EMV Deadline Approaching
The upcoming Oct. 1, 2015, mandate for U.S. retailers to adopt POS systems that can securely accept and process transactions using EMV (Europay, MasterCard, Visa)-compliant, chip-based payment cards is fast approaching. Retailers that are not in compliance with the mandate after that date will be held liable for any fraudulent transaction committed with a chip-based card. However, retailers that have not completed — or started — their compliance efforts should not necessarily panic.
“The liability shift is not a hard date,” said Tom Litchford, VP retail technologies, National Retail Federation (NRF). “It’s mandated by card providers from a risk-management business perspective. Whoever is least secure has the liability.”
According to Litchford, every retailer should examine its own unique situation when creating an EMV compliance strategy. Some retailers may be at higher risk for fraud than others, and not every bank will have all of its payment cards chip-enabled by the deadline, either. For retailers moving forward with compliance efforts, Litchford recommends a five-step process, along with some general advice.
“The longer you wait, the harder it’s going to get,” he stated.
Adding another potential wrinkle to the timing of the shift, the Food Marketing Institute (FMI) has asked major credit card companies to move the deadline into 2016. In April, the FMI sent a letter to Visa, MasterCard, American Express and Discover Financial Services saying the system will not be ready to meet the October mandate. The letter also said retailers have to wait 16 weeks to obtain EMV-compliant hardware and that the mandate takes effect as retailers enter the crucial holiday selling season. At presstime, FMI had not received a response to its request.
NO PANACEA: EMV compliance offers protection against fraudulent point-of-sale transactions conducted with lost, stolen or counterfeited cards. However, it is hardly a panacea against payment fraud or data theft.
“EMV is a great risk reducer, in conjunction with proper security hardening and PCI controls,” said Andi Baritchi, global managing principal, PCI Consulting Services, Verizon Enterprise Solutions. “It does not remove you from your PCI obligation.”
Baritchi referred to the Payment Card Industry (PCI) Security Council standards that require end-to-end encryption to help reduce the risk of online card fraud, as well as data breaches.
Baritchi warned that EMV compliance alone can cost tens or even hundreds of millions of dollars, depending on the size of the retailer. Because of the cost and importance, he said retailers should approach EMV compliance with the help of qualified partners.
“Payment card data is very attractive to criminals as it can be easily converted to cash,” explained Baritchi.
Survival of the Fittest: How Niche Retailers Dominate
Despite claims that e-commerce will overtake traditional retail space, physical store locations are still attractive to retailers. In fact, they plan to open over 76,000 stores in the next 24 months, according to RBC Capital Markets data. And while several major retail closings have been announced this year, other retailers are stepping up expansion plans for new stores and concepts.
Growing retailers are all about the niche lifestyle — fast fashion, food, fitness and pharmacy — and focus on what consumers care about most, including value, quality, health and the environment. They promote how they’re different; reward loyal customers; create a sense of urgency; and are savvy when it comes to social media, technology and marketing. Shopping or eating at their stores is an exciting event.
A sampling of new concepts growing rapidly includes clicks-to-bricks innovator Rent the Runway, H&M offshoot COS, women’s athletic clothier Lorna Jane, interval training franchise Orangetheory Fitness and millennial brewery hotspot World of Beer. We also continue to see an increasing number of pop-up stores; mobile stores; food trucks; and small, high-tech retailers that utilize iPads, QR codes, beacons and other interactive technology.
The retailers who aren’t doing as well: Middle market, legacy brands that aren’t adapting their business models to the wants and needs of today’s consumers as quickly as others. Instead, shoppers are more attracted to stores on either end of the retail spectrum, creating a polarized market.
Fashion-minded and budget-conscious shoppers are heading to T.J. Maxx, H&M, or Zara to save money on the latest trends, knowing the runway-to-Main Street fashions will only be on the shelves for 30 days. Aspirational shoppers are being lured into luxury stores by branded products at introductory pricing that invite them to haute names at a more affordable price. The luxury retailers know that once they attract customers with $300 shoes, they’ll soon look at $600 pairs.
ANCHORS DE-EMPHASIZED: As mid-market store closings escalate, we’ll see a de-emphasis on anchors being a shopping center’s main draw. Instead, centers will reposition themselves with a fresh mix of niche tenants that cater to consumers’ shopping and lifestyle needs, offering the quality and value they seek. Think more high-end department stores like Neiman Marcus and Nordstrom, fast fashion like H&M and Forever 21, fast casual dining like Chipotle and Smashburger, and luxury theaters like iPic.
We’re also beginning to see real growth in international retailers outside of the luxury space, attracted to the United States’ diverse consumer base, buoyant income growth and resilient economy. A recent JLL report shows that 175 international brands have taken root in the top 19 retail markets here, first growing on the coasts, then filling in the middle. Among newer retailers growing here are Japanese housewares purveyor Muji, German grocer Lidl and Irish clothier Primark. Fast fashion is the quickest-growing international concept.
While retail expansion is always welcome, we need to pay attention to potential overheating in gateway cities. In the first quarter of 2015, most cities saw an increase in rental rates and a decrease in vacancy across all retail product types. In places like Chicago, San Francisco and New York City, many retailers are have difficulty sustaining lease agreements — especially those signed in 2012 and 2013 — because sales aren’t keeping up with the higher rents. The expected closing of Toys “R” Us’ Times Square store is an example, and we suspect that a number of retailers will close this year in major retail hotspots like Fifth Avenue, Michigan Avenue and Beverly Hills.
