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January/February 2024

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Retail chief executives facing headwinds amid increased pressure for real growth

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from the editor’s desk

tech viewpoint: a retail tech column

Contents VOL. 99 JANUARY/FEBRUARY NO. 1

Predictions: What to expect in 2024

Retail’s revolving door saw a number of CEO exits in 2023.

STORE SPACES

Store designers can help in battle against retail shrink.

Trending Stores: Running brand On continues U.S. expansion; Lulus makes store return.

COVER STORY

Retail chief executives facing numerous challenges amid increased pressure for real growth

Store Spaces Q&A: Colt Facility Maintenance’s Peter Tsanacas discusses retailers’ FM challenges.

Last-minute facilities prep for severe weather.

Improving Indoor Air Quality: Steps to take when outside air is unhealthy.

Dollar Tree dives into community solar.

Aldi sets ambitious natural refrigerant target.

CSA (USPS 054-410; ISSN 0193-1199), is published bimonthly by EnsembleIQ, 8550 W. Bryn Mawr Ave., Suite 200, Chicago, IL 60631, on a controlled basis to qualified retailer titles and architects. Real estate and shopping center owners and developers $75 per year. All other non-qualified in the United States: $96 one year; $186 two year; $17 single issue copy; Canada and Mexico: $138 one year; $258 two year; $19.20 single issue copy; Foreign: $138 one year; $258 two year; $16 single issue copy. Digital edition subscription: $55 one year digital; $105 two year digital. Periodicals postage paid at Chicago, IL and additional mailing offices. POSTMASTER: Please send address changes to CSA, Circulation Fulfillment Director, 8550 W. Bryn Mawr Ave, Suite 200, Chicago, IL 60631. Subscription changes may also be emailed to contact@chainstoreage.com, or call 1-877-687-7321. Vol. 99, No. 1, January/February 2024. Copyright ©2024 by EnsembleIQ. All rights reserved.

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JANUARY/FEBRUARY 2024

Contents VOL. 99 JANUARY/FEBRUARY NO. 1

REAL ESTATE

TECH

Five Companies Rebuilding Retai Available retail space is at a historic low, but DLC, Vestar, Pacific Retail, WMG, and Urban Edge are determinedly adding millions of square feet of GLA nationwide.

Generative AI takes center stage.

A look at how retailers will benefit from new federal supply chain actions

Seamless Retail: Retailers use tech to create improved store experiences.

JANUARY/FEBRUARY 2024

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FROM THE EDITOR’S DESK

2024 Watch List Amid price hikes, rising interest rates and mounting consumer debt, the retail industry did pretty well in 2023 — certainly a lot better than some experts had predicted — as consumers continued to shop. As to what to expect this year, foot traffic analytics firm Placer.ai has dived into its rich treasure chest of data to find which segments are best positioned for success in 2024. Here’s a brief recap of Placer.ai’s “7 Retail & Dining Segments to Watch in 2024.” • Specialty Grocery: Visits to highend grocers have surged as consumers seek out specialty ingredients to recreate restaurant-quality dishes at home. Rising interest in sustainability, natural products and organic ingredients — especially among Gen Z — is also helping to drive growth. “With restaurant prices likely increasing slightly in 2024, consumers looking to feed their families tasty dishes without breaking the bank — or shoppers feeding the growing demand for natural food products — will likely keep visits to specialty grocers high in the coming year,” the report said. • Personal Grooming & Self Care:

Chains that offer non-consumable affordable indulgences such as tanning salons, hair-removal parlors and eyelash salons have seen an increase in visits that will likely continue in the coming year. Deka Lash, Tan Republic, Glo Tanning, and LaserAway are some of the brands whose year-over-year visits increased significantly in 2023, and the growth does not appear to be slowing down. Since younger shoppers tend to spend more than the average American on beauty and self care — and Gen Z’s spending power is only expected to grow in 2024 — personal grooming chains are

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well positioned to succeed even further this year, according to Placer.ai. • Upscale Apparel: Retailers such as Theory, Anthropologie, and Marine Layer all saw year-over-year increases in monthly visits every month of 2023, helped by the “quiet luxury” trend that fueled demand for high-quality, nonostentatious fashion. “So even as many companies look to cater to the increasing share of budgetconscious consumers, other retailers willing to invest in quality materials and offer a premium customer experience can still thrive in 2024 by meeting the needs of more affluent audiences,” the report said. • Themed Fitness Concepts: Another personal care-related segment slated for growth this year is themed fitness, which takes in gyms and studios that focus on a particular type of activity or fitness regimen, such as climbing, yoga, Pilates or HIIT (a type of interval training). Visits to these venues are skyrocketing, with the number of monthly visits and the average visit frequency on the rise. • Affordable Luxuries: Consumers are willing to splurge on small treats that won’t break the bank, and budgetfriendly treats — ranging from craft doughnuts to specialty coffees — provide the perfect affordable and guiltfree pick-me-up. Parlor Doughnuts, Pickleman’s Gourmet Cafe, and Dutch Bros are some of the chains that benefited from this trend in 2023 and will likely continue to grow in the new year. On the dining scene, Placer.ai said the demand for healthy dining concepts is likely to continue growing in 2024. So is the demand for fried chicken, with chains such as Dave’s Hot Chicken, Raising Cane’s and Huey Magoo’s Chicken Tenders taking the country by storm. “It seems, then, that while some diners will favor healthy foods in the new year, other consumers are likely to continue driving visits to fried chicken chains in 2024,” noted Placer.ai.

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CORPORATE OFFICERS Chief Executive Officer Jennifer Litterick Chief Financial Officer Jane Volland Chief People Officer Ann Jadown Chief Strategy Officer Joe Territo Chief Operating Officer Derek Estey

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TRENDS

What to Expect in 2024 From generative AI to the rise of social commerce, the retail industry is poised for another year of change and disruption. Here is a review of global market research giant Forrester’s predictions for customer experience (CX), digital commerce and retail in 2024. RETAIL

U.S. retailers will deploy tech solutions including computer vision, store lockdown features, and associate communication tools specifically to address crime. “Expect the adoption of self-identification requirements, such as Amazon’s Just Walk Out technology, to become more widespread,” said Sucharita Kodali, principal analyst, Forrester, in a post on the company’s website.

commerce as the technology matures and regulations proliferate.

• At least one-quarter of digital tech spend will shift from maintenance. In

economic conditions that require flexibility in the face of the next unexpected event, businesses will spend less on maintaining legacy system as they finally move to eliminate outdated tech instead of paying to keep it on life support.

• Generative AI will cause retail expenses to go up before they go down. About

• The U.S. culture war will cause a major retailer’s stock to collapse. Thirty-

one in three of the AI decision makers see the greatest barriers to generative AI adoption as data privacy and concerns, employee experience and readiness, lack of understanding where to apply the technology, and governance and risk. Without human oversight, Forrester foresees code fiascos, customer service debacles, and marketing mishaps in scenarios such as retailers inadvertently discounting items and live chat tools misinforming shoppers. Each mishap will result in a churned shopper or an unprofitable interaction.

seven percent of U.S. online adults say they feel strongly influenced to shop with a company if it pays fair wages; 23% of them actively support environmental and climate change policies; and 18% of them actively support inclusiveness. As such, the cost of doing business in retail now is to risk alienating some consumers. If retailers opt to create policies to stay out of political debates, they risk developing unhappy customers, demoralized teams and reduced talent pipelines.

• One-third of all brands will launch experiences that are biased, inaccessible, or harmful. Return to of-

DIGITAL COMMERCE

• Half of large global firms will experiment with customer-facing generative AI. Companies that succeed will test

theft and violence in physical stores, more retailers will be forced to analyze and fund concrete measures to address the extreme risks that come with in-store criminal behavior. Forrester predicts one in three

of adults under age 25 said they have completed a purchase within a social network in 2022, social commerce is poised to take off with younger audiences. Forrester predicts that advertisers will tap retail partner data via social ad placements, and social platforms will make their ads more palatable amid increasing customer privacy concerns.

