store is located in one of the oldest buildings in the city’s Soho neighborhood. (It was built in 1818 as a private residence, and has since gone through a number of transitions.) A number of cosmetic updates were made to create a fresh backdrop for One Kings Lane and also to highlight some of the building’s original features. The mix of the old and new reflects the brand’s modernmeets-traditional sensibility. One King’s Lane offers an immersive environment, with merchandise displayed in home-like vignettes that include bedrooms, seating arrangements, and a kitchen created in collaboration with (and outfitted by) cabinetry maker Plain English, one of One King Lane’s newest design partnership. Art work, home textiles and accessories accent all of the displays, enhancing the residential feel. Similar to One King’s Lane online strategy, the product assortment is constantly rotating. As products sell, they will be replaced with new and different items. The store integrates other online features, including the brand’s recently

Customers can customize upholstery and add designer finishing touches via Palette, a furniture customization tool.

launched furniture Palette customization platform that allows for the customization of the scale and color of furniture upholstery. An interactive workstation enables in-store shoppers to experience the new technology and review samples in person. A private, dedicated space on the second floor is home to One King’s Lane in-house professional interior design service where customers can meet one-on-one with a designer. They can also check out paint swatches and wallpaper samples from the brand’s exclusive lines.

Small solutions for city living are highlighted.

This flagship is One King’s Lane second physical store. The brand opened a seasonal pop-up in summer 2017, in Southampton, N.Y. It was so successful, the company converted the temporary outpost into a permanent location. NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


SHOP TALK

Guitar Center

Trending stores: Guitar Center’s signature flagship on Hollywood’s Sunset Boulevard has been completely redesigned with an eye to offering customers a more immersive and experiential environment. The store has also been expanded from 18,000 sq. ft. to some 30,000 sq. ft. More than a place to buy musical instruments and related technology and accessories, Guitar Center has been reimagined as a place to create music, to experiment, to sample, to collaborate and to learn. A vibrant new mural featuring the legendary Jimi Hendrix adorns the façade of the store. The interior boasts an open floor plan with more space, higher ceilings and a dedicated state-of-the-art lessons facility with eight new lesson rooms. …. A store dedicated to products developed exclusively through crowdfunding is making its U.S. debut. We The People, which bills itself as “the world’s only multichannel crowdfunding retail chain and community,” is opening its its first North American location, at West County Center Mall, in St. Louis. Founded in 2016, WTP is based in Singapore, where it operates five locations. It features products from creators who used crowd-

CHAINSTOREAGE.COM NOVEMBER/DECEMBER 2018

funding to get their ideas off the ground. … Amazon has opened its third Amazon 4-star store, in Berkley, Calif. The concept debuted in Manhattan, followed by an opening at Park Tree Meadows, Mall, Lone Tree, Colo. Amazon 4-star only sells items that are rated four stars or above — or are new and trending — on Amazon.com. … One of the fastest-growing companies in the United States has opened its first physical space. Figs, the female-founded brand that’s disrupting the $60 billion staid medical apparel industry with stylish scrubs, opened a pop-up on trendy Melrose Place in Los Angeles. The 1,800-sq.-ft. space features a lively, modern design, with a larger-than-life art installation, called The FIGS Medicine Cabinet, ideal for Instagram selfies. Features include an embroidery workshop, special “night shift” shopping hours, a speaker series and special events. … Convenience and healthy living are the focus of Publix Super Market’s new GreenWise Market format. The 29,000-sq.-ft. store, which opened in Tallahassee, Fla., has a streamlined, modern look, with bold signage and industrial accents. The space is divided into sections: “Care,” “Finds,” “Eats,” “Cuts,” and “Pours.” Other announced GreenWise upcoming store locations include Mount Pleasant, S.C.; Lakeland, Fla.; Boca Raton, Fla.; and Marietta, GreenWise Market Ga. And more are expected.

