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Disruption:US Retail in the Age of Amazon
ICSC Chicago
Retail Real Estate Program & P3 Program
March 22, 2018
Garrick H. Brown
Vice President, Retail Intelligence
Amazon Innovations
Recent Patents Issued to Amazon
Will Amazon really build flying
warehouses, parachute
delivery systems for drone
package drops or self-defense
systems for drones?
Is it real?
Or just great PR?
Does it matter?
Amazon Patents
Source: Cushman & Wakefield Research
The Store of Tomorrow?
Welcome to Amazon Go
Amazon Go opened in Seattle
in January 2018, roughly a
year later than originally
planned as engineers worked
out issues in the technology.
BingoBox has been active with
a similar technology in China
for a couple of years now.
Cashierless Stores
Source: Cushman & Wakefield Research
Beacon Technology
It’s only just begun…
Indoor Navigation
Proximity Marketing
Automatic Check-in
Cashierless Payment
Tracking Consumer
Movements
Beacon Uses
Source: Cushman & Wakefield Research
Beacon Technology +
Beacons connected to…
Iconeme
Mannequin has a beacon
inside. Mannequin (beacon)
detects consumer. Mannequin
notices consumer lingering.
Mannequin sends consumer
details about what he/she is
wearing.
Who You Talkin’ to Dummy?
Source: Cushman & Wakefield Research
Automated Pricing/Digital Price Tags
Kroger is testing it NOW.
Automated Pricing/Digital
Shelf Tags
Algorithms keep retailers
pricing competitive and take
human error out of the
equation.
The shelf tags can be
programmed to update prices
automatically based upon a
pre-determined timeframe.
Who You Talkin’ to Dummy?
Source: Cushman & Wakefield Research
Interactive Mirrors
It’s only just begun…
Interactive Mirrors
Interactive Fitting Rooms
Body Scanning
Interactivity
Uniqlo Magic Mirror
MAC Magic Mirror
Rebecca Minkoff
Magic Mirror
Kiepierre
Inspiration Corridor
(Body Scanning)
Source: Cushman & Wakefield Research
Customizable Clothes
Design it yourself, onsite manufacturing…
YRStore app already being
utilized by dozens of retailers
for simple, onsite
customizable clothing.
Consumers create their own
designs onscreen with user-
friendly, touchscreen.
Those designs are then
printed on t-shirts, etc.
Onsite 3-D printing and
textiles are coming.
Customizable Apparel
Source: Cushman & Wakefield Research
Other Visions of the Store of Tomorrow
Eye Pay: Retina Scan or Thumbprint
Retina or Thumbprint ID
“Husband Pods.” Pods where
you can relax, play video
games, watch television,
connect to the internet, etc.
Diversions for those who hate
shopping. Already in use in
China.
Credit scores based on your
smartphone number. Guess
what? Already in use in China.
Futurists Weigh In
Source: Jim Carroll, Doug Stephens, Money Magazine, Cushman & Wakefield Research
The Store of Tomorrow?
“Would you like fries with that? Bleep Blurp Blop
Automation will increasingly
be a reality for major fast food
chains.
Robots will increasingly be
utilized for the lowest level
customer service interactions
in retail categories.
They are not likely to replace
humans for quite some time in
higher level customer service
interactions.
Robots
Source: Techjuice, Cushman & Wakefield Research
Beacon Technology +
This actually exists today…
How Does it Work?
1. Beacon recognizes
consumer in store.
2. Retrieves shopper history
& likes.
3. Sends shopper text
coupon as they pass near
item.
4. Uses shopper’s mobile
phone to take picture of
shopper as they look at
promotional offer.
5. Facial recognition software
determines if shopper
pleased or not.
6. If not pleased, will send a
different coupon.
Realeyes
Source: Cushman & Wakefield Research
Why You Haven’t Seen These Things… Yet
Through November 2017
Source: eMarketer, Cushman & Wakefield Research
Convenient or Creepy?
Most of these technologies already
exist…
So why haven’t they been
implemented more widely?
Cost
Other Priorities
Fear of Being Creepy
But they will be part of the retail
landscape…
Sooner, rather than later…
0% 10% 20% 30% 40% 50% 60% 70%
Company's profitability model is based on standardizedassortments and store layouts
Business leaders are concerned about the "creepiness"factor in tracking
Need more proof around ROI/business case
Overreaching concerns about consumer privacyprevent us from even considering these types of…
Technology seems unproven, don't want to be the first
Business leadership can't see value of locationalanalytics beyond site selection
Other omnichannel priorities take this off the table
Leading Organizational Barriers to Using Location-Based Analytics, According to US Retailers (November 2017)
Ask Alexa: 2018 is the Year of Voice
Virtual assistants are listening devices… sort of
Virtual assistants are live 24/7
listening devices. All current
systems needs to be activated
by your command (“Hey
Google” before contacting the
cloud. Twenty years ago, how
would you have responded to
the idea of putting a listening
device in your home for the
sake of convenience.