• One-third of U.S. retailers will change the shopper experience to address organized crime. With the rise of

Looking Further Out • By 2028, Forrester expects US total retail sales to reach $5.8 trillion and U.S. online retail sales to reach $1.6 trillion. U.S. online retail penetration will grow to 28% by 2028. • By 2028, Forrester expects U.S. offline retail sales to reach $4.2 trillion and account for 72% of the market. • The volume of click-and-collect sales (includes buy online, pickup in store as well as curbside pickup) will double by 2028 to exceed $200 billion — and that year will account for 12% of U.S. online retail sales. Source: Forrester’s U.S. Online Retail Forecast, 2023 -2028

• Social media giants will partner with three retail media networks for commerce ambitions. Given that fully 61%

• Only one-quarter of businesses will benefit from generative AIpowered digital commerce. While

nearly 60% of all U.S. retail sales are already digital-influenced, only one-quarter of enterprises will reap short-term rewards before increasingly privacy-aware consumers call for tighter controls over their data. Forrester predicts that consumer-governed data (rather than enterprise-governed data) will limit generative AI-powered digital

CUSTOMER EXPERIENCE

fice (RTO) mandates will drive higher attrition among marginalized groups, including women, people of color, and people with disabilities. The loss of marginalized people’s vital perspectives will prompt companies to release products and services that fail key inclusive design standards. Brands that launch non-inclusive experiences will hurt their revenue, profit, resilience, and trust.

generative AI with employees before deploying it in customer-facing experiences. Starting with internal use cases allows enterprises to build generative AI expertise in a lower-risk environment, delivering business value while learning how to manage and mitigate hallucination and bias.

• Two in five customer experience (CX) teams will turn away work because their remit exceeds their resources.

Even though more than half of CX teams have finally convinced their companies to invest more energy in their customer focus, CX professionals haven’t convinced senior executives to invest enough money in their CX programs — just over half of CX decision-makers expect their team budget to stay flat or grow by just 1% to 4% in 2024. As a result, the gap between CX teams’ responsibilities and resources continues to widen. JANUARY/FEBRUARY 2024

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COVER STORY

TEMPERATURES RISING IN THE CEO HOT SEAT Retail chief executives facing headwinds amid increased pressure for real growth By Connie Gentry

JANUARY/FEBRUARY 2024

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olid holiday sales, which grew 3.8% over 2022 to a record $964.4 billion this past season, aren’t enough to leave retail CEOs sitting pretty. In 2024, more than ever, the performance of top executives has to be grounded in profitability, and CEOs will have to deliver quantifiable, credible results underscored with a strategic vision for scaling the digital landscape. “Growth is the leading mandate going into 2024, but in particular that means real growth, excluding inflation,” said John Long, North America retail sector leader and senior client partner at global organizational consulting firm Korn Ferry. “Those retail numbers that showed holiday was up around four percent. But if you back out inflation, that number is actually probably negative.” And negative doesn’t cut it in the retail boardroom. Among CEO exits last year, 42% were unplanned or unexpected departures according to the “Retail CEO Moves 2023” report that Korn Ferry released in early January. (For some of the biggest exits in 2023, see story on page 14.) “I think we are going to continue to see unplanned exits at a fairly high rate,” Long said. “There is a lot of CEO fatigue out there and, frankly, when boards and investors aren’t seeing growth, a degree of impatience sets in.” The year 2023 was a challenging one for many retailers, with consumers cutting back on discretionary purchases as rising inflation and interest rates helped sink consumer sentiment. Retail CEOs are seeing headwinds they’re not accustomed to and situations they haven’t dealt with before, according to Matt Katz, managing partner at global consulting firm SSA & Company. “The cost of capital and the idea of cash management are things CEOs were not faced with in years past,” he explained. “Money was cheap, cash flows were positive and consumers had freedom to spend dollars. When these things go the other direction, it makes the CEO job harder, or at least different than what they were accustomed to, so they need to operate with a different playbook. Katz said he is seeing boards question their CEO’s capability, and put more support structures around those CEOs to ensure they have partners they can rely on. “The leashes are tighter on the CEOs,” he added. Tenure Diving deeper into those unplanned CEO exits, Long said the average tenure was 6.6 years, which he asserts is a sufficient time for a chief executive to prove themselves, and most of those executives were in place through the pandemic. There was, however, a significant gender gap: The average tenure among departing male CEOs was 7.7 years. Among female CEOs making unplanned exits, the average tenure was 3.7 years — less than half the time their male counterparts had to prove their capabilities. “Covid was an event that defined a lot of CEOs, and every year probably felt like dog years — like it lasted six or seven years, so some of the unplanned moves weren’t boards and investors forcing a decision, it was also executives choosing to retire — and it’s unplanned because there’s no immediate successor,” said Long, who

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recommends businesses start succession planning the day a new CEO comes on board, rather than following the old-school– standard and initiating succession plans a year or two prior to an anticipated exit. Whether planning for new leadership or charting the course for profitable growth, the elephant in the boardroom is artificial intelligence. Machine learning and AI are poised to change how retailers make decisions, conduct operations, interact with consumers, and succeed or fail in the marketplace. But if AI is the elephant, a retail CEO who fully understands AI is the unicorn. “The expectations of CEOs have grown significantly, and finding a CEO who can deal with all the issues is a challenge,” said Natalie Kotlyar, national managing principal, retail & consumer products, at BDO USA. She cites a number of pressing issues the CEO faces: understanding their customer base and the experiences that will retain existing customers as well as attract new customers; dealing with ongoing supply chain concerns; and restructuring amid a challenging economic environnment. Topping the list is the imperative for a strong digital platform. In its annual C-level retail survey (released in January 2024), BDO reported customer loyalty is clearly a competitive differentiator in 2024, so retailers “must enhance customer experiences through the strategic use of data.” To that end, the study noted that 45% of retailers are building a proprietary generative AI platform and 55% plan to deploy “scenario modeling and predictive software” in the coming year to address inventory inaccuracies. “We’ve never had KPIs related to customer acquisition, customer retention or ecommerce, and now there’s a whole suite of important KPIs the CEO needs to be familiar with,” said Kotlyar. The retail organization has to be able to “accumulate, study and act on data,” and that circles back to the need for AI and for a C-suite of professionals with varying skill sets that support the CEO, she added. First and foremost, stakeholders and boardrooms are homed in on growth. As Katz explains: “A CEO’s job is to drive

JANUARY/FEBRUARY 2024

COVER STORY

shareholder return. Whether in the private market or public market, they are stewards of the business and their job is to drive the biggest financial return for the company.” However, CEOs are feeling anxiety from the pressure to perform in a world increasingly dependent on data. In its 2024 disruption index, AlixPartners found that 58% of CEOs feel they are personally falling behind the knowledge and skills curve (thank AI for that grim prognostication), and 63% say their company can’t keep up with the rate of technological change. “The shift in technology is so top of mind and CEOs are going to have to embrace AI if they’re going to excel,” said Sonia Lapinsky, partner and managing director in the retail practice at AlixPartners. “That’s not the role of the CEO typically. They’re not fully in bed with technology; they’re relying on their CIO for that.” Artificial Intelligence But now, AI is going to potentially change their entire business model, she added. “It could make or break their entire customer experience, make them efficient and agile from a

Retail CEOs: Quick Stats Below are some insights from Korn Ferry’s “Retail CEO Moves 2023” report. • Female CEOs are losing ground: Of the 47 newly-appointed retail CEOs last year, only five were female. • Succession planning drove 80% of the five female CEO appointments. • Forty-two percent of all 2023’s announced retail CEO exits* (includes exits without a named permanent successor) were unplanned / unexpected.** • Outgoing CEOs had an average tenure of 6.6 years, but women’s tenures were four years less then men’s. • In the “Boomerang Phenomenon,” in two cases in 2023, retail CEOs named within the past 15 months were replaced by their predecessors. • Succession planning is paying off: the majority (57%) of CEO appointments in 2023 were internal promotions. • Of the external promotions, 45% came from non-retail • In the “Boomerang Phenomenon,” in two cases in 2023, retail CEOs named within the past 15 months were replaced by their predecessors. *52 total announced exits of which 22 were unplanned **based on Korn Ferry assessment Source: Korn Ferry analysis

cost perspective — or not.” What came through as a lack of confidence among CEOs in the disruption index is the mandate to master uncharted territory more than a personal failing, and they don’t know where to turn for AI expertise in retail operations. “The typical CIO is not an AI expert and, in retail specifically, they don’t have that kind of high-tech caliber of [talent], nor do they know how to hire them, so they’ll have to listen to third parties, which puts them in a difficult position,” Lapinsky said. With the very real emphasis on “profitable growth” and the potential to leverage data analytics for smarter business strategies, most CEOs face a steep learning curve. “Being able to service the consumer is more expensive than ever with all the omni-service shipping costs, the highest return rates we’ve ever seen, and retailers paying for that [service] — these are things the customer has become used to, so retailers are going to have to make some tough choices,” added Lapinksy, who oversees the fashion practice at AlixPartners. The challenges — and opportunities — are even greater for fashion retailers, where the “whole ecosystem of fashion” is characterized by excessive waste and loss because of how far in advance most companies make design and buying decisions, according to Lapinsky. “They’re committing to all of this inventory flowing through inefficient channels just to get to a consumer who’s going to return 70% of it,” she said. In this era of hyper competition and drains on profitability everywhere, we have to have the right forward-looking data that makes better decisions, faster … maybe that means using local stores for returns so you can turn it around quickly and get product back out before the fashion is stale. Maybe it’s buying less inventory with deals negotiated to [replenish] more quickly. Now that we have machine learning models, we can use data to make better and smarter decisions, and that’s going to be critical.” Another looming differentiator associated with AI adoption is the speed with which it is being integrated into technology platforms, a speed to market that requires fast action. Korn Ferry’s Long contrasts it to the adoption of e-commerce within the retail sector, which he describes as a “slow drip’’ since 2000 that was accelerated by Covid and sustained past Covid. But AI is not likely to move at that glacial pace, Long cautioned. It’s likely to move a lot faster. “You [CEOs] need to be out in front of AI today — it’s not going to be something you will be able to catch up to,” Long advised. “CEOs need to be out there taking risks, making investments, and figuring out how it will be relevant to their business – because it will be relevant to all businesses.” Connie Gentry is a business writer based in Raleigh, N.C.

