Real Estate

Reinventing the Modern Mall

Reinventing the Modern Mall 1440 428 ASG

Drive through any city in the U.S., and you’ll see a mall with too much empty space. Retailers that have traditionally been the anchor store in malls across the country – Sears, Macy’s, BonTon – are closing and going out of business. While many analysts are claiming the mall will become a thing of the past, malls can survive by embracing innovation, reinvention, and evolution.

New Lease Structures

While the Hudson in New York City may end up being the prototype of the future, what I’m seeing in malls across the country is a willingness to forgo the traditional lease. Shorter-term leases, leases with no percentage of sales, and leases with flexible terms and space requirements are helping landlords keep the space occupied. The successful mall of the future will redefine how they occupy space as well as how they keep it occupied. “[F]or many malls, their revenue models are going to change entirely,” explains Storefront Chief Executive Officer Mohamed Haouache.

Pop-Ups and Kiosks

Modular tenancies are growing in popularity, “providing digital native brands with the opportunity to rent space without the typical lengthy commitment.” And according to Lexology, “Pop-ups allow malls to bring in new, innovative, and buzzworthy brands at a time when malls are in need of a boost. Some malls are even dedicating permanent spaces, formerly occupied by traditional brick-and-mortar retailers, to various rotating pop-ups.” The successful mall of the future will be flexible and creative in how the space is used.

Demographics and local interests matter.

Numbers drive virtually everything, especially in real estate. And no investor wants to establish real estate property if the prospects of success are poor. Before committing to any property development, a real estate investor wants data on business growth rate, the resilience of the economy, population size, tax incentives, and other components that are a piece of any retail real estate lease or contract. However, as the landscape of consumer demands becomes more personal, as well as socially mindful, individual cities are now defining the retail real estate market.

Individual cities have a unique competitive edge.

The cities that are most successful are those that have a distinctive reputation. Size does matter, but it certainly isn’t the only stimulus for achievement in retail. The enterprising mindset of the city itself, regardless of industry, will drive the innovation and unique experiences that consumers want. Peer groups have a significant influence on how a city grows and the retail that thrives, ranging from tourist hubs to entire neighborhoods driven by sustainability practices.

It can be challenging to balance efficiency and innovation, but different cities will demand completely different stores and retail strategies. What functions well in New York City is not guaranteed to launch similarly in Tokyo. A flagship store may do well in the suburbs of Chicago but sink completely in the neighborhoods of Toronto. The demographics of an area can be so specialized that two stores within the same city limits cannot market themselves the same way. Retail real estate must spend less time defining who they are and more time strategizing how they fit into a city’s existing strengths.

Mixed-Use Projects Benefiting Real Estate

Mixed-Use Projects Benefiting Real Estate 1440 428 ASG

Consumers want a better shopping experience, but that doesn’t mean they expect a ground-breaking demonstration or innovation every time they step foot in your store. As the industry shifts, mixed-use projects are significantly benefiting retail real estate. Rather than a retail-only development, large properties are being used for different purposes that reach consumers across the spectrum. Rather than a typical mall, usage is shifting to “live-work-play” design.

Mixed-use projects broaden the shopping experience.

Retail real estate no longer revolves around discrete destinations, such as a supermarket or large gym that typically stands alone. Malls that are losing their anchor stores are focusing less on a replacement and more on incorporating movie theatres, gyms, and grocery stores that were never the traditional choice. By involving different kinds of retailers, the shopping experience is broadening considerably. Mixed-use projects offer a one-stop destination where consumers stay longer, spend more, and have a better experience in the process.

More efficient use of retail space.

Brick-and-mortar locations are using AI to streamline inventory management, identify the best locations for warehouses, and reduce inventory to hold less in-store. Mixed-use projects benefit everyone by capitalizing on the available space more effectively, reducing overhead costs, and leveraging foot traffic to other retailers sharing the space.

Retail lease terms and regulations are being reconsidered.

Retail lease terms are shifting as physical stores evolve, and these changes are often in favor of the retailer. And as laws change, regulations are being updated as well. Microbreweries are of considerable interest to consumers, and the legalization of marijuana offers a new frontier for retailers that have been prohibited from doing business in certain retail spaces. Mixed-use projects that house different types of retail may see common features of the standard retail lease no longer be relevant. Pop-up stores are becoming more prominent, eliminating percentage rate, for example.

The retail industry is undergoing multiple changes, but the opportunities for success are increasing every day. There are several ways to do business, but traditional methods of retail are not a part of the new puzzle.

Repositioning Retail Real Estate Strategy

Repositioning Retail Real Estate Strategy 1440 428 ASG

If you look back on the history of retail real estate, the department has typically been managed by an EVP-level executive that reported directly to the CEO of an organization. The retail real estate department was the primary source of strategic market knowledge critical to positioning new brick-and-mortar locations to promote growth. Even for third-party exchanges developed to generate strategic market plans, such as site selection models or sales projects, retail real estate executives were the main point of contact. Although real estate executives remain the experts, the dynamics have shifted drastically and changed the roles of all involved.

Retail real estate has been downshifted within organizations

Data analytics are now considered an elevated resource, as the tasks delegated to the real estate department have expanded from new store growth to portfolio renewals. Therefore, real estate strategy has downshifted from an EVP C-suite role that was primarily strategic in favor of a director-level role responsible for the execution. Such tasks are then reported to the CFO, resulting in a complete disconnect between real estate executives, an effective marketing strategy, and the CEO. Rather than a focus on the long-term strategic vision, retailers are focused on short-term rent reduction tactics, such as rent relief. Unfortunately, in a changing retail industry that exists in a multi-channel world, retailers should be focused on the number of their stores and how location impacts their overall success and ROI.

Real estate requires a specific investment

The real estate executive must implement a sophisticated planning process to re-position their role within an organization, which is why it is so important to demand a seat at the executive table. A successful real estate strategy requires both store capital and an investment in technology, data, and analytics specific to the nuances of real estate. Current trends demonstrate that revenue generating initiatives, such as reducing rent, are preferred over improving long-term brick-and-mortar performance. This hardly considers a more in-depth analysis of why ROI is floundering, such as marginal and declining real estate locations. There is no quick-fix within real estate, and strategic planning requires executional strategies that support long-term goals.

The real estate landscape is transforming rapidly

Organizations must understand that the initial drive of brick-and-mortar locations is no longer the current trend of consumers. Shopping centers that were once dominant are now struggling to stay afloat, and it is projected that their numbers will halve within the next few years. However, this is not to say brick-and-mortar locations do not have the potential for success. The landscape is changing, and real estate executives must rely on strategy to capitalize on the needs of the new generation of shoppers. Analytics are impacting location strategy, as well as the experience that a brick-and-mortar store can offer combined with omnichannel metrics. Traditional retailers are losing ground, demanding that real estate executives understand and communicate market trends. Real estate departments need to direct the analytics of retail marketing, not be the recipient of the latest decisions.

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