Fun Stuff:
Ask Alexa…
What Gordon Ramsay thinks of your
cooking?
Where Chuck Norris is?
Do you want to go on a date?
What’s the magic word?
Can you give me some money? (ask twice)
Do you have a job?
Say: More cowbell!
Convenience Overcomes Creepy
Source: Cushman & Wakefield Research
Proceed with Caution
The “personalized” experience could cross the line
Enhancing the consumer
experience is critical in the
newCommerce Age...
There are easier ways to do it,
than through the unauthorized
mass collection of their most
personal information.
Use of invasive technologies
could backfire: damaging or
even destroying brands.
Let the consumer choose the
level of personalization that
they are comfortable with.
Don’t Curate Creepiness
Source: Cushman & Wakefield Research
The kinds of data mining that
consumers currently accept on their
computers and devices may be due,
in large part, due to a lack of
awareness or simply different
situational norms for cyberspace.
Similar tactics employed in physical
space, especially if executed poorly,
might result in strong negative
reactions from consumers that feel
their privacy is being violated.
Privacy concerns will increasingly
become an issue with Big Data.
What is Happening with American Retail?
Don’t you know there a “retail apocalypse” under way?
Source: Cushman & Wakefield Research
There are real challenges, but the
perception is becoming worse than
the reality.
Unfortunately those perceptions
will contribute to the reality by
harming healthier retailer and REIT
values.
Bloomberg launched an online interactive game in February 2018 where the goal
is to save a dying mall.
The Mainstreaming of Doom
So Why the Gloom?
Is US retail really doomed?
Source: Cushman & Wakefield Research
Consumer Confidence
February reading of 130.8 was
the highest in 17 years!
Retail Rebound Underway?
Recent positive developments…
Source: Cushman & Wakefield Research
All of these will help retailers
in 2018. But will these factors
help slow closures and
bankruptcies heading into
2018?
Positive Signs for Retail Real Estate?
1. Great underlying consumer fundamentals; will they improve in
2018?
• Unemployment
• Wage growth
• Consumer Confidence
2. Strongest holiday season since the Great Recession (+5.5%).
3. Trump tax cuts
• Corporate impact
• Consumer impact
4. Did a landlord action just slow a strategic closure (Simon v.
Starbucks)?
5. U.S. Supreme Court to review bid to collect internet sales tax.
Sales Up, But so are Closures…
Retail challenges are structural, not cyclical…
Source: TradingEconomics.com, US Bureau of Economic Analysis, Cushman & Wakefield Research
Outside of the 2009/2010 downturn
in consumer spending during the
Great Recession, consumer
spending has been consistently on
the rise, even as retail
bankruptcies and closures have
accelerated.
Consumer Spending vs. Major Chain Store Closures
$B
illion
12,000
11,500
11,000
10,500
10,000
9,500
$B
illion
2009 2011 2013 2015 2017
Structural Issues in Retail
What’s really driving today’s wave of consolidation?
Source: Cushman & Wakefield Research
All of these will help retailers
in 2018. But will these factors
help slow closures and
bankruptcies heading into
2018?
Recent positive signs are
helpful, but won’t save many
troubled retailers.
1. Over-retailed marketplace.
2. Acceleration of eCommerce.
3. Race to the Bottom Discounting (Rise of Off-Price)
• The rise of off-price, growth of dollar stores, discounters, etc.
4. Shifting Consumer Spending Patterns.
• Millennials spending less than previous generations.
• Millennials spending differently (experience over stuff).
eCommerce Acceleration
Will continue with new categories coming…
Source: Company filings, Department of Commerce, Cushman & Wakefield Research
Ramping Up 2018 & Beyond
eGroceries
ePharma
eFurniture
4.2%
12.0%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
% o
f Tota
l R
eta
il S
ale
s 9.3%
Amazon US Market Share
2017 Analysis
Source: Company filings, Department of Commerce, Cushman & Wakefield Research
Total eCommerce growth is
healthy, but always lagging
total Amazon growth.
Amazon still taking largest
share of a growing pie.
