Lead with Analytics
Recovery is a relative term when applied to retail real estate. It’s taken a couple of years of determined optimism, but most in the industry have now reconciled themselves to the realities of the new world order. A world where capital is cautiously invested and most retailers, even those that are opening new stores, have flattened growth rates. Gone are the days of expansive, unrestrained development — replaced instead by measured, deliberate decisions and a renewed focus on redevelopment, relocation and re-evaluation of portfolios. What we’ve come to realize is that these are progressive steps forward.
Positive indicators color the retail landscape: Bankruptcy filings have slowed significantly, store closings are down dramatically, and mergers and acquisitions are on the rise. Select sectors of retail are growing, most notably the dollar stores and discount brands across all categories, from food retailer Aldi to fashion plates like TJX.
Whether retailers are gradually adding new stores or holding steady, tenants and property owners alike appreciate that real estate portfolios need to be viewed as dynamic, not static, assets. Success in 2012 is measured not by how many new stores are built, but by how productive the retailer’s portfolio is — with productivity underscored by the difference in the number of stores performing at or above expectation, minus the stores with sub-par performance.
Strategic decisions fed by actionable information have become the trademark of the most successful players in retail real estate. Increasingly, these industry leaders are developing and executing plans around ambitious objectives to:
• Build customer-centric real estate models;
• Define the enterprise based on micro, as well as macro, characteristics; and
• Manage and monitor with a proactive mind-set.
Consumer-centric real estate models
Call it the Amazon Syndrome, but ironically the retailer that set the gold standard for building customer-centric real estate models has no brick-and-mortar real estate. Yet, the icon of online commerce taught the industry the importance of an ever-evolving consumer-relevant position.
“Constantly study and watch what your customer is doing so you can pick the right real estate location as it relates to your customer,” affirmed Charles Wetzel, president and CEO of Buxton, based in Fort Worth, Texas.
To accomplish this often requires a tectonic cultural shift within a retail enterprise. Traditional retail organizations built enterprises where real estate, operations, merchandising and marketing functioned autonomously and territorially independent of one another. That ‘silo’ approach proved increasingly detrimental to retail performance at every level, and was totally counterintuitive to the concept of creating a consumer-centric model.
“In successful retail operations, the silo mentality is no longer acceptable,” Wetzel explained. “Real estate decisions must be more holistic than just the brick-and-mortar location. It’s about more than market demographics: Know who your customers are, where they live, how they spend their money.”
That includes defining who and where online customers are as well so that enterprise decisions reflect the omni-channel preferences and lifestyles of today’s consumer.
“This is not a one-time study or single piece of analysis,” Wetzel cautioned. “Customer bases change and evolve over time so the retailer must continually evolve its real estate, marketing and merchandising strategies.”
What empowers retail enterprises to seamlessly connect and integrate various departments is technology that can effectively assemble, analyze and deliver actionable data across defined parameters.
“Cloud-based analytic tools enable end users to drill down and ask location-specific questions to more effectively evaluate sites and make the right decisions about real estate, marketing and merchandising,” Wetzel concluded.
Micro versus macro characteristics
Cloud-based solutions provide a number of benefits to enable strategic decisions that effectively consider influences at both the micro and macro level. The goal is to be able to evaluate individual store performance as well as the overarching productivity of the whole enterprise — and to do so by assessing every aspect of a real estate portfolio from a single-view vantage point. Essentially, portfolio optimization requires that retailers be able to distinguish high-performing stores from mediocre and poor-performing stores.
“The challenge is to focus on the good stores and identify what they are doing well, and at the same time focus on poor-performing stores and determine what can be done to mitigate those losses; in some cases that perhaps means eliminating the locations in as timely a manner as possible,” noted Jim Dooley, senior VP sales and marketing at Atlanta-based Virtual Premise. “The ability to look at all the relevant data at a glance and have it immediately available on a dashboard without having to dig through numerous [systems] gives the retailer a critical advantage.”