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COVER STORY

Retail’s Revolving Door: CEO Shakeups Kohl’s, Walgreens, Gap Inc. among companies that made changes at the top in in 2023 By Marianne Wilson

There were lots of changes at the helm of retail companies in 2023. Here’s a review of the most noteworthy (listed in the order they were announced). DECEMBER • Save A Lot named Fred Boehler as its permanent chief executive. He had served as interim CEO since Oct. 31, following the departure of former chief Leon Bergmann. NOVEMBER • Todd Jones, CEO of Publix since 2016, said he would step down from the post and become executive chairman, effective Jan. 1, 2024, to be succeeded by Publix president Kevin Murphy. • At Home chairman and CEO Lee Bird announced his retirement, effective Dec. 31, 2024, after leading the company since 2012. The search is underway for a new chief executive. • Beyond (formerly Overstock.com) company veteran Jonathan Johnson stepped down as CEO following “mutual agreement with the board.” David Nielsen, president of Beyond was named interim CEO. OCTOBER • The longtime CEO of Costco Wholesale Club, Craig Jelinek, is set to step down, effective Jan. 1, 2024, succeeded by Ron Vachris, who served as Costco’s president and COO since February 2022. • Rite Aid filed for bankruptcy and named Jeffrey S. Stein as CEO, chief restructuring officer and board member. • Party City Holdco Inc. emerged from Chapter 11 bankruptcy and, in connection with its restructuring, CEO Brad Weston resigned. Sean Thompson, president and chief commercial officer, was named interim chief. • Walgreens Boots Alliance handed

the reins to health care veteran Tim Wentworth. He succeeded Rosalind Brewer who stepped down in August after less than three years on the job. • Todd Vasos was appointed CEO of Dollar General, succeeding Jeff Owen who served in the role since November 2022. Vasos previously was Dollar General’s CEO from 2015 to 2022.

JUNE • Longtime AutoZone CEO Bill Rhodes will retire in January 2024. He will be succeeded by 29-year company veteran Philip B. Daniele, III, executive VP merchandising, marketing and supply chain. MAY • The Vitamin Shoppe named Lee A. Wright as CEO. He served as interim chief executive since January 2023, following the abrupt departure of Sharon Leite. • The longtime CEO of Trader Joe’s, Dan Bane, retired. He was succeeded by Bryan Palbaum, who served as president and COO of the grocer for the past 10 years.

SEPTEMBER • The Game Stop board elected Ryan Cohen as president, CEO and chairman. The billionaire activist, who holds an approximate 12% stake in the retailer, will take no salary. • Consumer products veteran and former Tysons Foods executive Stewart Glendinning was named CEO of Express Inc., replacing Tim Baxter, who resigned.

MARCH • Jeff Gennette, chairman and CEO of Macy’s Inc., will retire in February 2024, after 40 years with the department store giant. Tony Spring, chairman and CEO of Macy’s Bloomingdale’s division, was named CEO-elect. FEBRUARY • Kohl’s s Corp. named Tom Kingsbury as CEO a chief executive officer. He had served as interim chief since December 2022.

AUGUST • Bill Artman was named CEO of Giant Eagle. The 40-year company veteran has served in the role on an interim basis since March, following the abrupt exit of Laura Karet. JULY • Gap Inc. ended its year-long search for a leader, naming Richard Dickson as president and CEO. He most recently served as president and COO of toy giant Mattel.

• 1-800 Flowers.com said that CEO Christopher McCann stepped down for personal health reasons. He was succeeded by his brother and chairman Jim McCann, who served as CEO of the company from inception through 2016.

JANUARY • Dollar Tree named executive chairman (and former Dollar General executive) Rick Dreiling as CEO, replacing Mike Witynski, who has been with the company since 2010 and served as CEO since 2020.

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STORE SPACES

Preventing Shrink Store designers should be part of the conversation By James Owen

Perspectives differ on the severity of shrink — a phenomenon that, by its very nature, is difficult to quantify. But while we may never know the exact dollar amount of the annual inventory losses caused by shrink (by all accounts, it’s in the billions), it is clear that retailers have strong incentives to fight this problem. Store designers can and should be allies in this effort. Retail and hospitality architects, in particular, are accustomed to envisioning how different customer segments move through and experience commercial spaces. Designers can then use this information to craft environments that encourage or discourage different behaviors. Think of criminals as also falling into “customer segments” of their own, with distinct motivations and behaviors. The most brazen of these, such as organized retail crime “flash mobs,” are quite distinct from the likes of rebellious teenagers or disgruntled store employees — tamer groups that are more likely to think twice about stealing based on the perception of risk. In a similar way, architects, working in partnership with security vendors and loss-prevention specialists, could use their perspective-taking skills to help retailers employ store design to accomplish two primary goals: • Deterring shoplifting and employee theft, at least among those selfconscious individuals who actually care about whether they are seen or caught; and • Making sure that planned, securityfocused design changes, technologies and protective systems (things like lock boxes, AI security cameras or anti-theft vending machines) never undermine the overall experience for law-abiding customers. 16

Brainstorming Sessions When planning new or redeveloped stores, those retailers with the biggest concerns about shoplifting and shrink should consider holding brainstorming sessions that involve the design, loss-prevention and security technology teams. Striking the right balance is important. If walking into the store feels like going to visit an inmate at a federal “supermax” prison, your gains in security are likely to translate into major losses in traffic and sales. Designers might be able to help find more customer-friendly ways to protect high-value items. For example, to avoid frustrating, lengthy waits for your customers, designers might suggest that locked counters or boxes be in full view of store personnel and located close to where they spend most of their time. This could be especially important if these devices lack any buttons or sensors that alert employees whenever a customer needs to have something unlocked. Similarly, a retailer’s anti-theft vending machines could have cascading effects on traffic flow and the overall experience. Where will people stand? What will they see and experience when waiting for their turn to use the machine? Designers could help make sure the pedestrian flow doesn’t run into a bottleneck. Other questions to explore in these sessions could include:

• What do you actually know about the problem of shrink for your company and its existing individual stores and/ or prospective growth markets? While

the situation can be difficult to quantify, data and insights can be obtained. Those with significant concerns could consider working with police and experts in security and loss-prevention to get a better handle on the problem. The retailer could then share this data with designers to help

them complement anti-shrink efforts.

• Will basic elements of the design such as the placement of gondolas, windows, shelves, counters and lighting complement or work against security aims? The specifics that emerge

in your brainstorming sessions can help your multidisciplinary team find the best fit. They might find, for example, that an excessively inventory-heavy store could overwhelm consumers with too many choices, hampering the experience while also creating lots of blind spots for wouldbe crooks. An open and light-filled store, by contrast, might be more fun to shop and also easier to monitor with AI-assisted cameras.

• What role is the labor shortage playing when it comes to shrink in your organization? Many retailers are still

operating boxes that are too large for the post-pandemic environment — cavernous spaces that, especially when understaffed, can be ideal targets for criminals. Designers can help downsize the prototype to be more efficient and more secure. Finally, consider learning more about or joining organizations such as The University of Florida’s Loss Prevention Research Council. Academics and lossprevention experts have spent countless hours studying shoplifting and shrink. They are eager to share their findings with retailers, designers and other stakeholders. There’s no shame in stealing (pardon the pun) a page or two from their wellresearched crime-fighting tips. Veteran architect James Owens (AIA, NCARB) is VP at HFA Architecture & Engineering.

JANUARY/FEBRUARY 2024

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24 4 20 2 S #7 EC th SP o Bo

STORE SPACES Q & A

FM Takes Center Stage Chain Store Age recently spoke with Peter Tsanacas of Colt Facility Maintenance about how the company differentiates itself from the competition and what retailers should do to ensure a successful remodel/refresh project.

Peter Tsanacas is VP of service operations for Colt Facility Maintenance.