-15%
-5%
5%
15%
25%
35%
45%
55%
Q4 2
008
Q4 2
009
Q4 2
010
Q4 2
011
Q4 2
012
Q4 2
013
Q4 2
014
Q4 2
015
Q4 2
016
Q4 2
017
Total Retail Sales eCommerce Sales Amazon Sales
Source: Cushman & Wakefield Research
eCommerce to newCommerce
How online keeps evolving…
1995 - 2000 2001 - 2009 2010 - Present 2015 - Present
The Early Days
Desktop
Initial Launch of
eCommerce
Rise (and Fall)
of Early Players
Pure Play
Years
Desktop
Mobile
Post Tech Wreck Ramp
Up of New Pure Play
Internet eCommerce
Distribution Strategy:
Tax Advantages
over Speed
The Age of
Amazon
Desktop
Mobile
Tablets
Amazon Distribution
Strategy: Speed to
Consumer over Tax
Amazon Dominance
Retailers Rush to Build
eCommerce
Infrastructure
2017 - ?
Omnichannel
Age
Desktop
Mobile
Tablets
Amazon Dominance
Continues
Retailers Still Building
eCommerce
Infrastructure
Emergence of Bricks
to Clicks Movement
newCommerce
Age
Desktop
Mobile
Tablets
?
Seamless Integration
of Omnichannel (now
a GIVEN for Retail
Survival)
eGroceries
ePharma
Source: Cushman & Wakefield Research
eCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
0.0 1.0 2.0 3.0 4.0 5.0
Cellular Stores & Cellular Repair
Car Audio
Cameras & Video Equipment
Bridal Shops
Book Stores
Boating & Boat Supplies
Bicycle Stores & Repair
Bars, Pubs & Nightclubs
Bakeries
Automotive Repair & Service
Auto Sales
Auto Parts
Arts & Crafts Stores
Art Galleries
*Apparel (Off-Price)
*Apparel (Mid-Price)
*Apparel (Luxury)
Amusement Concepts
Alcohol/Package Goods Stores
Retail Real Estate Disruption MeterCumulative eCommerce
Impact on Retail Real
Estate by Category: 2018
*Apparel includes all categories, as
well as accessories.
No/Minor Disruption
Modest Disruption
Disruption
Major Disruption
Devastating Impact
Source: Cushman & Wakefield Research
eCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Cumulative eCommerce
Impact on Retail Real
Estate by Category: 2018
No/Minor Disruption
Modest Disruption
Disruption
Major Disruption
Devastating Impact
0.0 1.0 2.0 3.0 4.0 5.0
Formalwear
Food Specialty Retail
Financial Services (Banking)
Financial Services (Lending/C.C.)
Financial Services (Insurance/Tax)
Film Developing
Farm Supply/Ranch Stores
Eye Care/Optical Stores
Entertainment Concepts
Dry Cleaning/Tailoring
Drug Stores
Dollar Stores
Department Stores
Convenience Stores/Gas Stations
Consumer Electronics
Computer Repair
Childcare/Learning Centers
Retail Real Estate Disruption Meter
Source: Cushman & Wakefield Research
eCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Cumulative eCommerce
Impact on Retail Real
Estate by Category: 2018
No/Minor Disruption
Modest Disruption
Disruption
Major Disruption
Devastating Impact
0.0 1.0 2.0 3.0 4.0 5.0
Pool & Spa Stores
Pet Stores (Pets & Supplies)
Pawn Shops
Party Supplies
Office Supplies
Music Stores—Records, DVDs & CDs
Music Stores—Instruments
Medical Retail
Luggage Stores
Laundromat
Jewelry Stores
Home Improvement/DIY Mega Stores
Health Clubs (Gyms, Etc.)
Health & Beauty (Cosmetics, Etc.)
Hardware Stores (Small Format)
Hair & Nail Salons
Grocery Stores
Gift Shops/Cards/Stationary Stores
Garden Stores
Retail Real Estate Disruption Meter
Source: Cushman & Wakefield Research
eCommerce/Retail Real Estate
Disruption Meter as of Q1 2018
Cumulative eCommerce
Impact on Retail Real
Estate by Category: 2018
No/Minor Disruption
Modest Disruption
Disruption
Major Disruption
Devastating Impact
0 1 2 3 4 5
Warehouse Club Stores
Video Rental Stores
Video Game Stores
Travel Agencies
Toy Stores
Tobacco, Cigarettes, Vape Shops
Tire Stores
Thrift Shops/Consignment Shops
Theaters
Tattoo Parlors
Superstores/Category Killers
Sporting Goods
Spas (Day Spa, Massage Concepts, Etc.)
Sign & Banner Stores
Shoe Stores
Shoe Repair
Shipping, Packing & Postal Stores
Restaurants (All Types)
Portrait Studios
Retail Real Estate Disruption Meter
What’s Up With Pharma?
Will this be the next category disrupted?
Source: Cushman & Wakefield Research
Walgreen’s
+ Rite Aid (Half)
Albertson’s
+ Rite Aid (the Other Half)
CVS
+
Aetna
Amazon
+
JP Morgan
+
Berkshire Hathaway
Race to the Bottom Discounting…
Off-Price brands present just as big, if not bigger, a challenge to mid-priced apparel
Source: CreditNtell, Cushman & Wakefield Research
Sales levels continue to fall for
department stores…
While rising significantly for
off-price retailers!