053


TECHBYTES

Re-Shaping Loyalty When it comes to loyalty programs, retailers need to get more personal. Increasingly, consumers are looking for benefits that relate to them specifically: A recent study by Accenture found that 91% of consumers were willing to show their loyalty to brands that recognize them and offer relevant experiences and rewards. Like so many other things in retail, a one-size-fits-all loyalty program just doesn’t cut it anymore. At a time when many loyalty programs still lack personalization, relevant promotions and benefits, retailers need to step up their game — and fast. Here are four trends to consider to help reshape loyalty programs and also to engage shoppers and build long-term relationships going forward: • Premium rewards programs will become more prevalent. The success of Amazon Prime proves that customers are willing to

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pay for a program if they perceive the benefits as meaningful to them. Also, more retailers are starting to jump on the bandwagon, from GNC to Lids to CVS’ new CarePass membership pilot. According to a study from LoyaltyOne, 62% of respondents said they would consider joining a fee-based rewards program if their favorite retailer offered one. This number was even higher among millennials, with 75% of 18- to 24-year-olds and 77% of 25- to 34-year-olds saying they would consider joining a fee-based rewards program. Nearly half (47%) said rewards in fee-based programs are better than those offered in free programs. • Philanthropic ties will become “business as usual.” Customers, especially younger ones, are more likely to support brands with a purpose. Keeping a social mission front and center helps to maintain customer loyalty. For example, children’s’ clothing-in-box company Kidbox’s social mission is to clothe 1 million children in need. For every full Kidbox purchased, the company donates a new, tagged item from its previous season’s inventory to a child in need. To date, the company has donated $3.9 million in clothing. Meanwhile, luxury online retailer Olivela donates 20% of each purchase to charity partners dedicated to supporting education for girls. Its efforts have provided over 41,000 days of school to at-risk girls through four different charity partners. • Programs will look beyond transactions and reward members based on behavior. In addition to rewarding spending, retailers should also reward members willing to bolster content in new ways. When customers are rewarded for engaging with the brand, they are more likely to participate in the loyalty program. For example, retailers can bestow points to members that share reviews or complete customer experience surveys. Besides customers learning from what other members share, this member-created content can help brands improve the shopping or loyalty program’s experience. • Retailers will offer more digital tools to engage members post-purchase. The post-purchase experience is just as important as discovery and making a purchase — and smart retailers can use this to their advantage. Instead of “going silent” when shoppers wait to receive their purchase, retailers need to provide tools, from chat bots to custom tracking pages, that keep members in their ecosystem and their brand top of mind. GameStop for example, enables shoppers to track deliveries, view product recommendations, and link back to the retailer’s site to find trade-in values for their previously played games, consoles, and electronics. These pages are all delivered responsively, so they can be viewed on any computer or mobile device. The solution also enables GameStop to conduct post-purchase analysis to learn what potential improvements can be made to step up on-time deliveries, and proactively solve any carrier hiccups.

Deena M. Amato-McCoy damccoy@chainstoreage.com NOVEMBER/DECEMBER 2018

CHAINSTOREAGE.COM


TECH

Talking Tech with Ahold Delhaize USA By Deena M. Amato-McCoy Ahold Delhaize wants to get closer to its customers in North America, an initiative that is being lead by company’s Retail Business Services division. The Netherlands-based supermarket giant created Ahold Delhaize USA in January 2017, bringing Ahold Delhaize’s seven U.S. companies under one operating arm. The merger includes Stop & Shop, Food Lion, Giant, Hannaford, Giant/Martin’s and Peapod, as well as Retail Business Services (RBS). This U.S.-based shared services company, which is comprised of associates in various support groups within the organization, provides costeffective, best-in-class support services that enable these retail brands to accelerate their individual and local strategies. “Being able to capture the best that each group had to offer was one of the pieces of the merger that excited many of us,” said Dan Harriman, director of pricing and promotion services at Ahold Delhaize USA’s retail business services. “Our six local retail brands are focusing on delivering to their customers, while the seventh unit, RBS, focuses on improving technology solutions and best practices around business processes,” Harriman explained. “We are also continually evaluating which areas will best enable our brands to effectively deliver pricing elements to our customers, while managing their business needs.”