What are some of the main issues affecting facility management in the retail space? In the retail space, facility management faces challenges such as maintenance costs, security concerns, energy efficiency and creating a positive customer experience through well-maintained facilities. What are the biggest pain points for retailers when it comes to store maintenance? Retailers often encounter pain points in store maintenance related to unexpected repairs, high maintenance costs, ensuring consistent cleanliness, managing multiple locations and addressing issues promptly to minimize disruptions to the customer experience. How do retailers benefit from outsourcing facility maintenance? Outsourcing facility maintenance can benefit retailers by reducing operational costs, accessing specialized expertise, ensuring compliance with industry standards, improving efficiency through streamlined processes and allowing the retailer to focus on core business activities. Tell us about Colt Facility Maintenance and its areas of operation. Colt FM offers retailers professional facility maintenance, and repairs in the following categories: general maintenance, electrical, plumbing, HVAC, refrigeration, remodels and refreshes. We have also added roofing services, parking lot maintenance and construction services. No matter what type or size

of facility problem you might have, Colt FM has the solution. How does Colt set itself apart from the competition? We have over 100 years of experience successfully solving clients’ maintenance and repair issues. We have skilled technicians in all of our service categories, which allows us to self-perform our services in an area that clients would typically have to reach out to multiple vendors to achieve. By self-performing, we are able to offer guaranteed quality service at the most competitive rates in the industry. We are licensed, bonded, insured and trusted business partners to small and large facilities. What is self-performing maintenance and how do customers benefit from it? Self-performing means that we have our own technicians employed by Colt FM. This allows us to remain in control of all aspects of the work order. We can pass along savings to our customers by working with them directly, and we can also ensure the quality of work being performed is up to our standards. We are currently self-performing in Texas, Oklahoma, Colorado and Arizona. We also have a vetted network of business partners to cover other areas in the country, including our sister company MaintenX International, which has a nationwide self-performing footprint. The states Texas, Oklahoma, Colorado and Arizona are unique geographic areas that are not covered by many of our competitors and allow us to offer our clients self-performing capabilities at a better rate than our competitors who are forced to subcontract. The reason we self-perform in these tougher geographical areas is to save our customers time and money on facility repairs.

Many retailers are investing in remodels/refresh projects. What can retailers do to ensure a successful outcome and how can Colt help? Project management is key to the success of a remodel or refresh project. Colt FM has found that a useful strategy is to stage the refresh or remodel at a nearby location and confirm all material is on hand before starting. When everything is in place and critical items have arrived, it is then safe to proceed with the project. This strategy avoids delayed openings due to material delays and shortages. Another strategy Colt FM has found useful is to remember to plan the work and then work the plan. It is critical to provide a clear scope of work to your contractors and provide detailed pictures so that all parties understand the full extent of the remodel/refresh including any ADA compliance required. For a successful project, working with trusted partners with past experience is a common theme amongst all retailers. Finally, Colt FM has found the following strategy to work well for retailers with remodel/refresh projects: Retailers should hand pick projects that are close to their corporate offices and all internal teams should be on site frequently during the process to understand any challenges. Their motto should be “If I can’t get it right near our offices, how would I expect to get it right elsewhere.” What should a retailer look for when contracting a facilities maintenance provider? They should look for reliability, experience in the retail sector, a comprehensive range of services, transparent communication, a track record of cost-effectiveness and the ability to adapt to the retailer’s specific needs and preferences.

JANUARY/FEBRUARY 2024

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TRENDING STORES

Cult-fave Swiss athletic footwear and apparel brand On continues to expand its growing retail footprint, with a location in Miami’s upscale Design District. The sleek, stylish store takes its inspiration from its locale, with an earthy color scheme and sand-grain infused cement panels designed to evoke the warmth and nature of Miami Beach. The centerpiece of the space is On’s signature “magic wall,” an eight-foot tall structure with concealed drawers that hold sizes of every On sneaker. he The wall eliminates the time shoppers typically spend waiting to receive sizes. Additional stores are planned for Chicago, Austin and Portland, Ore. … One of the grandest RH (formerly Restoration Hardware) locations to date has opened at the landmark, 151-acre DeHaan Estate in Indianapolis. The 62,000-sq.-ft. space houses furnishings and other items from RH’s various collections, along with an elegant restaurant featuring a 27-foot vaulted ceiling and a shimmering light installation with 210 glass pendants. The restaurant overlooks a 35-acre private lake, lush formal

gardens and forest landscapes. … Lulus has returned to brick-and-mortar after closing its stores some 15 years ago. The young women’s apparel retailer’s two-level, 6,000-sq.-ft. store on Los Angeles’ Melrose Avenue has a sleek modern look, with curved display fixtures, layered textures, mosaic patterns and pops of neon and brushed silver. The aesthetic is meant to reference a social environment, complete with several “Instagrammable” vignettes. With an average retail price of $50 to $60, Lulus bills itself as an attainable luxury fashion brand. … Swarovski has opened its largest-ever flagship, on New York’s Fifth Avenue. Designed by creative director Giovanna Engelber, the two-floor, 14,400-sq.-ft. store is meant to provide the feeling of being inside a luxurious and colorful jewelry box. The iconic Swarovski octagon is embedded throughout the design, from the showcases on the wall and try-on stations to the crystal doorknobs and shape of the hand mirrors. An octagon-shaped grand pink staircase on the first floor leads customers to the upper level. It’s framed by octagon vitrines with tableaux that depicts scenes from the Austrian brand’s 128-year history. Swarovski

JANUARY/FEBRUARY 2024

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STORE SPACES

Last-Minute Facilities Prep for Severe Weather By Christopher Cioffi Severe winter weather is a significant cause of insured catastrophic losses and is a risk for many businesses across the country. Winter weather may have a chilling impact on your bottom line. In fact, one in four businesses never re-open following a severe winter weather event. Extreme winter weather can create hazardous conditions that disrupt your business operations including power outages, structural damage and water intrusion. As we head into the heart of the winter season, property owners can take science-based actions to help safeguard their business. Here are some last-minute preparations to take when severe weather is in the forecast: • Monitor weather using a reliable source of information;

• Confirm services with retained contractors such as snow removal and delivery of a temporary generator; • Set the building’s thermostat to a minimum of 55 °F; and • Let all faucets in small commercial properties drip during extreme cold weather to prevent freezing of the water inside the pipe and, if freezing does occur, to relieve pressure buildup in the pipes between the ice blockage and the faucet. Exposed plumbing can freeze when subjected to cold temperatures and burst, causing extensive damage to interior finishes and inventory. It’s important to remember that frozen pipes are the leading cause of property damage from winter weather. It is best practice

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to make sure pipes along exterior walls and in hard-to-reach places like attics are insulated. Wrap pipes and faucets in unheated or minimally heated areas of the building. Also, during a power outage, the temperature inside a building can drop, which could also lead to pipes freezing. Having a generator on your property is key to maintaining internal temperatures. Permanent generators are the most expensive but provide seamless access to electricity while portable generators and those brought in risk some downtime while being connected or delivered. Consider which option is best for your business.

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JANUARY/FEBRUARY 2024

STORE SPACES

Improving Indoor Air Quality

Tips for when the air outside is unhealthy By Marianne Wilson

Outdoor air pollution during the summer of 2023, including smoke from wildfires in Canada, brought the outdoor air quality to harmful levels in many places. It also posed a challenge for building owners since indoor air pollution — which can be two to five times worse — is often offset by bringing indoor air in. When fresh outdoor air ventilation is not available to improve indoor air quality, building owners should take extra precautions. “When the outdoor air index reaches unhealthy levels, it is advisable to avoid introducing external air indoors,” said Manish Sharma, VP and chief product officer of Honeywell Connected Buildings. “The main concern then becomes ensuring the maintenance of healthy indoor air when the option to bring in fresh air is not available.’ To promote better air quality in situations when the air outside is unhealthy, building managers should consider utilizing automated and sophisticated sensing,

New ASHRAE Standard Prioritizes Indoor Air Quality A new ASHRAE standard designed to reduce the spread of airborne illnesses provides requirements for many aspects of air system design, installation, operation and maintenance. The group said its long-awaited airborne infection risk mitigation standard for buildings marks a major step forward in reducing the risk of infectious disease spread in buildings. ASHRAE Standard 241, Control of Infectious Aerosols establishes minimum requirements to reduce the risk of disease transmission by exposure to infectious aerosols in new buildings, existing buildings and major renovations.

filtration, air purification and air circulation solutions, advised Sharma. “At times like this, intelligent and advanced technology becomes critical,” he said. To keep IAQ safer for occupants when the outdoor air index reaches unhealthy levels, Honeywell recommends the following:

•Continually assess and communicate IAQ: Building owners should utilize IAQ

sensors to monitor CO2, TVOC, temperature, relative humidity and PM2.5, an extremely dangerous, fine particulate matter that can travel deeply into the respiratory tract. Sensors help analyze data, track trends and alert building managers when indoor air is not safe. (PM stands for particulate matter — also called particle pollution — which is the term for a mixture of solid particles and liquid droplets found in the air. Some particles, such as dust, dirt, soot, or smoke, are large or dark enough to be seen with the naked eye. Others can only be detected using an electron microscope. Once a baseline for a building’s health is established, facility managers can integrate their building’s heating, ventilation and air-conditioning (HVAC) system with the IAQ sensors to continually monitor air quality, detect contaminants and clean the air automatically. Building owners should also consider communicating to occupants the building’s IAQ levels. According to the 2023 Honeywell Healthy Buildings Survey data, 82% of office workers want to be informed about their building’s IAQ often or sometimes. •Rethink Ventilation: Ventilation is an important factor in maintaining healthy IAQ levels and thermal comfort

as it freshens up the air inside buildings and dilutes the concentration of harmful particles. While the simplest, cheapest and most traditional way to improve ventilation is to open a window, that is not always a viable option, especially if the outside air is more polluted than the air inside. To keep air clean, building owners can use mechanical ventilation devices, such as fans that vent to the outdoors or portable air cleaners, which may be particularly helpful when ventilation with outdoor, polluted air is not possible without compromising indoor comfort or health. Tapping into the building’s HVAC system can also be to helpful in maintaining safer IAQ levels through adequate ventilation. •Improve Filtration and Purification

One of the most effective ways to improve IAQ is to clean existing indoor air, especially when outdoor air ventilation is limited. Building owners can utilize filtration and purification technologies to eliminate the contaminants from a building’s air supply. For example, HEPA (high efficiency particulate air) filters can capture particulates of 0.01 micron and greater with an extraordinary efficiency by diffusion and interception mechanisms. Pressurization technologies control the movement of air contaminants within a building and lead to improved IAQ. Control of air pressure, both positive and negative, inside a building is key to providing comfort and preventing outdoor contaminants from entering a space. A slight positive pressure will prevent hot outside air from penetrating into the building during the summer, and negative pressure during the winter can maintain humidity by allowing outside air into the building.

JANUARY/FEBRUARY 2024

CHAINSTOREAGE.COM

“SPECS needs to be on your ‘must attend’ list this Spring! I always enjoy the inspirational keynote speakers, the many networking/reconnecting opportunities with peers, and the ability to garner expert industry knowledge on a myriad of relevant topical retail challenges and opportunities.”

Marilyn Nolte Senior Director, Retail Program Management

“SPECS is a welcoming forum that fosters collaboration among retailers and suppliers who are focused on exchanging ideas. These connections have enriched my professional network and opened doors to new opportunities. The cooperative atmosphere fosters discussion around best practices and the latest trends essential for staying ahead in our dynamic industry.”

“I look forward to attending SPECS every year because it is a great opportunity to catch up with trusted colleagues and forge new relationships. The Exhibit Hall, Face2Face Networking Exchange and educational presentations always bring something new that sparks my interest.”

Bob Kennedy Manager - Pre-Development & Construction Planning

Jonathan Schwartz VP Real Estate

LEARN MORE AND REGISTER AT WWW.SPECSSHOW.COM

STORE SPACES

Dollar Tree Partners on Community Solar By Dan Berthiaume Dollar Tree, Inc. is deploying a community solar portfolio at select namesake and Family Dollar locations. The discounter has teamed up with clean energy solutions provider DSD Renewables to launch seven solar projects at Dollar Tree and Family Dollar stores in New York. Dollar Tree hopes to meet operational energy demands while also supporting solar programs for various local communities and small businesses. Earlier this year, Dollar Tree announced a commitment to set a science-based net zero carbon emissions target by June 30, 2024. The company is assessing renewable energy procurement, including community solar, to help achieve the goal. DSD Renewables will build the sevenproject, 41.75 megawatts (MW) community solar portfolio at Dollar Tree and

Family Dollar stores in East Syracuse, Cortland, Remsen, Medina, Silver Creek and Brier Hill, N.Y. The retailer estimates the portfolio will generate 55.77 GWh of clean energy annually. Dollar Tree will offtake 16.67 MW of the larger portfolio, offsetting 29% of

energy needs across 184 Dollar Tree and Family Dollar stores in New York. Two of the projects are already under asset operation, and the remaining five under construction are expected to be operational in stages starting in fall 2023. NRG Energy assisted in issuing a request for proposals for the project. “Community solar is a unique and emerging energy solution for many of our facilities,” said Jennifer Silberman, chief sustainability officer, Dollar Tree, Inc. “Serving as an anchor subscriber will power our facilities with renewable energy and help us toward our future net zero commitment. Simultaneously, it allows us to deliver real benefits to the communities we serve, increasing access to clean, affordable energy for residents and local businesses.”

JANUARY/FEBRUARY 2024

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STORE SPACES

Aldi Sets Ambitious Natural Refrigerant Target By Marianne Wilson Aldi is doubling down on its sustainability commitment with a bold new goal. The discount grocer will transition to natural refrigerants across all its U.S. stores before the end of 2035. Beginning this year, Aldi will purchase environmentally friendly refrigerants for all new and remodeled stores, and replace the current refrigerants in existing stores with refrigerants that have low global warming potential.  The new goal builds on Aldi’s use of environmentally friendly refrigerants in more than 600 stores. Citing its rapid growth across the country, Aldi said it will deploy a purchasing strategy that incorporates the best refrigerant solution for each region’s distinct climate. The strategy includes both carbon dioxide and propane refrigerants, and two ultra-low Global Warming

Potential (GWP) refrigerants. Plastic Bags: In addition, Aldi announced it has met its goal to remove all plastic shopping bags by the end of 2023, becoming the first major U.S. retailer to eliminate plastic shopping bags from its more than 2,300 stores. The decision to remove the bags will prevent nearly 4,400 tons, or nearly nine million pounds of plastic, from going into circulation each year, the company said. “Eliminating plastic shopping bags from our stores and transitioning to environmentally friendly refrigerant systems not only help us protect the environment, but they also help reduce costs which we then pass on to our customers,” said Jason Hart, CEO, Aldi. These decisions help our customers feel good about shopping at Aldi, and our employees feel proud to

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work here.”  In 2023, Aldi once again received the EPA’s GreenChill Store Certification Excellence recognition for its environmentally friendly refrigeration practices, achieving the most certifications at the platinum level of all participating U.S. grocery retailers. The EPA also awarded 109 ALDI stores in 17 states with GreenChill Store Re-Certification Excellence, recognizing these locations for five consecutive years of platinum level certifications.

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JANUARY/FEBRUARY 2024

REAL ESTATE

OPERATORS THAT ARE REBUILDING RETAIL

Available space is low, rents are high, but aggressive chains keep expanding and these savvy developers keep on building. By Al Urbanski Shops at Prescott Gateway outside of Phoenix is one of four centers DLC acquired in November. The open-air operator plans to double its center portfolio within three years.

United States. Ifshin plans to use the money to acquire more During the final weeks of 2023, one of the nation’s largest operators of open-air shopping centers did two high-performing centers in markets the company is already deals that delivered a stunningly positive prognosis for familiar with. “We’re going to stick to the markets where we already have brick-and-mortar retail’s post-COVID vitality. expertise—markets like Lexington, Louisville, Philadelphia, In late November, DLC Management announced it had Boston, Raleigh,” he said. “We are very foexecuted a $100 million acquisition of four cused on being geographically efficient. We centers totaling 765,000 sq. ft. of retail space in “For a long time, have no plans to go to the Pacific Northwest or Colorado, New Jersey, Arizona, and Ohio. Two the institutional California.” weeks later, the Elmsford, N.Y.-based company investors Three years ago, DLC made a strategic deciissued another announcement revealing that it sion to overcome labor and materials shortages had secured $2 billion worth of growth capital underweighted by forming its own general construction busifrom Temerity Strategic Partners. DLC intends retail. Today Renovo, which performs buildouts for new to use the capital to double the size of its 70-plusthey’re seeing that ness, tenants and accepts business from retailers other property portfolio by the end of 2026. investing in office developers. (See box on p. 29) “For a long time, the institutional investment Last year, the company acquired Chicago-based world had been underweighting retail. They and residential NWS Architects and Chadha Associates--aligned had billions tied up in malls and could not wrap won’t pay high and design firms that focus on retail their heads around open-air centers where trafdividends. Now is architectural projects--to more seamlessly service tenants fic, sales, and occupancy were all up,” said DLC and more quickly obtain permit approvals from founder and CEO Adam Ifshin. “Today they’re retail’s time.” municipalities. seeing that investing in office and residential — Adam Ifshin, DLC “Supply and demand metrics for retail space won’t pay high dividends. Now is retail’s time.” emerged over a long period of time and will take a long time DLC owns and operates open-air centers populated by to heal themselves,” Ifshin maintained. “But I think the posiTargets, Walmarts, Michaels, TJ Maxx’s, LA Fitnesses, tive momentum we are experiencing has real legs and staying HomeGoods, movie theatres, and high-square-footage superpower.” market and drug stores stretching across the eastern half of the 26

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REAL ESTATE

Vestar has five centers in development in the Phoenix metro. One of them is the half-million-sq.-ft. Verrado Marketplace going up in Buckeye.

