By: Keith Pittsford
With almost 1,000 guests in attendance, the February ICSC event in LA was a success, provoking thoughtful discussions about the internet’s impact and the current risk/reward equation of development and retail sales.
With regard to the internet and whether or not its advantages prove detrimental to an actual physical store’s sales, the consensus seemed to be unanimous: If a store does not sell a commodity, such as off the rack fashion or electronics, the internet is not a hindering factor, as it is limited to about 6% of all sales – not enough to capture a significant portion of sales overall. The internet’s worth is largely obvious, however, and yields benefits so widely favored that online access has restructured normal shopping patterns. For example, mobile applications can significantly help when pre-ordering from fast casual restaurant formats. Internet sales now ship to homes from local stores, or ship to a ‘waitress’ store local to a consumer, which keeps shipping costs down and convenience a priority. Showrooming and cannibalization are still at a very low level and should not be considered a detrimental factor. Social media can greatly affect sales of Centers and Tenants, but when executed properly: Loyalty can backfire if inquiries are not responded to in a timely manner or at all.
Pat Donahue had fun with his panel leading a segment called The Supply Equation. He shared a dramatic graph with statistics that started in 1977 which showed new retail development built at an average of 130 million SF per year through 2010. That has dropped about 90% to under 15 million SF. The message was that the previous volume will not be matched and it will take several years to get back up to half of the old volume.
During the panel discussion, Federal Realty’s Jeff Kreshek offered some observations: “There were lots of centers built in the last run up that never should have been built. We (Federal) are going to focus on the A properties and then try to figure out what to do with the B’s and C’s. It’s going to be all about repurposing well placed properties. We will also focus on the difference between Merchandising and Leasing. A merchandising agent may need to say no, despite the promise of high rents because it will not help the mix of tenants and the selection needs to compete against other local market competition. We will court a tenant for 3-4 years if it is the right tenant for the long term health of the center and will enhance the shopping experience for our customer.” Others agreed that the risk/reward equation is not proportional and without the right mix of tenants, the efforts towards place making just doesn’t matter. Pat echoed the need to incubate the right tenants for the long run and added how renovation is still a focus, noting “We’re not overbuilt, we’re just under demolished.” One panelist’s strategy was to go back to more, smaller tenants where there were bigger tenants to reduce and diversify risks. Most centers now seem to take 10-15 years to get from Start to Stabilization.
All in all, I think everyone at the convention was positive and optimistic for 2015. My sense is that there is a lot of repositioning and infill in urban areas left to go before we see a big increase in ground up retail. New development which does occur will be needs-based in growth areas or the next luxury experience.