However, the strategic benefits of having visibility at a granular level into how each store is performing extend far beyond being able to classify the good, the bad and the anomalies. For a retailer that has a family of brands operating throughout its portfolio, the ability to make brand-specific evaluations based on micro- and macro-performance characteristics provides another opportunity to elevate strategic thinking.
“Having visibility into empirical data enables retailers to develop a strategy for every store and for every brand. A retailer could potentially swap store locations across different brands if the data indicates a low-performer with one brand would likely become a high-performer under a different brand,” Dooley continued.
Understanding micro versus macro metrics also positions a retailer to be more assertive in the marketplace, perhaps extending leases on high performers ahead of schedule to take advantage of favorable terms and conditions.
Now is certainly the time for retailers to be proactive, as the balance of negotiating power remains with the tenant in most cases.
“It’s not as dramatically skewed to the tenant as it was the last couple of years, but high-quality tenants still have some leverage,” stated Mark Dufton, CEO of DJM Realty, Melville, N.Y. “Especially the tenants that are stable and have good credit.”
“We’re working with quite a few clients to extend leases, and tenants have the leverage to cut a better deal in their lease because the landlords don’t want to take space back,” Dufton continued. “In the current market, retailers are working options [for lease renewals] pretty hard to get that option either back to the market level or even below market level.”
Whether a lease has come up for renewal or the retailer has initiated a preemptive discussion, effective negotiations require relevant information specific to the property under review. With geographically dispersed portfolios, technology powers the assimilation, analysis and communication of data that equips retailers to close the deal on the most favorable terms.
Since taking the helm at DJM Realty in February, Dufton has vowed to fortify the company’s culture to one that is even more technology-focused. “Our proprietary database aggregates all of the lease information we process on a national scale, with detailed insights into submarkets across the country.”
In addition to portfolio optimization through evaluation and renegotiation of existing locations, many retailers are looking at merger and acquisition opportunities to fuel growth. The same real estate technologies that enable retailers to study consumer behaviors and the micro/macro characteristics of stores in their portfolios can be used to evaluate each property in an M&A target, ultimately facilitating decisions for which locations should be retained. Joint venture partnerships essentially allow retailers to pick and choose locations within an acquired portfolio without assuming the liabilities of unwanted assets.
Capital that has been sitting on the sidelines is gradually making a move into retail real estate. Gradual is a good policy — preferable over the onslaught of investments that flooded the market with excessive development in the last decade. Now is not the time to make mistakes in real estate; now is the time to make educated, data-driven decisions.
Malls Go Mobile
Of the common areas hosted by a mall, the busiest has become the virtual one. Increasingly, consumers frequent mall websites to check out promotions at their favorite retailers. Website views are nothing new — but the escalation in mobile connectivity presents a revolutionary opportunity for retailers.
“In 2009, only 1% to 2% of traffic on a mall website came from a mobile device,” explained John Dee, president of PlaceWise Media. “Today, there are instances when over 40% of mall website traffic connects from a mobile device.”
Responding to this trend, PlaceWise Media, based in Denver, introduced the Shoptopia mall network in October. Shoptopia is a cloud-based integrated digital media network that leverages online, mobile, social and on-premise connections to interact with consumers before, during and after a shopping experience. The most dramatic benefit is that Shoptopia enables each store to communicate on a local level with its shoppers.
“Every retailer in every Shoptopia center has a discreet store page and the ability to communicate information that is most relevant to its customers,” Dee noted.
Southlands, a vibrant outdoor lifestyle center in Aurora, Colo., participates in the Shoptopia network and Sean Belle, store manager at Eddie Bauer in Southlands, advocates the results that can be gained from leveraging connections.
“We looked at traffic trends in our store to identify when we needed to pull customers in; Thursday was consistently our slowest day,” Belle said.
Working with Southlands marketing director, Belle utilized the Shoptopia network to send an email blast inviting consumers in the center’s database and, particularly his store’s loyal customers, to a special “wardrobe” event from 5:00 to close on a Thursday night. As an added incentive, the store held random drawings for Eddie Bauer gift cards throughout the night.
