I’d like to try something a bit different for this week’s column: a market-specific conversation! I’ve tapped Dave Cheatham from Phoenix-based Velocity Retail Group, an X Team International Partner, to help me examine the recent ups and downs of the local retail market in Arizona — and what the lessons learned here mean for brick-and-mortar retailers nationwide.
Jeff: It’s great to be sitting in Phoenix talking about growth, construction and new retailer expansion. For so long, we were talking about a “new normal,” lowered expectations and fewer opportunities.
Dave: To talk about the “new normal” you first have to start by identifying what we meant by normal prior to the recession. What we saw in Phoenix before the recession was clearly anything but normal. The ways rents were spiking and commercial developers were speculating in 2005-2007 was totally out of balance with pre-2005 norms.
Jeff: It might be better to refer to the current state of Phoenix retail as getting back to normal: stable, predictable growth.
Dave: We are getting back to a more steady level of population growth, and commercial development mindset that reflects a more rational and more sustainable approach.
Jeff: One of the things that has always distinguished the Phoenix market is that exceptional in-migration you mention — it really drives the regional economy and spurs retail growth.
Dave: I think we are starting to see new job creation, and we were ranked recently as the number one for future new jobs in the nation. That coupled with getting back to strong numbers of in-migration will lead to a more predictable growth that allows you to more accurately predict/project ahead. Compare that with the bubble behavior we were seeing shortly before the recession. I remember commercial developers planning and projecting malls to go in some sites before there were people there!
Jeff: It’s a classic example of that familiar ‘irrational exuberance’ idea.
Dave: Anytime retail developers get ahead of themselves and start building before demand exists, that’s irrational.
Jeff: Because the regional economy is so heavily into construction, the halting of population growth affected Phoenix more than other cities. Even within the state, less overbuilt cities such as Tucson didn’t have the same boom and bust.
Dave: That’s right, and another thing that made the fall so precipitous for the retail sector in particular was the fact that rents were artificially high — that’s something that made the foundation of this recent recession very different from the last truly deep recession in the 1980s. Unlike in the ‘80s, vacancy rates remained in the single digits leading up to the recession, but rents (like home prices) were artificially high. Those high expenses for area retailers meant that, when revenues dropped off, things went upside down very quickly.
Jeff: Retail vacancy rates definitely didn’t stay in the single digits during the recession, that’s for sure. Retailers were also hit with multiple problems at the same time: the growth of online shopping options, the high rents and the housing crisis itself made it a perfect storm that affected Phoenix more than the average city. We have had to absorb most of that vacant space before real local growth resumed, and I believe recent development shows we’ve turned that corner.
Dave: There were a couple of years there when value retailers were the only ones opening a significant number of new stores—that was also an opportunity for them to get into a market many of them they couldn’t afford previously.
Jeff: Traditional retailers have only recently begun expanding in earnest again in Phoenix — is that another sign that things are moving forward?
Dave: I think so, yes. I also think that Phoenix has a lot of intangibles going for it: it’s relatively affordable, there’s plenty of sunshine, and we have a stronger-than-average job market. I see some parallels to one of the strongest areas for retail in California, the Inland Empire, in the way Phoenix has gone through this recession and initial recovery.
Jeff: That’s not a bad comparison: hit hard, but bouncing back well. Perhaps more importantly, the consensus is toward a more state outlook, so we can expect predictable growth for the next few years.
Dave: Keep in mind, Phoenix actually lost more jobs than Detroit over the course of the recession, but its economy is very resilient.
Jeff: Dave, I know we’ve been talking about Phoenix, but a lot of these ideas apply to almost any market in the country.
Dave: No doubt. The specifics and nuanced details of market behavior will always vary from one city to the next or from one region to the next, but the principals can apply in many areas of the country.
Jeff: Let’s hope we’ll continue to see a similarly healthy ‘back to normal’ trajectory for retailers and markets around the country in the months and years ahead.
Dave: Amen to that.
How do you see retail development coming back in Phoenix or in your own backyard? Have we turned the corner from a national perspective? Leave a comment below or email [email protected] to continue the conversation.
Click here for past columns by Jeff Green.
Kohl’s to get jump on holiday shopping season
Kohl’s is the latest department store to announce that it will open its doors at 8 p.m. on Thanksgiving Day, as it kicks off its Black Friday event earlier than ever.
Stores will be open for 28 hours straight, from 8 p.m. Thursday, Nov. 28 through midnight Friday nationwide.
The retailer is also offering a digital variation on the photos with Santa tradition. Starting in November, shoppers can skip the long lines to visit Santa at the mall by taking a photo at Kohl’s Snapshots with Santa in-store photo opportunity in Kohl’s stores nationwide. Customers can snap their picture against a green screen display, select a unique holiday background with Santa and share via email and social media using the Kohl’s Snapshots with Santa app.
Also new this year, and in time for the holidays, Kohl’s iPhone app will feature a new savings wallet, giving shoppers the ability to track Kohl’s Cash right on their phone.