Last June, Phoenix posted a retail space vacancy rate of 4.8%, a record low in a town whose population is hitting historic highs. The city’s population has increased by more than 100,000 over the past five years to 1.7 million, placing it just behind New York, Los Angeles, Chicago, and Houston. But Jeff Axtell and Vestar are doing as much as they possibly can to give all these new Phoenicians the Targets, Safeways, Ross’s, HomeGoods, and restaurants and entertainment centers they need and want. The developer, which owns and operates nearly 70 large open-air centers in western markets stretching from Texas to California, reports a 98% occupancy rate portfolio-wide at the highest rents it’s ever drawn, according to Jeff Axtell, Vestar’s executive VP of development. “All of the retailers we meet with have certain new store counts they have to meet every year. Second generation space is running out, and they really need developers like us to build,” Axtell said. “We have five projects under development in Arizona.”

“We’ve seen construction costs double, and retailers have understood that they will have to pay higher rents than they’re used to. It’s not the olden days. We need to team up and partner.” —Jeff Axtell, Vestar

One of the biggest is the half-million-sq.-ft. Verrado Marketplace going up on former farmland in Buckeye, Arizona’s largest city by area and one of the fastest-growing towns in the United States. Between 2010 and 2022, its population doubled from about 50,000 to more than 100,000. Target will occupy a 147,000-sq.-ft. space at the property and Harkins BackLot—an entertainment brand with arcade games, a bowling alley, restaurant, and bar—will take up 75,000 sq. ft. Other tenants will include Safeway, Ross Dress for Less, and HomeGoods. 28

As with Vestar’s Desert Ridge Marketplace and Tempe Marketplace projects, Verrado, set to open in 2025, will feature several gathering spaces, including one that will feature a PopJet splash pad for kids. A versatile space called “The District” will give adults the freedom to sip beer, wine, and cocktails at the hundreds of events planned to take place each year in The District. Vestar played a significant role in the passage of Arizona’s Sip & Stroll bill, legalizing alcohol consumption on center grounds. National chains have been eager to take part in Vestar’s retail infusion in the desert, and are willing to pay loftier rents than they’re used to, reported Axtell. “We’ve seen construction costs double, and retailers have understood that they will have to pay higher rents than they’re used to,” he said. “We’re reducing to a minimum what our profit needs to be, and tenants are helping us meet our goals. We have 40 years’ worth of experience with them. We say, ‘Here’s what we need and we work together.’ It’s not the olden days. We need to team up and partner.” Vestar is seeing growth in most of the major metros where it has a presence. Its leasing activity, Axtell said, has been most active in middle income neighborhoods in Salt Lake City, Denver, and Las Vegas. “Value retailers really thrive in the middle demos. Those markets are very strong. There’s an omnichannel factor at play, as well. Retailers have told us that they’ve seen their online purchases go down in markets where they close a store,” said Axtell. “In these markets, B malls will be reimagined, C malls will go away, and open-air centers will thrive.” More than a billion dollars has been raised for the construction of Pacific Retail’s District Galleria in White Plains, N.Y.

Nobody’s building malls anymore, but one developer is busy directing billion-dollar remakes of mall sites. Los Angeles-based Pacific Retail Capital Partners is currently underway on two large-scale projects, the funding for which is expected to top $2 billion: District Galleria in White Plains, N.Y., and the revitalization of the former Carson’s anchor box at Yorktown in Chicago. Pacific Retail is working with the city of White Plains on demolishing the Galleria Mall—once Westchester County’s largest shopping center-- to make way for a mixed-use development JANUARY/FEBRUARY 2024

CHAINSTOREAGE.COM

spanning multiple blocks. The property will be home to seven residential towers of varied heights with up to 3,200 apartments, a quarter-mile-long green promenade, and green spaces. At Yorktown, Pacific Retail secured all necessary approvals to move forward with its master plan, which will result in more than 600 residential units and a park covering more than an acre. Construction began in January. “Cap rates for mall space have expanded, and you have highquality mall assets where, in some cases, they’re worth less than the loan balance,” said Pacific Retail’s chief financial officer Oscar Parra. “We’ve built relationships with special services lenders and help them navigate the choppy waters of Mall Land today, and some of that has lent itself to acquisitions where we can come in and recapitalize the deal.” “We want to turn When such deals are done, the central business Pacific Retail calls upon district into more its in-house architectural of a central social design studio to quickly lay out master plans for such district.” projects from capitalization —Najla Kayyem, Pacific Retail to construction. That wins the developer close attention from municipalities and community leaders—such as those in White Plains--where the down-at-the-heels Galleria Mall had for decades served as the centerpiece of downtown. It also speeds the acquisition of approvals and entitlements from city officials eager to regain bountiful sales and property taxes. For a project it’s developing in North Olmstead, Ohio, Pacific Retail helped win a blanket overlay to permit mixed-use additions for all retail properties from the mayor and city council. Galleria Mall’s tenant base was 80% apparel-based. Pacific Retail’s plan for what will be called District Galleria, meanwhile, foresees a reduction of apparel tenants to around 40%. The rest of the space will be devoted to entertainment and food-andbeverage brands and open spaces. “We want to create a vibrant destination with multiple uses. We want to turn the central business district into more of a central social district,” said Najla Kayyem, Pacific Retail’s executive VP of marketing. “You’re seeing a lot more people living in downtowns, so there are a lot more services in our retail mixes. At Yorktown, we took 10,000 sq. ft. of an area that was completely irrelevant and turned it into a wellness precinct with fitness-to-beauty-type uses.” Also different from most traditional mall operators, Pacific Retail installs a management team at each of its properties to help tenants boost their sales per sq. ft. “We call it active management. That is a cornerstone of our organization,” Kayyem said. “We have a full management team at every shopping center that allows us to be nimble and partner with our tenants on the ground. We offer them a myriad of services and market with them to help them generate more sales. Sales drives rent, and rent drives value.”’ CHAINSTOREAGE.COM

The company has developed projects in 363 cities since 2011.

WMG, one of the most construction-active developers in the retail sector today, got its teeth into building as a matter of corporate survival. It started out as the rollout builder of Heartland Dental, today the biggest dental chain in the U.S. with more than 1,700 locations. When it began expanding in the 1990s, some neighborhood centers weren’t always accepting of dental tenants for the same reason they shied away from gyms— their parking requirements. So Heartland’s founder, Dr. Rick Workman, decided to get into real estate with WMG, which today owns more than 200 open-air centers nationwide. The developer maintains headquarters in Florida and Illinois and currently has 100 construction projects in active development and 75 in pre-development. Since 2011, it has developed centers and standalone projects in 363 different cities. It does not, however, employ its own construction crews. “From a construction standpoint, we make sure we have plenty of partners. Things are different in different places for obtaining labor,” said Curt Frost, WMG’s CEO. “In high population growth regions like Florida we face more challenges. In some of the more stable markets, the construction crews are a little more stable, too.” WMG warehouses across the country, filled with hard-to-obtain building components the likes of HVAC units and plumbing pipe, help keep top crews on the job.

“We develop at a large scale, and that reduces risk for a new tenant.” —Curt Frost, WMG

“Crews don’t have to wait to get all the materials they need to get the job done,” Frost said. “They don’t have any wasted days. It gives them a sense of relief.” Frost thinks that supply and interest rate issues will continue to stall real estate development for the next five years. Costs will remain high and so will rents, he says, adding that banks might not approve financing if a property’s rents are too high. In the meantime, WMG’s chief remains optimistic about the near future. “We’re looking at the next 12 to 18 months as a great opportunity. There are lots of strong and durable brands looking to move into new locations. But the big ask for developers is, ‘When will you deliver?’” Frost said. “We develop at a large scale, and that reduces risk for a new tenant.”

JANUARY/FEBRUARY 2024

REAL ESTATE

Urban Edge undertook a big re-build to get Kohl’s to move across the street to its Bergen Town Center in Paramus, N.J.