“It was a great success with significantly increased traffic, and year-over-year sales were up 20%,” Belle reported. “By defining the time, I was able to schedule our most experienced, knowledgeable staff.”
Glimcher Realty Trust, Columbus, Ohio, owner and operator of 27 regional centers, also relies heavily on social media and mobile marketing.
“The websites for all of our malls are equipped with social and mobile technologies to engage and interact directly with local customers,” stated Jessi Fausett, Glimcher director of marketing. “In some markets, the mall will do one Facebook post and send one tweet a day; but others — like Pearlridge Center in Hawaii where consumers love to receive messages — the mall may send five to 10 tweets daily.”
Glimcher often utilizes QR codes to engage shoppers. At Jersey Gardens, the number of shoppers who clicked on QR codes to access President’s Day sales information increased 25% this year over last as a result of a “Scan and Save” promotion that shared a QR barcode on posters and flyers distributed throughout the property.
“Ten percent of the views on the website sales page came from mobile devices and were directly attributable to those QR codes,” Fausett confirmed. “Mobile marketing is effective and cost efficient — it won’t replace all traditional marketing, but as newspaper circulation continues to decline, mobile marketing takes its place.”
On the banks of the Missouri River, in the northwest corner of the greater St. Louis metropolitan area, historic St. Charles is home to more than 65,000 people. At the gateway to this fast-growing area, a “mini-city” is emerging: The Streets of St. Charles, developed by Cullinan Properties of Peoria, Ill., will deliver an enticing 1 million-sq.-ft. mixed-use community.
The 26-acre site will become the consummate “live-work-play” environment, providing upscale residential, office, retail, restaurant and entertainment venues. Designed to foster an active pedestrian community, Streets of St. Charles features sidewalk cafes, outdoor gathering places and ample opportunities for residents to walk to work, dine out and purchase daily necessities without leaving their neighborhood.
“The site is in the heart of a well-developed market with solid demographics,” explained Lee Wolfson, VP leasing at Cullinan Properties. “More than 400,000 people live in the surrounding bedroom communities, including a workforce population of 300,000 people within a 10-mile radius, and it is in one of the five most affluent ZIP codes in metro St. Louis.”
Tenants have begun moving into a three-story, 100,000-sq.-ft. structure with retail and restaurants on the first floor; a leading fashion and culinary institute occupying the entire second floor; and third-floor office tenants, including Wamhoff Financial Planning, accounting firm Brown Smith Wallace and engineering firm Cole and Associates. The fashion and culinary institute also has a 4,500-sq.-ft. store on the first level, and will be joined by St. Charles Dental (part of the Heartland Dental Care organization), MassageLuXe, Five Guys Burgers and Fries and Tucanos Brazilian Grill.
“In addition to signed leases, we have letters of intent for roughly 90,000 sq. ft.,” Wolfson said. “Many tenants are entering the market for the first time with what will be their only location in St. Louis, so Streets of St. Charles will draw from the greater metropolitan area.”
Construction will start this summer on a 400,000-sq.-ft. residential block with retail and entertainment on the ground level. Roughly 70,000 sq. ft. of this phase will be dedicated to entertainment, and discussions are under way with a theater group, as well as a national comedy club. This second phase will open next year, and the entire Streets of St. Charles project, which will include two hotels, is slated for completion in 2014.
“The property is ideally located at the Interstate 70 and South Fifth Street interchange where 187,000 vehicles pass daily,” Wolfson described. “This is the main interchange for St. Charles’ tourist and special event destinations, including the Historic Main Street district, Verizon Wireless Amphitheatre, St. Charles Convention Center and Lindenwood Center for Performing Arts. It’s also between Harrah’s and Ameristar casinos, which together attract 20 million visitors annually.”
The Streets of St. Charles will serve tourists and event patrons, as well as nearby Lindenwood University, home to 17,000 students.
“The space is designed to mitigate traffic congestion,” noted Rob Wetherald, VP development at Cullinan, “with multiple access points into two parking garages housing 2,000 spaces.”
Surface parking will also be available throughout the development, encouraging visitors to join residents in enjoying the pedestrian-friendly lifestyle.