CHAINSTOREAGE.COM NOVEMBER/DECEMBER 2018

Harriman discussed with Chain Store Age how technology solutions such as price forecasting tools, analytics and machine learning are helping Ahold Delhaize USA to better serve customers and even localize the shopping experience. Q How does technology impact the overall in-store experience? A core piece of the Ahold Delhaize USA restructure was to focus on the local brands, and how they could better engage the customer. It is a bit cliché to talk about leveraging technology for personalization, but that is truly the next step in this goal. We need to move away from talking to groups [of customers] and to empowering our local brands to have a dialog with each person who shops in our stores. Our marketing departments and the newly formed Peapod Digital Labs will empower the brands to have those conversations. While I don’t know everything they are working on, these departments were formed with the goal of driving digital and e-commerce innovation, technology and experiences to meet the changing needs of customers of its local brands, regardless of when, where and how consumers choose to shop. Q How has the pricing strategy been impacted? From a pricing perspective, technology needs to be transparent. My team’s goal is to allow the brands to think more about their message and who they are talking to, and less about the details of executing an ad, and how it to make it work. If we can make execution simple and more efficient, our merchants can focus on what is most important: serving the customer. We currently use the Base Price Optimization and Markdown Optimization modules from Revionics. Base Price elevated our analyst from being a “logic engine” to being a true analyst, or as we say, “a trusted advisor to our merchants.” The technology’s

abilities to influence decisions by offering reliable forecasts on scenarios that can be quickly turned around can help shape strategy and execution. The systemic processing of competitive and cost data adds efficiency and consistency to strategies, and creates more predictable margin results. The markdown tool works efficiently because our merchants and pricers no longer have to focus on each item that leaves our assortment. A brand sets an overall strategy, and while markdown executes in a way that reduces margin spend and reclaim, the pricer and merchant get to focus on elements that can add more value. Q What is Ahold Delhaize’s approach to artificial intelligence (AI)? AI and machine learning has been making an impact for some time, and are always growing. In the pricing area, it is helping our team members make better decisions. By taking in data to create better models, we can better understand how customers will react; create scenarios and options for our merchants, and create dialog with other partners to understand the end results of decision we make. My team and I look at a need, and then work on a solution. Sometimes AI is a benefit and sometimes it is not — it all depends on the requirements and nature of the project. In the next year, we hope to address a variety of projects, and I would say that about half would benefit from a solution that incorporates some type of AI or machine learning. Q What is your take on fully automated food stores? Visiting the Amazon Go store in Chicago left me with several operational questions, including how to have a conversation or engage with the customer. In a traditional store, you will almost always have an opportunity for a team member to interact with the customer and be your brand ambassador. Online, your tools can collect data and make suggestions, present information, and otherwise interact. In an automated store, however, you don’t have that opportunity in real-time. So the question is: How do you engage them in a meaningful way? 055


TECH Q & A

Unified Commerce Drives Omnichannel Experiences

Unified commerce and omnichannel commerce are not the same thing. Rather, retailers entrenched in unified commerce have a single view of customer and business data that they use to deliver omnichannel experiences, according to Matt Rhodus, director and industry principal, strategic initiatives, Oracle NetSuite. Chain Store Age recently spoke with Rhodus, who discussed how only a unified view of customer, inventory and order data can blur the lines between retailing channels, and deliver consistent cross-channel shopping experiences and fulfillment options. Q How close is the industry to adopting unified commerce? Unified commerce is different from omnichannel in that it refers to the technology strategy enabling those omnichannel experiences. Retailers with unified commerce strategies aren’t trying to integrate data that sits in different point-of-sale (POS), order and inventory management, and CRM systems. Instead, they have one database, with one version of the truth. There aren’t too many retailers in that spot right now — a recent Boston Retail Partners survey put that number at 28%. However, the advantage the unified commerce provides is apparent in the growth in adoption of the strategy. Last year, only 9% had unified commerce systems in place. What’s more, by 2020, Boston Retail Partners predicts that some 81% of retailers will have deployed unified commerce platforms.

find what they want and reliably determine whether it is available in the time they need it. That’s something that only a unified view of customer, inventory and order data can enable.