Most new retail construction is taking place in fast-growing Sun Belt states like Florida, Texas, and Arizona. That, of course, does not mean that aggressively expanding retailers the likes of Ross Dress for Less and HomeGoods aren’t keen on nailing attractive locations in developed markets up north. “Tenant demand has come back in a strong way. The most critical part of retailers’ strategies is investing in new stores. They want to open new stores where their stores work best, so when you have vacancies in Boston, New York, and D.C., you’re in a better position to have conversations with retailers,” said Jeff Mooallem, executive VP and COO of New York City-based Urban Edge Properties. Urban Edge owns and operates 77 properties totaling 17.4 million sq. ft. of gross leaseable area in densely populous states. Most of its large open-air centers and malls are found in New York and New Jersey, such as Bergen Town Center in Paramus where it rebuilt a sizeable space to welcome Kohl’s last year and is reconfiguring a section of the mall to introduce a restaurant row that will feature outdoor seating. “Our rebuilds can be as simple as refitting signage and light“Tenant demand has ing, or we’ll build ground-up,” come back in a strong Mooallem said. “The retailer is way. The most critical looking for a good partner, so part of retailers’ when we have a conversation strategies is investing with TJ Maxx or HomeGoods or Ross, we’re always talking in new stores.” about what we can do to make —Jeff Mooallem, Urban Edge the center better.” In October, Urban Edge acquired two highly trafficked centers in the Boston suburbs for $309 million—the 639,000-sq.-ft. Gateway Center in Everett and the 758,000-sq.-ft. Shoppers World in Framingham. “Shoppers World was one of the first big open-air centers in the country. It’s right in the middle of the Golden Triangle in the western suburbs and it has a really nice tenant lineup—Best 30

DLC’s in-house answer to labor lags The key to successful retail construction, argues Peyton Thomas, is limiting the mistakes. “You have to understand who the clients are, understand what their project schedules are and meet them. If they have a Thomas: “One of the big mistakes GCs make plan to open their store on November 1, and you don’t have it ready until February, in retail builds is not knowing exactly what the they’ll fail to meet their ROI plan with no client wants.” way to make it up.” Thomas is the Vice President of Construction at Renovo Construction, LLC, which was founded in 2020 by open-air center owneroperator DLC. Starting Renovo was a way to grow DLC’s capabilities and to work around the dwindling supply of labor and materials. “Renovo is unique,” said Thomas, whose career has spanned working for a wide range of GCs involved in high end retail and office buildouts. “We and our retail clients have shared expectations and shared goals. Build it right and build it on time.” Thomas gave the example of a job Renovo is doing for a rapidly expanding health and beauty chain whose shops contain more than 20 small salons, all of which have hair washing stations. “Putting all this plumbing in such a small space isn’t an easy thing to do,” he said. “So, before we started work, we had a conversation with the client about the pitfalls we might face in making sure the plumbing was of the same quality in all those rooms. She said, ‘I know. We’ve had plumbing work that had to be re-done in a lot of the salons we’ve built.’ We’re taking the time to design the plumbing properly before we start building over it.” Renovo’s ethic has succeeded in drawing business from clients outside of DLC, growing its management component from two members to nine in just the past year. Because they work closely with DLC’s leasing department, they get in early on lease proposals and often help close the deal. “In discussing buildout requirements with prospective tenants, a DLC leasing rep can say, ‘We can make that happen for you on time because we have an internal contractor who can sit down with us and plan it out,’” Thomas observed. “One of the big mistakes GCs make in retail construction is not knowing exactly what the client wants. Lack of communication is why they often fail.”

Buy, Golf Galaxy, Tavern on the Square,” Mooallem said. “We will look at building ground-up there because this tends to increase the property value.” Despite uncertainty about interest rates heading into 2024, Urban Edge is not afraid to buy and rebuild more attractive centers should they become available. “If you’re a large owner in a dense market,” Mooallem remarked, “borrowing costs are not that big a factor.” And borrowing costs are not much of a factor if one doesn’t underestimate the purchasing power of the population. “When will Wall Street stop writing off the American consumer?” observed DLC’s Adam Ifshin. “Writing off the American consumer has been one of the worst bets.” JANUARY/FEBRUARY 2024

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TECH VIEWPOINT

NRF 2024 Recap: The AI Age is here There was one dominant topic of conversation at NRF 2024 and it wasn’t the cold, snowy weather. Everyone who attended this year’s NRF conference went in fully aware that artificial intelligence (AI) — especially innovative models such as generative AI — would be a major component of every exhibit booth, educational session, and conversation. But the unknown quantity was, exactly how would AI fit into the industry landscape for 2024? After spending three busy and informative days at the conference, I have some answers. AI is accepted and assumed – but it isn’t routine AI itself is not new. It has been a widely accepted tool in retail technology for 30 years or more, showing up in solutions such as the algorithmic optimization applications that started becoming popular around the turn of the century. However, leading-edge AI models based on concepts such as machine learning, advanced computer vision and next-generation predictive capabilities are still new and rapidly evolving – in some cases gaining significant new functionality on a month-to-month basis. So it’s premature to suggest the new generation of AI technology is “routine.” At the same time, next-generation AI is showing up in solutions being used in every area of the enterprise. Generative AI is enabling supply chain planners and frontline associates, as well as shoppers, to ask questions in conversational language and get concise, informative answers. Advanced computer vision helps retailers track store activity and performance in real time, and machine learning-based predictive analytics can aid retailers in anticipating and quickly reacting to global supply chain shocks that seem to pop up more frequently than ever. Because of these exciting developments in CHAINSTOREAGE.COM

the capabilities and functionality of AI, it’s not surprising that I also discovered … Everyone understands the importance of AI I’ve been covering the retail tech space since the late 1990s. In that time, I have seen a lot of transformative technologies – e-commerce, omnichannel and mobile as a few examples – emerge and evolve. In just about every instance, there has always been some industry pushback. For example, it’s largely been forgotten just how many retailers and industry experts did not see the value of e-commerce when it began its journey to becoming a mainstream retail technology practice and sales channel in the late 1990s. Many in the industry felt that a sale made online was simply “cannibalized” from a store, or that “high-touch” products like apparel would never sell on the Internet. Amazon’s early struggles toward profitability and the “dotcom” crash of the early 2000s only reinforced this viewpoint. To be fair, most new technologies meet widespread skepticism and resistance from all corners. But not this time. Survey after survey has shown that the industry also uniformly sees the value of next-generation AI, and my conversations at the show with both retailers and technology providers confirm that fact. I did not encounter a single doubter, and that’s a first.

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

AI obtains the value from what’s already there Finally, during my time at Big Show, I uncovered a big truth about next-generation AI. Namely, it doesn’t create anything new, but extracts previously unobtainable value from existing assets and data sets. The granular data on why and how each individual customer makes purchase decisions exists, but advanced sorting, segmentation and analysis tools enable retailers to capture and leverage it to improve the customer experience. This truism also applies to the ultimate role of AI – as a co-pilot (a term I heard repeatedly over three days) to assist humans in doing their jobs better. AI is not here to replace people, just to make us more effective and efficient.

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All Eyes on Generative AI Amazon, Walmart are both actively developing their own in-house generative AI platforms By Dan Berthiaume Generative artificial intelligence (AI) dominated the retail technology landscape in 2023 and continues to do so in 2024. Based on machine learning (ML), generative AI can create new content and ideas, including conversations, stories, images, videos and music. The November 2022 public debut of the ChatGPT AI platform, which interacts with users in a conversational style that mimics human interaction and uses ML to continually refine and improve its responses, marked the arrival of leading-edge generative AI as a mainstream retail solution. Since then, generative AI has rapidly built momentum in retail that should only accelerate in 2023. Here are three retail enterprise workflows the leading-edge technology shows particular promise to transform. Customer engagement Generative AI first came to prominence in retail as a sophisticated engine for supporting human-like chatbot interactions, and certainly many retail organizations deployed the technology in chatbot solutions. One example is Instacart, which offers Ask Instacart, an AIbased chatbot that utilizes the ChatGPI API, as well as its own AI models and proprietary catalog data, to provide customers with product recommendations that are intuitively organized, as well as additional relevant information about food preparation, product attributes and dietary considerations. But generative AI-based customer engagement tools range well beyond chatbots. Online consumer electronics retailer Newegg introduced generative AI customer solutions throughout the year, including a number of chatbots as well as automated summaries of customer reviews and automated accuracy checks of product descriptions. In addition, eBay provides generative AI-based features that enable sellers to add in a title and category for a listing, with the rest of the listing automatically filled in; as well as to take or upload a photo in the eBay app and have generative AI fill in item information details, including titles and descriptions. Proprietary technology development Amazon and Walmart are both actively developing their own inhouse generative AI platforms. Amazon Web Services (AWS), the cloud services platform of Amazon, offers generative AI model called Bedrock, and is in a strategic collaboration with San Francisco-based generative AI developer Anthropic that includes investing up to $4 billion in the company and holding a minority ownership position. Meanwhile, Walmart offers employees the Walmart GenAI Playground, an early-stage internal tool where they can explore 32

Walmart is testing a generative AI-based shopping assistant.