By Crosby Renwick, [email protected]
Sure, the Internet plays an aggressive game. It’s looking like the Internet business is trouncing the retail business. However vast an assortment or low the prices a retailer offers, the Internet does it better and cheaper. The prognosticators all say the same thing: What little growth there will be in consumer spending over the next five years is mostly going to happen online.
But, the bricks-and-mortar model can start winning again by leveraging its natural talent with the changing conditions.
Changing conditions? Well, that would be the aging of the marketplace. It’s a fact: Got to go with it. On the face of it, this changing condition looks threatening versus assistive because older people don’t spend as much on goods — they’ve pretty much already bought everything they really need. But they buy services. In fact, for several decades households have been increasing their expenditures on services while expenditures on goods as a percent of all spending have been going down.
Natural talent of retail? That would be service. Yes, service. Haven’t bricks-and-mortar retailers been in the service business all along? Especially mom-and-pop stores, who buy, edit, arrange, display and demonstrate an array of products while bringing them close to the customers. That’s service, I think. It’s a natural talent missing from the Internet; you can’t click and order services. Services most likely require in-person experiences within bricks-and-mortar.
Services for the aging population already happening at retail
We’re already seeing a lot of healthcare coming to retail — from walk-in clinics and urgent care centers to large insurance companies opening storefronts to counsel on health policies. Even laboratory testing has gone this route: AnyTestNow, a national chain of walk-in labs offering any blood or urine tests without a doctor’s prescription, already has over 100 retail sites.
But the explosive growth of the senior population brings with it opportunities that go well beyond storefront medical and insurance services. Here’s just a few of the concepts that could help fill some of those vacancies on Main Street, in malls or in strip centers:
Senior Social Clubs
One of the biggest services retail can provide is bringing like-minded people together. Just like those yoga fans who flock to Lululemon for classes — and, of course, the store’s yoga wear — lots of seniors are going to be looking for company. Here’s the idea: group senior care packaged as “Senior School” or “Senior Social Club” — complete with a gym, reading class, art programs, a woodshop, talent shows. Where do I sign up?
But why locate in retail space? Couldn’t this be done in a church basement or on any other location besides Main Street? Yes, but by being front-and-center, by being at the core of a community rather than hidden away, you increase awareness and acceptance. By being in the center of it all with retail locations, the Senior Social Club doesn’t get forgotten — it’s right in front of you everyday. Drive by, walk by and you’re reminded it’s there. And when Mom or Dad have left the stove on again, the solution is right there.
Simple idea: Look at what Whole Foods Market has done to the supermarket industry by specializing in pure, natural and/or organic. The boomer generation fell for it hard and fueled their growth. In comparison, “conventional” supermarkets now look a little un-natural.
The same opportunity exists in the drugstore business. All the big drug chains turned themselves into convenience stores in the past 20 years. Pharmacy is still a major part of their business, but nobody specializes in it anymore. And, what a giant, dependable business it is. Indeed, the elderly average six prescriptions per person, to be taken every day for the rest of their lives.
The people who shop at Whole Foods, Trader Joe’s and the like are believers in “integrative medicine” — the best of both the eastern and western worlds of healing — naturopathic (plant-based) remedies combined with western pharmaceuticals. The problem is those folks won’t find any national or regional chains that could be deemed ‘The Whole Foods of drug stores.’ To those shoppers, a drug store featuring a ‘natural’ front end amply stocked with herbal remedies, teas, vitamins, supplements, and organic beauty/personal care items, the clinical pharmacy department would appear safer, better, smarter. Staffed with knowledgeable people, an “Integrative Pharmacy” could be a national hit.
Senior Living Superstore
If you’re over 50, you or one of your friends is likely thinking about moving to a house that is more “senior-friendly” — more accessible, no stairs, higher toilets, showers instead of tubs, etc. A Home Depot-type store that could help you modify your existing house could potentially save you thousands of dollars. This one-stop emporium would be a place where you can get a stair lift, grab bars, motion-sensitive lighting or even arrange to have an elevator installed. While we’re at it, let’s surround these home-modification products and services with the thousands of items that have been specifically designed for an aging population — from large-type books to invisible hearing aids. Today, the only retail place where you can access even a modest assortment of these products is a hospital supply store. It’s probably located on the wrong side of town, it’s grey, badly lighted and there’s a wheelchair and toilet seat in the window — and probably a dirty window, to boot. Instant downer.
The opportunity is to bring it all together under one roof, clean it up and make it a pleasant place to shop.
When you think about it, the only place where the Internet beats bricks-and-mortar is on low prices for commodity goods. Who wants to be in that business anyway? Let ‘em have it and let’s get on to targeting growing markets with high-margin services.
Let’s apply what retail really already does better — servicing its clientele — and focus those services on the exploding aging population.
Crosby Renwick is executive director, Strategy, at CBX, the New York-based brand agency. He can be contacted at [email protected].