Q What are the challenges that retailers still need to overcome in this journey? I like the unified commerce term because it hits on the real challenge in delivering true omnichannel experiences: it is a backend problem, not a front-end problem. Retailers throw millions of dollars at delivering superior customer-facing experiences that are useless if the data behind them isn’t reliable. The truth is that no number of iPadwielding store associates, or pizazz in digital marketing efforts is going to sway customers to buy something if they can’t

Q What kind of cost savings and efficiencies can retailers expect from a cloud-based system? Cloud-based ERP systems eliminate costs associated with on-premise infrastructure, services, administration and ongoing maintenance. But aside from the cost benefits, the flexibility and scalability offered by the cloud — particularly for the retailer in growth mode — simply can’t be matched by on-premise software, or by trying to knit together cloud-based, best-of-breed systems with a legacy ERP system. The latter will only result in higher costs, greater inefficiencies, and [technology] workarounds.

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Q What are the trends that are pushing retailers to consider cloud-computing platforms to transform their businesses? Experiences like buy online, pick up in-store (BOPIS), buy online, return to store (BORIS), or two-day shipping are no longer trends, they are expectations. But it is hard to profitably deliver on those experiences, especially for retailers saddled with legacy systems. As such, they’re looking to cloud-based software to decrease the cost of system maintenance and free up capital for innovation, while at the same time ensuring what they deliver can function at scale.

Q Once they are armed with a cloudbased platform, what are the first steps to becoming omnichannel ready? A real-time, 360-view of customer, order and inventory data is the enabler of omnichannel experiences — because it empowers the retailer to blur the lines that previously prohibited channels from communicating with one another. Once retailers have this view, many start by perfecting basic omnichannel experiences that in all reality aren’t that simple to deliver without error — such as BOPIS. Because product inventory is transparent across channels, including physical stores, these stores can become more like fulfillment centers, where in-demand experiences are delivered in a manner that delights customers, and optimized according to location and buyer needs. Q How can NetSuite help them achieve these goals? NetSuite, a provider of cloud-based business management software, helps companies manage core business processes with a single, fully integrated system covering ERP/financials, CRM, e-commerce, inventory and more. In addition, NetSuite SuiteCommerce was built with the idea that e-commerce is no longer a stand-alone channel but a core business component. SuiteCommerce enables businesses to move from siloed online, in-store and phone shopping channels to an integrated commerce solution that seamlessly connects e-commerce and in-store POS to order management, inventory, merchandising, marketing, financials and customer service. NOVEMBER/DECEMBER 2018

