A reporter recently asked me why it was important for brokers to have specialists dedicated to leasing retail space. It was a great question. Like a lot of people, I can get so engaged in my work that I forget not everyone sees the necessity of what I do! Think of it this way: you wouldn’t want your family doctor to perform brain surgery; you’d want a specialist. Retail real estate may not be brain surgery, but the marketplace is changing more rapidly than ever, and the need for specialists is only increasing. Dramatic technological and demographic shifts are reshaping the retail landscape while market forces are requiring landlords to think more strategically and creatively. A retail specialist serves as a knowledgeable guide, consultant and partner to help landlords anticipate and capitalize on these changes.
Landlord or Tenant Representative?
Another important clarification is the distinction between landlord agencies and tenant representatives. They both know the fundamentals of real estate, but a landlord or project representative focuses on getting the perfect balance of retailers and restaurants for their client’s project, while a retail tenant representative focuses on finding the right location for their clients.
In the retail space, the landlord project representative typically has expertise in merchandizing mix, existing relationships with retailers, an ability to identify first-to-market concepts, the expertise to recommend improvements that will enhance the project’s position in the market and a knack for staying up-to-date on changing consumer behaviors—all focused on helping properties to be successful.
The retail-focused tenant representative has expertise in brand management, mapping, retail technology, in-store analytics and site predictive and scorecard modeling. Retail tenant reps also understand demographic trends, and they have deep relationships with local markets with the potential to uncover new opportunities—all focused on helping the retailers to thrive in their location.
Both types of representatives develop expertise on both sides of the equation to be more effective, but ultimately, their greatest strengths are related to who they serve.
Changing Roles and Responsibilities
In the old days, things were simple. The retail brokerage business was largely transactional, and it was dominated by generalists. Landlord agencies would provide tenant representatives with a list of vacancies and request the names of retailers and restaurants that wanted to expand. The tenant reps would go to their colleagues and networks to identify prospective tenants to fill the vacancies. The conversation was mostly about filling space with the assumption that if you build it, consumers will come. There was little attention given to strategies to optimize the project by looking for opportunities to combine spaces, by recapturing space from a tenant that isn’t doing well or by analyzing any of the dozens of possibilities available to achieve the landlord’s business objectives.
Today, things aren’t simple anymore. Staying ahead of the game IS the game. The industry is experiencing a revolution driven by ecommerce, changing demographics and behaviors, technology and fundamental changes in how the market is structured.
Success means moving away from the purely transactional model to a high-value advisory service where specialists who know their market provide a deep analysis and a comprehensive review of the property, always looking for unrealized potential. It’s no longer ideal to just fill spaces. Specialists today put together thoughtful, collaborative strategic plans—road maps that leverage data, analytics and all of the technology and tools available to account for the fluidity of the market.
No longer is there a one-size-fits-all approach; specialists dig in to understand the optimal tenant mix, the flow of traffic and ways to provide maximum branding for the retailers. Specialists share ideas about ways to create soft amenities—seating zones and other areas where people can rest, mingle and linger. Specialists look outside the project, too, to understand the community and to identify creative ways to create a familiar main street experience. The process is much more thoughtful and thought-provoking than the traditional model, and it organically creates value. The strategic plan becomes a living document, and over time, as demographics and trends change, the tenant mix can be edited accordingly.
Consider for example the implications of major brands experimenting with different business models in urban locations, the changing behaviors of millennial shoppers growing older, how online brands are experimenting with brick-and-mortar outlets and the ways in which the immersive experiences of virtual reality could change shopping both online and in-store.
These are just a few of the trends I’ve written about previously. Here are a two more fundamental changes we retail specialists are watching closely right now that I’ll be exploring in greater detail in the future:
The Ideal Tenant Mix is Changing
As I’ve mentioned, retail shopping is very much alive and well, but there are significant changes taking place that will affect the ideal mix of merchants and merchandise. Multi-tenant commercial properties need to ensure they’re actively managing this mix to maximize foot traffic and overall profitability. It used to be that landlords needed a few good anchor tenants and the right mix of food and beverage, retail and entertainment, but the traditional “anchor tenants” are no longer the draw they once were. Studies have shown that Millennials who go to a shopping center visit large department stores less than Gen-Xers, who in turn visit department stores less than Baby Boomers.
Even the categories themselves are changing. Multiplex cinemas used to be all the “entertainment” a mall needed, but the decline of movie theater attendance and the rise of businesses like Spin—entertainment brands aimed at adult consumers—changes the demographic mix and purchasing power of mall visitors, and could even affect the optimal hours of operation for stores in the vicinity. Retail specialists can conduct portfolio reviews for landlords to ensure that their mix is optimized for today’s shoppers—and tomorrow’s.
SPiN Chicago—Image courtesy of Chicago Genie
More Data Means Better Analytics
Not long ago, retailers and landlords based decisions on foot traffic, census data and sales. Today they have at their disposal a dizzying array of information. Treasure troves of rich data help landlords and retailers answer specific questions about consumer behavior as opposed to relying on trend forecasts and gut feelings.
Landlords benefit from the ability to understand the foot-traffic flow, sales from competing markets and actual buyer behavior. These factors educate the landlord about how they bring in the best tenant mix for the demographic. Fluidity is the key. As consumer behaviors and demographics evolve, the tenant mix should evolve accordingly.
From a retailer’s perspective, technology is changing the way consumers interact with brands. Location is key, but so is providing the in-store bandwidth, wiring and infrastructure needed to facilitate omni-channel retailing, which enhances the customer experience.
The common thread after all—for landlords and for retailers—is providing the ideal customer experience.
Rich data from beacons and Location Based Services, stores’ digital video cameras, point-of-sale systems, promotional calendars, shoppers’ mobile devices and even third-party data sources like social media and weather services are combined with vast improvements in merchandise tracking to provide measurements that were virtually unthinkable a decade ago.
Of course, data can be overwhelming without actionable insights, so a slew of retail analytics providers have launched to make sense of it all. Retailers can now make better-informed decisions on aisle layout, staffing and merchandise mix. They can see their shoppers-to-buyers ratio on different days and in response to promotions. They can see where in the store people linger and the extent to which that affects purchases. Wouldn’t it be helpful to know if shoppers came in for an “unsuccessful” sale on one category, but ended up buying items from a higher-margin category? And what are the implications of those findings for store layout, displays and future promotions?
Big brands like Nordstrom’s, Target and Kroger grocery stores are seizing this opportunity, and so are many smaller retailers. But if landlords aren’t involved in the process, all these insights from individual stores remain siloed. Retail specialists who track these developments can help landlords understand how to implement data analytics to improve results for individual stores and for their portfolio as a whole.
In future posts I’ll delve into some of these topics more deeply, but this gives you an idea of the breadth, depth and speed with which changes are taking place in the retail landscape. Successful business people know they can’t do it all. Most landlords have enough on their plate simply managing their business and responding to the needs of their tenants. They rarely have the time to think critically about the changes on the horizon. They risk bringing in the wrong tenants or holding on to tenants that perform well individually but undermine the property’s portfolio or the landlord’s long-term vision. That’s where retail specialists come in. It’s hard enough for those of us who specialize in this area to keep up, so how could a non-specialist have a chance of following these changes and bringing emerging opportunities to landlords’ attention?
The future of retail is taking shape all around us. Are you ready to make the most of it?
Anjee continues to be an insatiable collector of all things retail. She’s a student of culture living next door to future shoppers, whose fleeting trends constantly change the retail landscape … driving retailers, landlords and developers crazy!