Nordstrom growth has been
driven by Nordstrom Rack.
Macy’s is going downscale:
Has opened more than 100
Macy’s Backstage locations
within existing Macy’s stores.
-8
-6
-4
-2
0
2
4
6
8
2012 2013 2014 2015 2016 2017
Comparable Same Store Sales Analysis
Traditional Department Stores Off Price Department Stores
IT’S ALL ABOUT MILLENNIALS!
0
20
40
60
80
100
Generation Z Generation X GreatestGeneration
MIL
LIO
NS
MILLENNIAL VALUES:
• Experiences Over “Stuff”
• Authenticity! Uniqueness! Choice! Variety!
• Intimacy in Shopping Experience!
• Curated Retail - NOT COMMODITY!
• Non-Conformist!
• Cool is a Value!
59% of Millennials Look for Physical Store Presence When Buying Online.
Millennial Generation Born Between
1981 1996ARE THE LARGEST CONSUMER GROUP
Major Retailer Bankruptcies
2017: Major retailer bankruptcies
Source: Cushman & Wakefield Research
2017
Aerosoles
Alfred Angelo
BCBG Max Azria
Bob’s/Eastern Mountain
Central Grocers
Charming Charlie
Gander Mountain
Gordman’s
Gymboree
HHGregg
Limited
Marbles: The Brain Store
MC Sports
Papaya Clothing
Payless
Perfumania
RadioShack/General Wireless
Romano’s Macaroni Grill
Rue 21
Sheikh Shoes
Sports Zone
Toys R Us
Traffic Shoes
True Religion
Vanity
Vitamin World
Wet Seal
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Major Retailer Bankruptcies
Major Chain Bankruptcies Forecast Total
2018
Charlotte Olympia
Agaci
Bon Ton
Kiko USA
Walking Company
Claire’s
The Problem for These Retailers?
It’s leveraged buyout debt… not relevance or eCommerce
Source: Cushman & Wakefield Research and Moody’s Analytics
Over the past 20 years, we
increasingly saw private equity
groups borrow money to
acquire retailers and then put
that debt on the retailer
balance sheets. This risky
practice, known as leveraged
buyouts, is creating issues for
many relevant retailers today.
Many of the latest
bankruptcies (Toys R Us, etc.)
have come about from this
practice.
Albertson’s
JoAnn Fabrics
Chuck E. Cheese
Pep Boys
BJ’s Wholesale Club
HBC
Guitar Center
Neiman Marcus
Belk
Shopko
Staples
GNC
Talbots
Claire’s
Academy Sports
J. Crew
Charlotte Russe
Southeastern Grocers
Hot Topic
99 Cent Only
The Fresh Market
Bon Ton
PetSmart
Petco
Major Chain Store Closures
2017: Surpassed great recession levels
Source: Cushman & Wakefield Research
What’s Really Happening (it’s not
just about Amazon)?
Convergence of Four Factors:
1. Acceleration of newCommerce
2. Over Retailed Marketplace
3. Race to the Bottom
Discounting (Rise of Off-Price)
4. Shifting Consumer Patterns
(Millennials Spending
Differently than Past
Generations)
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Major Chain Store Closures
Major Chain Closures Forecast Major Chain Closures
RadioShack
PayLess
Gymboree
Hancock Fabrics
Teavana
Sears/Kmart
Sports Authority
Walmart
Aeropostale
Sears/Kmart
Teavana
RadioShack
Office Depot
Dots
Wet Seal
A&P
Top Retail Chains in Contraction Mode
2018: Announced store closure plans
Source: Cushman & Wakefield Research
Top Contraction Categories:
Consumer Electronics
Apparel
Department Stores
Consumer Electronics
Media (Books, Video, Music,
Etc.)