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TECH

Giving Back

Online luxury start-up Olivela puts new spin on charitable giving

By Deena M Amato McCoy

as well as her work supporting children’s A new, digitally native luxury retailer is usrights to an education. During the trip, ing its partnerships with high-end designers Boyd met girls in makeshift primary schools to educate and change the lives of young located in refugee camps in Kenya and girls worldwide. Rawanda, and was inspired. Founded online in June 2017, San Fran“At one point, I took out my camera to cisco-based Olivela takes the notion of retail take a photo of some of the girls and looked philanthropy to a new level. Selling apparel, at my [designer] bag,” she explained. “That jewelry, accessories and beauty from such was when I knew that we could unleash the luxury brands as Valentino, Givenchy, Stella equity in luxury shopping to yield benefits McCartney, Jimmy Choo, and Dolce & Gaband opportunities for so many children bana to name a few, the retailer donates 20% around the globe.” of each purchase to charity partners dedicated to supporting education for girls. What’s more, Olivela lets shoppers directly connect with the end result by doing the math for each piece of merchandise on the site. A $395 metallic pleated skirt from Marc Jacobs, for example, pays for 10 days of school for Syrian refugees (provided through partner Care), while a $3,890 Max Mara cost provides for 113 days of school. “We launched with a dozen luxury brands, and now feature 225 of the world’s Stacey Boyd best brands,” said Stacy Boyd, founder and CEO. “Our partnership with the brands is what makes all of “During the trip, it became this possible.” increasingly clear that while We will continue to Olivela is not Boyd’s first talent is equally distributed, bring on new brands, foray into retail. A parent and opportunity is not,” she as well as fulfilling former school principal, she added. “I knew that I could our promise to make parlayed her career in educadraw on the experience Olivela the ultimate tion to launch a number of and expertise from having philanthropic retail successful ventures. These inlaunched Schoola, which destination.” clude the Academy of Pacific aims to benefit public schools —Stacy Boyd, founder Rim, a charter public school here in the United States.” and CEO, Olivela in Boston, as well as Project It was from that realization Achieve, an educational information manthat Boyd began developing a retailing exagement system startup. She also launched perience with “giving back” built into every Schoola, an online retailer that sells gently transaction. Once the evolving company’s worn clothing to support schools in need. social mission was in place, Boyd needed The idea for Olivela evolved during a trip an equally meaningful name — one that Boyd took to Africa in 2016, to celebrate highlighted the company’s philanthropic Malala Day — the birthday of Malala ideals. For Boyd, the perfect moniker was a Yousafzai, who was awarded the 2014 Nomash-up of the words “olive” and “vela.” bel Peace Prize for her struggle against the “The olive tree represents growth and wissuppression of children and young people, dom, and vela is the Latin word for ‘sails of a

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ship,’” she explained. “Overall, Olivela helps set children forth on the right path in life.” To date, Boyd added, Olivela has provided over 41,000 days of school to at-risk girls through all four charities. To ensure it maintains loyalty among its shoppers, the company also price matches merchandise. Eligible items must be identical, from the same designer, and in-stock on a designated U.S.-based competitor’s website, according to Olivela’s website. Participating brands ship all merchandise to Olivela’s warehouse in Columbus, Ohio, a practice that ensures that product is authentic. Some pieces are also exclusive or limited-edition items that may only be available for short time frames and thus, not restocked when they sell out. Olivela currently ships merchandise to customers across all 48 continental states. Eager to reach an even broader audience, the company opened its first pop-up boutique in June. The 900-sq.-ft. store, in Nantucket, Mass., features a curated assortment of 950 items from top designer brands, as well as hosted trunk shows and beauty events. The location, which also accepts returns of online purchases, also makes its standard donation from each sale to its children-based charities. “Nantucket’s vibrant business community combined with the stylish and socially conscious residents and visitors, was the perfect setting to launch the retail side of our business and further make a real impact in the lives of girls around the world,” Boyd said. The pop-up, which remained open through October, also sparked a partnership with the Nantucket Cottage Hospital. Through its sales, Olivela made donations that provided over 19,000 hours of lifesaving dialysis, she added. The store’s success has spurred the company to open 15 new boutiques through 2019. The first will open on Dec. 5, in Aspen, Colo. Olivela also plans to broaden its assortments, as well as charity partnerships. “We are excited about extending Olivela into more categories and evolving the cause partnerships, both in depth and specificity,” she added. “We will continue to bring on new brands, as well as fulfilling our promise to make Olivela the ultimate philanthropic retail destination.”

NOVEMBER/DECEMBER 2018

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Chain Store Age - Nov/Dec 2018  

Chain Store Age - Nov/Dec 2018