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SPECS-ulation About the Future of Retail Real Estate

BY Jeff Green

I recently attended Chain Store Age’s 49th annual Store Planning, Equipment, Construction and Facilities Services Seminars (SPECS) in Dallas, Texas. While SPECS always gives me plenty to think about, this year was especially interesting thanks to the debut of a new segment on Real Estate Development. In addition to other workshop “tracks” like Facilities, Business Strategies, and Planning & Design, the inclusion of Real Estate Development to the mix really brought new (and important) perspectives.

Aimed at “retailers and developers who deal with site-selection, leasing, portfolio optimization and buildout challenges”, the workshops dealt with a wide range of subjects impacting retail real estate development, including changes in size and format, shopping habits and patterns, and other emerging issues. Though I didn’t attend every session, I did notice a few clear trends that continued to come up again and again throughout the conference and will be, in my mind, among the most relevant and resonant for retail in the years ahead:

Optimizing brick-and-mortar portfolios
Given the strengthening of online and mobile shopping, it’s increasingly evident that optimizing brick-and-mortar portfolios is a higher priority than ever for retailers. It begins with knowing the number of supportable retail stores and knowing the optimal size that your box should be. With the increase in online shopping, the amount of square footage needed for most retailers is shrinking. But there is another piece to this puzzle, and I was glad to see it addressed. You can’t optimize a portfolio without really understanding where and why customers are shopping, and where, why and how the breakdown between online shopping, mobile retailing, and traditional brick-and-mortar shopping is taking place. The other issue that deserves more consideration is how the question of store numbers (chain size) versus prototype size (store size) will play out. Because smaller formats allow retailers to move into different spaces in different markets, store downsizing may facilitate some repositioning and might actually (and counter intuitively) result in more locations.

The importance of mixed use
There was plenty of discussion at SPECS about the central role of mixed-use development, and about how it seems likely to be the genesis of the retail developments of the future — both for new builds or renovation/redevelopment projects. I think the growing popularity of mixed use among retail developers (who, with some obvious exceptions, have generally been a bit gun-shy in taking on mixed-use projects) is an acknowledgement of the fact that density adds value, and that mixed-use unlocks the full potential value of a piece of real estate. I see this as a slow awakening on the part of retail developers, but I also believe it will continue to pick up steam in the years ahead. It’s a way to “build in” demand components that support the retail, and, from a retailer’s perspective, that on-site market is enormously attractive. When the list of potential shoppers features more than just trade area residents and includes on-site residents, on-site workers, or hotel/lodging guests that can be a difference-maker. I wouldn’t be surprised if developers are starting to come around largely because demand is beginning to outstrip supply and developers are feeling the pressure from retailers.

Urban redevelopment is here to stay
There’s no doubt that urban development isn’t going anywhere, and urban environments are likely to remain a key retail development focus in the years ahead. At the same time, however, those environments also pose their own challenges. This dichotomy of opportunities and challenges was a frequent point of discussion during a SPECS session I had the privilege of hosting, titled Smaller Stores, Bigger Markets: Advantages and Obstacles to Urban Growth. Representatives from Starbucks, The Container Store and Chipotle were on hand to discuss urban development, and what I found particularly interesting was how (despite some brand- and sector-specific differences) their thoughts seemed to be generally in sync. The disadvantages tended to be of a logistical nature — issues with store design, store size, parking, etc. — while the advantages boiled down to one thing: customers. It’s clear to me that the attraction of tremendous density and the appeal of an established population (and not a projected customer base or the assumption of residential/population growth) almost always outweigh the compromises and inconveniences of urban retail.

Of course, these three issues aren’t the only important features on the evolving retail development landscape, but SPECS did a great job highlighting the role they will play in the years ahead.

What were your big takeaways from SPECS 2013? Will smaller store footprints pave the way for expansion? Will retail developers embrace the idea of mixed use properties? Comment below to join the conversation, or email me directly at jeff@jeffgreenpartners.com.


Click here for past columns by Jeff Green.

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Former Sports Authority exec joins Hilco unit

BY CSA STAFF

Dick Lynch has joined the SD Retail Consulting division of Hilco Trading as SVP of merchandising and strategy.

In his new role, Lynch will be responsible for helping retailers create shareholder value through process, organization and technology enhancements in the key merchandising and inventory management functions. He will also play a key role in assisting management, owners and lenders in shareholder value creation assignments.

Most recently, Lynch served as a senior retail advisor for the past 10 year at Karabus Management. He also served as president and COO of The Sports Authority, interim CEO of Sur La Table, president of Paperchase U.S., and CEO at Hechinger following the company’s bankruptcy. Lynch will be rejoining Antony Karabus who serves as president of SD Retail Consulting.

"I am very excited to be joining SD Retail and to be working alongside many former colleagues," Lynch said. "Today’s landscape poses many opportunities and challenges for retailers, and I look forward to working with the talented senior management team at SD Retail to identify and implement strategic growth opportunities to enhance the businesses of our clients."

Lynch will work with Farla Efros, EVP and COO of merchandising and strategy to continue to expand SD Retail’s merchandising and strategy practice.

"Dick has an impressive track record of solving complex retail issues, having played a key role in successfully enhancing sales and margins, improving field and merchandising effectiveness and reducing the cost structure for numerous retail chains," Karabus said.

SD Retail is a unit of The Hilco Organization, a privately-held, diversified financial and operational services firm whose principal competency is understanding and maximizing the value of business assets, including retail, consumer and industrial inventory, machinery and equipment, real estate, accounts receivable, intellectual property and going-concern enterprises. 

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American Girl, Monster High drive Mattel Q1 results

BY CSA STAFF

EL SEGUNDO, Calif. — Key Mattel brands drove Mattel sales for the first quarter of 2013.

Mattel’s net sales for the quarter were $996 million, up 7% compared to $928 million last year, and net income increased dramatically to $38.5 million, or $0.11 per share, compared to last year’s first quarter net income of $7.8 million, or $0.02 per share.

"Overall, 2013 is off to a solid start, demonstrating the strength of our global portfolio of brands, countries and customers. We are very pleased with the performance of our Girls portfolio and the strong results across all regions, particularly Europe," said Bryan G. Stockton, Mattel chairman and CEO. "We continue to see the first quarter as our pre-season and we remain focused on a strong 2013 and delivering in the all-important holiday season."

On a regional basis, first quarter gross sales increased 5% in the North American region, which consists of the U.S., Canada and American Girl, with no impact from changes in currency exchange rates. For the International region, gross sales increased 9%, including a 2 percentage point unfavorable impact from changes in currency exchange rates. Operating income for the quarter was $65.8 million, compared to prior year’s operating income for the quarter of $28.7 million.

Dips in sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels, down 7% versus the prior year, and the Barbie brand, down 2% versus the prior year, were not enough to offset profits for Mattel. Worldwide gross sales for Mattel Girls & Boys Brands for the first quarter went up 11% to $692.2 million, compared to the prior year, while worldwide gross sales for Other Girls Brands were up 56%, driven by Monster High. Meanwhile, first quarter gross sales for American Girl Brands, which offers American Girl branded products directly to consumers, were $100.5 million, up 32% versus the prior year. This was driven primarily by increases in all core doll segments, led by Saige, 2013 Girl of the Year and strong performance at retail, including the three new stores opened in 2012.

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