Office Supplies
Sporting Goods
More of Same in 2018
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Claire's*Toys R Us
rue21Walgreens
Mattress Firm*Ascena Retail (various banners)
Best Buy MobileSignet Jewelers
GameStop*H&M
Carter'sFootlocker
KmartDestination Maternity
Applebee'sCVS
The GapSam's Club
SearsWalking Company*
Agaci
Major Chain Closures 2018
Potential Closures 2018 Announced Closures 2018
*Estimated likely closures based on market intel
This is NOT the Retail Apocalypse
14,239 OPENING
10,123 CLOSING
4,080MORE STORES OPENING
IN 2017 THAN CLOSING
TOP 3 OPENING SECTORS IN 2017
MASS
MERCHANDISE1,905CONVENIENCE
STORES1,700
GROCERY674
This is NOT the Retail Apocalypse
56%
59%
54%
56%
51%
54%
57%
60%
AllRespondents
Millennials Generation X Baby Boomers
% ONLINE Shoppers Who Say a Nearby Physical Store Presence is
Important to Them When Buying Online
Top Retail Chains in Growth Mode
2017: Announced new store openings
Source: Cushman & Wakefield Research
Top Expansion Categories:
Dollar Stores
Discount Grocery
Off-Price Apparel
Beauty/Cosmetics
Super Stores (but often in
smaller sizes—Target)
Fitness/Health Clubs
Fast Food
Coffee
Fast Fashion
Clicks to Bricks
2018: More of the Same
Value, Value, Value
0 200 400 600 800 1,000 1,200
Dollar General
Dollar Tree
Aldi
Starbucks
McDonald's
AutoZone
TJX (all banners)
Retro Fitness
Five Below
ULTA
Lidl
Ross
H&M (All Banners)
Sally Beauty
Tractor Supply
Athleta & Old Navy (the Gap)
Walmart
Wendy's
Sephora
Dollarama
Major Chain Openings 2017
Announced Major Chain Openings 2017
Dollar Stores Added Roughly
1,700 New Units in 2017.
That equates to:
ONE EVERY 4.5 HOURS
Top Retail Chains in Growth Mode
2018: Announced new store openings
Source: Cushman & Wakefield Research
Top Expansion Categories:
Dollar Stores
Discount Grocery
Off-Price Apparel
Beauty/Cosmetics
Super Stores (but often in
smaller sizes—Target)
Fitness/Health Clubs
Fast Food
Coffee
Fast Fashion
Clicks to Bricks
More of Same in 2018
0 100 200 300 400 500 600 700 800 900 1000
Dollar General
Dolalr Tree*
Dunkin Donuts
Jersey Mike's
O'Reilly Automotive
Aldi
Carter's/OshKosh
Chipotle
Bank of America (retail banking)
Ross Dress for Less
CVS
IHOP
The Gap
Walmart
Tractor Supply
Nektar Juice Bar
Gander Outdoors (Camping World)
Darden (all banners)
Signet Jewelers
Warby Parker
Major Chain Openings 2018
2018 Planned New Stores
Top Retail Chains in Growth Mode
Dark headlines always get more press than good news…
Source: Cushman & Wakefield Research
Top Expansion Categories:
Dollar Stores
Discount Grocery
Off-Price Apparel
Beauty/Cosmetics
Super Stores (but often in
smaller sizes—Target)
Fitness/Health Clubs
Fast Food
Coffee
Fast Fashion
Clicks to Bricks
More of Same in 2018
Myths and Realities in the Age of newCommerce
To fully understand, you must first understand the
different types of American shopping centers…
But What Does it All Mean for Retail Real Estate?
The Neighborhood/Community Center…
Neighborhood/Community and Strip Centers doing fine…
Source: Costar Group, Cushman & Wakefield Research
Typical Anchors:
Grocery Stores
Drug Stores
Typical Inline Tenants:
Restaurants
Fast Food
Coffee
Juice
Dry Cleaning
Laundromat
Postal Services
Dental/Medical Offices
Financial Services
Retail Boutiques
Outdoors
Mostly Suburban
Neighborhood
30,000 to 125,000 SF
3-mile trade area
Community
125,000 to
400,000 SF
6-mile trade area
The Power Center…
Neighborhood/Community and Strip Centers doing fine…
Source: Costar Group, Cushman & Wakefield Research
Typical Anchors (Big Box):
Superstores (w/Groceries)
Home Improvement/DIY
Off-Price Apparel
Consumer Electronics
Arts/Crafts
Pet Supplies
Typical Inline Tenants:
Restaurants
Fast Food
Coffee
Juice
Dry Cleaning
Laundromat
Postal Services
Dental/Medical Offices
Financial Services
Retail Boutiques
Outdoors
Mostly Suburban
Power
250,000 to 600,000 SF
10-mile trade area
The Mall…
When Americans think of retail, they think of malls
Source: Costar Group, Cushman & Wakefield Research
Typical Anchors (Big Box):
Department Stores
Typical Inline Tenants:
Apparel
Accessories
Shoes
Jewelry
Gift Shops/Gadgets
Books
Toys
Restaurants
Fast Food
Coffee
Juice
Retail Boutiques
Mostly Enclosed
Mostly Suburban
Regional Mall
400,000 to 800,000 SF
15-mile trade area
Super Regional Mall
800,000 SF +
25-mile trade area
Over-Retailed, But Not All Retail is Suffering
Neighborhood/Community and Strip Centers doing fine…
Source: Costar Group, Cushman & Wakefield Research
Malls and Power Centers
have been most impacted
by current wave of
closures…
But Malls only account for
8.4% of all USA retail and
Power Centers account for
7.1% of all USA retail.