We will likely see a correction in which retailers curb growth plans and landlords start notching down rents again. Fortunately, most retailers are being tactical when it comes to opening locations these days. No longer are they opening dozens of stores in a retail onslaught — as they did a few years ago — but are focused on two or three stores per year and letting their brands grow organically.
Naveen Jaggi is president retail brokerage, JLL.
IN THE WORKS
Bauer Hockey: Ice hockey equipment manufacturer Bauer Hockey is throwing its puck in the retail arena. The company will open its first-ever store this summer, in Burlington, Massachusetts, followed by a second location in the fall, in the Minneapolis area.
Designed by Toronto-based Perennial Inc., Bauer Hockey will offer an experiential retail experience that seeks to elevate the brand and the sport of hockey, complete with an indoor ice rink where shoppers can try out equipment. The stores will put an emphasis on product education and fit expertise, and include an area to educate new-to-hockey families and welcome them to the sport. The spaces will also host ongoing events and initiatives for players, parents and the overall hockey community.
Bauer plans to open six to eight stores during the next several years in key hockey markets across the United States and Canada.
Bunulu: One hundred-year-old Florida-based department store retailer Bealls Inc. is developing a specialty store concept — Bunulu — that is scheduled to premier by yearend.
The new banner will target a younger demographic, and feature coastal-inspired active lifestyle apparel and accessories for both men and women. The brand’s website describes Bunulu as the “next generation of outdoor active lifestyle brands. Personalized for the coastal lifestyle.”
According to reports, Bunulu will open three to five locations in the fall. Stores will average about 4,000 sq. ft. and have a casual atmosphere, with wood floors and shelving and beach decor accents.
Combatant Gentlemen: At presstime, the 3-year-old online menswear retailer was set to open its first permanent retail space, a showroom at its headquarters in Irvine, California. The move comes after the company tested brick-and-mortar with pop-ups in Los Angeles, and New York City last December.
Similar to Warby Parker and some other online startups, Combatant Gentlemen owns nearly every aspect of its product, from the design and production to the manufacturing. (It even owns a sheep farm.) The strategy cuts out the middlemen, allowing it to offer smart-looking, all-wool suits for as low as $160. Specializing in suiting and shirts, Combatant Gentlemen also does a big business in “wedding suits” and tuxedos.
Currently, the retailer ships throughout North America. But the United Kingdom and Australia are expected to come on board by the end of the year.
Hamleys: Famed British toy retailer Hamleys is coming across the pond. The 225-year-old company has retained JLL to facilitate a multiple store rollout throughout the United States.
The retailer, which has some 50 stores across Europe, Asia and the Middle East, including its famed seven-story flagship on Regent Street in London. Most recently, it opened its largest store ever, a 73,000-sq.-ft. location in Moscow. The two-level space is divided into nine themed areas that combine retail and entertainment.
In the United States, Hamleys is reportedly seeking locations in such major markets as New York, Chicago and Los Angeles, and is also looking to open about 20 airport locations.
Primark: One of Europe’s fastest-growing apparel chains, Primark, makes its U.S. debut this fall, opening a four-level, 70,000-sq.-ft. store in the former Filene’s space in Boston’s Downtown Crossing. Selling on-trend fashions at value prices, the retailer casts a wide net in terms of demographics. (The Dublin-based company is owned by Associated British Foods.)
Primark plans to open about 10 stores in America by spring 2016. Most of those locations will be realized via a deal with Sears Holdings Corp. In late 2014, Sears entered into an agreement to lease seven standalone stores in the Northeast to Primark, with the first opening in late fall at King of Prussia Mall, King of Prussia, Pennsylvania. Other locations include Danbury Fair, Danbury, Connecticut; Freehold Raceway Mall, Freehold, New Jersey; Willow Grove Park Mall, Willow Grove, Pennsylvania; and the Staten Island Mall, Staten Island, New York.
In total, Sears is leasing about 520,000 sq. ft. of retail space to Primark. Sears will maintain a presence, although with a streamlined format, at six of the seven locations, with the exception of the site at King of Prussia.
Tiger: Known for its low prices, upbeat attitude and design aesthetic, Danish retailer Tiger will enter the United States in May, opening a 5,000-sq.-ft. flagship in New York City’s Flatiron neighborhood. Expect it to be filled with a quirky, ever-changing and colorful mix of exclusive items — ranging from umbrellas and toys to T-shirts and seasonal goods — at affordable prices. (Most of the products will be priced under $10, according to reports.)
Based in Copenhagen, Tiger opened its first store in 1995, and currently has some 435 locations in 25 countries. (The company operates under the name Flying Tiger Corp. in Asia and the United States due to trademark issues.)
More: Australian luxury retailer Sneakerboy is poised to open its first U.S. store, in SoHo. The 2,000-sq.-ft. shop will showcase fancy, high-end sneakers from top designers like Lanvin and Balenciaga, along with special items from such athletic mainstay brands as Nike and Reebok.
Sneakerboy stores in Australia merge the online with the physical experience. They carry no take-home stock. The space is essentially a showroom, albeit a very futuristic one. Customers can browse and try on the artfully displayed goods, and then, via the Sneakerboy app, order and check-out from their phone or an in-store iPad. The merchandise is delivered within three days. The app remembers a customer’s shoe size, payment preferences and purchase history — and uses the information to provide tailored information about new products.