and learn about the technology. The discounter also includes a generative AI assistant in a new employee app. Walmart is additionally developing generative AI tools to assist customers with search and complex purchases, researching how the technology can aid consumer decision-making. The retailer is experimenting with a tool that would integrate the technology into its recently upgraded augmented reality (AR)-based View in Your Home feature and virtual try-on solutions. Employee augmentation Direct-to-consumer intimate apparel retailer Adore Me is testing Duet AI for Google Workspace, which embeds generative AI across Google communication and collaboration apps including Gmail, Calendar, Drive, Docs and Meet with employees. As a longtime Workspace user, Adore Me’s more than 550 global employees already utilize Google tools such as Google Docs, Sheets and Slides every day. Now, many of them are testing Duet AI in Workspace to perform AI-equipped tasks such as more quickly creating final marketing copy and developing outlines for upcoming campaigns. As a result, Adore Me hopes to reduce manual workload on its employees and provide corporate teams with more time to focus on creativity and innovation. Another recent example is Simon Property Group, which equipped teams of “helper elves” at select marquee properties in New York and Los Angeles over the 2023 holiday shopping season with a generative AI-based gift finder tool. The Simon “helper elves” were on site and ready to assist shoppers with instant help from ChatGPT 4.0-powered “HolidAI” gift finding technology that is connected to a customized database of retailer-specific gift ideas. The HolidAI “helper elves” were positioned throughout the centers to engage shoppers in conversations designed to pinpoint in-mall gift ideas. Utilizing computer tablets, the helper elves led shoppers through a short series of predictively personalized, AI-generated questions. JANUARY/FEBRUARY 2024

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Supply Chain Resiliency How retailers will benefit from new federal supply chain actions By Chirag Modi U.S. domestic supply chain operations are poised to receive a boost from the federal government. The Biden Administration’s recent announcement of 30 new actions to strengthen supply chain resilience promises lower costs for consumers, investments in new technology and reliable deliveries for critical goods and services. While the new actions will be key to improving access to medicine, economic data and more, the retail sector also stands to benefit tremendously from this investment in supply chain resiliency. The retail sector has experienced its fair share of disruptions over the past few years. Any extreme event or circumstance has the potential to wreak havoc on the entire supply chain, beginning with production and eventually trickling down to distribution of products and goods. The most prominent example from the past several years is the Suez Canal blockage of 2021 and the ramifications felt by retail sectors. The six-day blockage was estimated to hold up to $400 million in trade an hour in trade and resulted in the delay of product deliveries across industries. Extreme weather patterns have also impacted the supply chain. The historic winter storm in Texas in February 2021 resulted in economic losses as high as $295.8 billion, and brought the state’s manufacturing, production, and supply chains to a screeching halt due to road and building closures. The severe drought being experienced in the Panama Canal this year also continues to have widespread effects on supply chain operations, including shipping delays, and challenging logistics to find alternative routes to deliver goods. Weather-based disruptions are accounted for in these new federal actions. For example, more support and resources are being allocated to federal monitoring CHAINSTOREAGE.COM

climate impacts, including global developments related to El Niño, and determining domestic and global commodity prices, agriculture, and potential disruptions to the global and trade supply chain. This investment will allow for retailers to better assess any potential weather-related phenomena that will impact inventory, production, or transportation, and plan accordingly to mitigate risk. This will especially become important in preparation of large shopping events such as the holiday season, which often has some overlap with the global hurricane season.

New government regulations will help keep the supply chain moving.

These federal actions aim to address those concerns by strengthening medical product supply chains, as well as boost investments in the domestic production of materials necessary for certain medicines. This will partly guard retail pharmacies from potential disruptions to the drug manufacturing and supply chain process from outside global forces, such as military conflicts or weather events. Investment in AI and Sustainable Supply Chains One of the more critical elements of these new federal actions is the investment in technology and infrastructure that promotes clean energy supply chains. This will be particularly helpful in moving the retail industry, which contributes

25% of greenhouse gas emissions (GHG) globally, toward sustainability and a more circular supply chain system. For example, the Department of Energy has announced a $5.6-million prize to develop circular clean energy supply chains, as well as announce grant selections for investments in cleaner technology for supply chains to revitalize communities impacted by coal mine or power plant closures. This includes investments such as electric vehicles (EVs) and energy conservation technologies. These clean technologies have the potential to both improve efficiency and operations, while also ensuring an environmentally cleaner process for supply chain operators and retailers. Additionally, these new actions also bring artificial intelligence (AI) to the forefront of the discussion. Federal plans are underway to develop a nationwide plan for smart manufacturing, which is the usage of advanced technologies to enhance the manufacturing process. Such investments will enhance the productivity of manufacturing systems that are integral to the supply chain sector and retail industry. By further integrating AI into the manufacturing and supply chain sectors, retailers will be able to improve inventory planning and optimization. They will be able to make more informed decisions on when to replenish products, hold stock and ensure there is sufficient inventory. This would ensure that leftover items or out-of-stock scenarios become fewer and farther between. Retailers will also be able to utilize AI’s capacity to automate certain tasks and take over roles in the supply chain space. This will particularly be beneficial in the event of talent shortages. Chirag Modi is corporate VP, industry strategy, Blue Yonder.

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TECH

Seamless Retail Includes In-Store Experience

How three retailers are using tech to create more rewarding store experiences By Dan Berthiaume

While much attention is giving to the onlien shopping experience, an important part of a positive omnichannel customer experience is also making shoppers feel recognized in the store. More than ever before, customers increasingly live and shop seamlessly, blending their experiences across physical and online channels with digital devices. Retailers need to cater to shoppers’ needs across every touchpoint and ensure they have an engaging, familiar and personalized in-store experience that leverages connectivity and interactivity. Here are three retailers are making for more personalized and seamless in-store shopping journey — with help from connected solutions and devices. All merchandising is local at Academy Sports With 282 stores across 18 states, outdoor Academy Sports + Outdoors continues to expand, with a goal of opening a total of 120 to 140 new stores by the end of 2027. As it enters new markets., the sporting goods and outdoor recreational retailer has a localized merchandising strategy and a value proposition that allows it to connect with a broad range of consumers. Key to Academy’s localized merchandising strategy is its ability to offer shoppers attractive prices in each community it serves utilizing Revionics’ Base Price solution. Additionally, with Revionics’ Markdown application, Academy can clear its seasonal inventory quickly and profitably, keeping its on-shelf selection fresh. Academy takes a customer-centric and data-driven approach to pricing by using an advanced AI platform to crunch massive amounts of data. This helps the retailer understand how shoppers will

react to different combinations of price increases and decreases. In addition, it allows Academy to price competitively on its most popular goods and be less aggressive on items where demand stays relatively stable even when prices go up. The Home Depot The Home Depot rolled out a proprietary mobile in-store app addition, called Sidekick, in January 2023, for use on the the mobile devices (“hdPhones) it provides store employees.

Survey: Consumers take store experience seriously Despite the popularity on online shopping, a recent survey from financial services firm Synchrony confirms that the in-store experience is still valued by most shoppers. Sixty-five percent of surveyed consumers said the in-store experience is an essential part of retail shopping. The vast majority of respondents (81%) reported directly interacting with a salesperson while shopping for their most recent purchase, which suggests strategies of augmenting store associates with technology solutions, such as Home Depot’s Sidekick app (see article), are advisable. Nearly 70% of respondents ultimately made their purchase in-store versus buying online, with shoppers age 55 and up more likely to buy items in a physical store than their younger counterparts. But respondents of all ages indicated that they follow an omnichannel path to purchase, with 58% reporting doing in-store research before making a major purchase.

Leveraging a cloud-enabled machine learning (ML) algorithm, the app directs associates to prioritize the highestdemand products. Sidekick also utilizes machine vision to identify which shelves need restocking, enabling store employees to replenish products on the shelf before customers notice. (The app also identifies the location of excess product on overhead shelves.) In a recent interview with Chain Store Age, Home Depot explained how during the 2023 holiday season, it enabled Sidekick to help employees find missing products and then prioritize restocking them on the sales floor. The app displayed a picture that pointed associates to a specific location on the shelf to restock products. These capabilities help employees provide better on-shelf availability for the products that customers need. Ulta Beauty Ulta Beauty is partnering with smart vending machine provider SOS to place interactive kiosks in select Ulta Beauty store locations across 10 cities in New York, Massachusetts, Florida, California and Texas. The SOS machines will provide a seamless sampling experience for Ultamate Rewards loyalty program members and are also intended to incentivize new member sign-ups. Existing loyalty members can enter their phone or email at a kiosk to gain access to their Ultamate rewards account to receive a free sample, while non-member customers can sign up and create an account at the machine to receive the samples. The machines will also offer complimentary period care products for shoppers.

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