BUT IN TERMS OF ACTUAL
SHOPPING CENTERS,
MALLS ONLY ACCOUNT
FOR 0.5% OF ALL
SHOPPING CENTERS!
Shopping Centers
(neighborhood, community
and strip centers) have
actually seen vacancy
declines.
Shopping Center
Type
Total GLA
(MSF)
Vacancy
Rate
Q4 2016
Vacancy
Rate
Q4 2017
Share of
Retail
Market
Power Centers 754.5 5.5% 5.0% 7.1%
Shopping Centers
(Neighborhood,
Community, Strip)
3,537.2 8.0% 7.4% 33.1%
Malls (Lifestyle,
Regional Mall, Super
Regional Mall)
899.2 5.4% 6.3% 8.4%
Specialty Centers
(Outlet, Airport, etc.)
85.7 5.0% 4.9% >1.0%
Freestanding Retail 5,400.4 3.0% 3.5% 50.5%
TOTAL RETAIL USA 10,676.0 4.8% 5.3% 100.0%
ROI Performance Along Class Lines
Mall performance gap between best and worst assets…
Source: MSCI Global, Cushman & Wakefield Research
The Retailer Logic Behind this
Gap:
If the goal is to reduce your
physical footprint, while
looking to boost your online
sales… This inherently means
that your remaining physical
locations are more important
than ever before…
CHAINS STRATEGICALLY
REDUCING THEIR
FOOTPRINTS ARE LARGELY
DOING SO IN CLASS B AND
C MALLS—NOT CLASS A.
Class A
Class C/D
Not All Malls are in Trouble
It’s all about class…
Source: Cushman & Wakefield Research, Fung Global, Green Street Advisors, Bloomberg
Class A and above malls
accounted for more than
70% of all mall retail sales in
2016.
There are roughly 670 Class
B and C malls in the US, but
they only accounted for 28%
of all mall sales last year.
Class D malls accounted for
less than 0.2% of all mall
sales last year…
0
50
100
150
200
A++ A+ A A- B+ B+ B- C+ C C- D
Approximate Number of Malls by Class
A++ A+ A A- B+ B+ B- C+ C C- D
0.0
5.0
10.0
15.0
20.0
25.0
A++ A+ A A- B+ B+ B- C+ C C- D
Approximate Share of Total Mall Value by Class
A++ A+ A A- B+ B+ B- C+ C C- D
Closures Hitting Everyone
Class A replacing with greatest ease…
Source: Cushman & Wakefield Research, Green Street Advisors, Bloomberg
All Classes of Malls Lost
National Credit Tenants in
2017
35% of Class A Malls gained
national credit tenants in
2017.
5% of Class A Malls saw no
change in the number of
national credit tenants.
65% of Class A Malls lost
national credit tenants.
30/5/-65% Class A
13/9/-78% Class B
10/8/-82% Class C-100%
-80%
-60%
-40%
-20%
0%
20%
40%
Net Decrease in National Credit Tenants 2017
Positive Tenant Change No Tenant Change Negative Tenant Change
Class A Class B Class C
Power Centers Rebounded in 2017
Will traditional power center tenants re-tenant troubled malls?
Source: Costar Group, Cushman & Wakefield Research
Power Centers saw vacancy
DECLINES in 2017.
Vacancy had spiked in 2016
due to the bankruptcy of
Sports Authority.
Roughly 450 stores, averaging
45,000 square feet in size,
closed.
One year later, approximately
340 (roughly 75%) have been
backfilled.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
20
18
(F)
20
19
(F)
20
20
(F)
Mil
lio
n S
qu
are
Fe
et
Net Apsorption (MSF) New Construction (MSF) Overall Vacancy
Forecast
Feeling Good in the Neighborhood
Neighborhood/Community/Strip vacancy continues to slowly fall
Source: Costar Group, Cushman & Wakefield Research
Neighborhood/Community
Centers
0%
2%
4%
6%
8%
10%
12%
(20.0)
(10.0)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
20
18
(F)
20
19
(F)
20
20
(F)
Mil
lio
n S
qu
are
Fe
et
Net Apsorption (MSF) New Construction (MSF) Overall Vacancy
Forecast
Source: Real Capital Analytics, Costar, Cushman & Wakefield Research
Retail Investment
USA Current Cap Rate Asking Ranges
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Class A
Class B
Class C
Malls &
Lifestyle CentersPower Centers Neighborhood &
Community CentersOutlet Centers
Are There Any Good Investment Opportunities?
Yes, but you have to know what you are doing!
Source: Cushman & Wakefield Research
The black cloud hanging over
the retail sector is already
impacting investment
fundamentals.
Many institutional investors
are rebalancing their portfolios
to contain less retail and are
selling off assets.
Many of these assets have
challenges, but many don’t!
Others are jewels in the
rough.
Malls & Lifestyle
Centers
Class A
Class B
Class C
Power Centers
Class A
Class B
Class C
Neighborhood/
Community Centers
Class A
Class B
Class C
Low
Medium
High
General Risk Levels
Are There Any Good Investment Opportunities?
Yes, but you have to know what you are doing!
Source: Cushman & Wakefield Research
Urban Vs Suburban
In general, urban properties
have performed better than
suburban ones, but this is not
always the case.
Six of the United States top
ten malls (in terms of sales
PSF) are suburban.
Malls & Lifestyle
Centers
Class A
Class B
Class C
Power Centers
Class A
Class B
Class C
Neighborhood/
Community Centers
Class A
Class B
Class C
Low
Medium
High
General Risk Levels
Challenges & Opportunities
Yes, but you have to know what you are doing!
Source: Cushman & Wakefield Research
Every property must be looked
at individually for its
fundamentals.
The financial health of current
tenants, possible re-tenanting
scenarios and an
understanding of perceived
risk vs. likely actual risk is
required.
Due diligence is a must!
The current landscape s
increasingly becoming a
buyer’s market.
Type Challenges Opportunities
Malls A Few available and most owners unwilling to
sell. Though risk is low, likely low cap rate may
still not be commensurate with risk.
This property type still stable and will strengthen as
more Class C malls fail.
B Many will require extensive repositioning and
re-tenanting. A lot of innovation and
unconventional thinking will be required.
This might be where the most jewels in the rough
are found. Some B malls are in great locations and
were either poorly tenanted or managed..
C Here is where the most damage will be done.
Tenanting these will require unconventional
tenants and means. Many will fail.
There will be great opportunities for redevelopment
or repositioning of properties once properties return
to lenders and can be had for dimes on the dollar or
less.
Power A Malls, especially Class B, raiding the
traditional power center tenant pool to backfill
vacancies could have an impact, but it will be
minimal for Class A.
With investors focusing on core and urban and retail
already making many nervous, there may be some
cap rates here that are far higher than actual risk.
B If tenant pool diminishes, here is where it will
be felt most.
Depending on property, could be some solid value
add buys with high yields.
C Weak already and getting weaker… Might make for good redevelopment plays or value
add acquisitions.
Neighborhood A Drug store disruption may eventually have
impact, but these will easily backfill.
The most eCommerce resistant and resilient of the
product types. Class A in secondary markets may
provide best yields.
B Drug store disruption may eventually have
impact, could be a bit of a challenge here.
Largely a safe bet, look for good value adds to turn
B into A and even greater yield opportunities.
C Weak already. Not getting weaker, but will
take significant investment to improve.
Might make for good redevelopment plays or value
add acquisitions.
Myths and Realities in the Age of newCommerce
To fully understand, you must first understand the
different types of American shopping centers…
But What Does it All Mean for Retail Real Estate?
Amazon/Whole Foods Has Some Catching Up to Do
Combined grocery market share in 2016 was roughly 3%
Source: Kantar Worldpanel, Statista, Cushman & Wakefield Research
Look for aggressive growth
from Amazon/Whole Foods
likely to begin 2H 2018.
We anticipate that as many
as 500 new stores in
different formats may be
opened in the next five
years…Amazon began eGrocery delivery from
Whole Foods locations on 2/8/18 to:
Austin
Cincinnati
Virginia Beach
Dallas
Source: Cushman & Wakefield Research
Clicks to Bricks
Brand embassies, returns savings driving more pure play growth in physical space
0
10
20
30
40
50
60
70
80
90
Store Count (YE 2017) Planned New Stores 2018
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Food Halls in the U.S.
Projected
Existing
Source: Cushman & Wakefield Research
Food Halls ON FIRE!
Food Halls: the shared economy for restaurants
Source: Cushman & Wakefield Research
Craft Brewing Explosion
Trend is still not mature nationally
388
199
227
170
133
84
141
134
133
99
100
117
87
73
54
74
75
204
121
88
91
93
116
51
58
56
74
73
44
51
62
69
35
29
156
67
52
80
26
62
76
105
55
44
47
63
33
27
25
42
39
CALIFORNIA
COLORADO
W ASHINGTON
NEW YORK
OREGON
PENNSYLVANIA
FLORIDA
TEXAS
NORTH CAROLINA
ILLINOIS
OHIO
VIRGINIA
MICHIGAN
W ISCONSIN
INDIANA
MINNESOTA
MASSACHUSETTS
STATES WITH 100+ BREWERIES
Microbreweries Brewpubs Planned
0
1,000
2,000
3,000
4,000
5,000
6,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Craft Breweries in the United States
Brewpubs Microbreweries Regional Breweries
Source: Cushman & Wakefield Research
Rise of the Indies
Many of the hottest new brands are former pure play eCommerce
(recently
purchased
by Nestle)
Source: Cushman & Wakefield Research
Cool Street Contenders
Privately-held hipster brands can take chances the big chains can’t—and they’re connecting with Millennials!
Source: Cushman & Wakefield Research
Entertain Us!
Millennials spend more on experience than “stuff”
Golf/Sports/Arcade Entertainment Themes
BarCades/Mixed (Dave &
Buster’s, Punch Bowl Social, etc.)
TopGolf/Miniature Golf/Glow Golf
Baseball/Batting Cage Bars
Axe Throwing Bars
Ping Pong (Susan Sarandon)
Bowling Alleys (Lucky Strike, etc.)
Duck Pin Bowling
Indoor Go Cart Tracks
Indoor Shooting Galleries (Real Guns
Optional)
Event Centers
Experiential Theaters/Dine-In Theaters
IMAX
Restaurant/Theaters
Bar/Theaters
Children Themed Theaters
Hipster/Art House Theaters
Athletics Space
Aquatic Parks
Trampoline Rooms
Indoor Rock Climbing
Indoor Skydiving
Velodromes (Indoor Cycling Tracks)
Culture/Performing Arts Space
Art Galleries
Museum Space
Live Theater Space
Dinner Theaters
Cirque Space
Stand Up Comedy Clubs
Live Music Venues
Float Rooms/Sensory Deprivation
Source: Cushman & Wakefield Research
Cool Streets
Millennial-driven up-and-coming alternative urban neighborhoods still hot
EDGY COOL
UP AND COMING
PRIME HIPNESS
STILL COOL, BUT…
GONE MAINSTREAM
The Evolution of Cool Streets
Edgy Cool Bodegas, Bars &
Funky Local… Cheap
Rents
Up and Coming Boutiques, More
Restaurants Arrive…
Rents Climbing
Prime Hipness Funky Local Priced
Out, Cool National
Concepts Arriving…
Rents Climbing
Still Cool, But Going
Mainstream
Whole Foods Arrives
Rents Climbing
Gone Mainstream Creatives Moving On,
Replaced by More
Affluent Crowd.
Pottery Barn!
There is No Room for Mediocrity in Retail Anymore
Follow Viktor Gruen’s Original Vision
“I am often called the father of
the shopping mall. I would like
to take this opportunity to
disclaim paternity once and for
all. I refuse to pay alimony to
those bastard developments.
They destroyed our cities…”
Viktor Gruen
The Father of the American Mall
• You must give people a reason to come to your store or your
shopping center in the age of newCommerce.
• If your shopping center is the center of your community, it will thrive.
• If it isn’t, then build a community around it.
• YOU MUST GIVE CONSUMERS AN IMPROVED EXPERIENCE.
How Do I Cultivate Experiential Retail?
Simple steps to follow…
Beacon technologies are
increasingly being utilized by
retailers and landlords to track
consumer activity in their
stores and shopping centers.
When a consumer enters a
store, a beacon detects their
cellphone signal. It then can
anonymously track the
consumer as they journey
through the store and beyond.
Beacon Technology
1. Knowledgeable and friendly salespeople are your front line.
Provide adequate real world wages and career paths so you
can retail quality people. Enthusiastic and knowledgeable
staff are the least expensive and most productive way for
brands to create experiential retail!
2. Utilize your physical space to collect as much data as possible
(dwell times, foot traffic, etc.) so that you can use that data to
benchmark and improve your own performance.
3. Use those data touchpoints also to personalize the consumer
experience. Consumers are more likely to shop at stores that know
their name and their likes.
4. Loyalty programs, especially those that reward consumers, are
embraced by customers and are one of the best sources of
gathering voluntary shopper information.
How Do I Cultivate Experiential Retail?
More simple steps to follow…
Automation will increasingly
be a reality for major fast food
chains.
Robots will increasingly be
utilized for the lowest level
customer service interactions
in retail categories.
They are not likely to replace
humans for quite some time in
higher level customer service
interactions.
Robots for Some
5. Augmented reality is already being used online and will increasingly
be used in stores (magic mirrors, etc.)
6. Virtual reality will increasingly be available to help with everything
from store design to shopper interaction.
7. Not all retail needs high service levels, but bad service is
unforgivable. Go automated. Robots will increasingly become a
normal part of retail over the next decade.
8. Be sure to create a community; social media is critical to how
Millennials interact and shop; it will be even more so with social
media natives, Generation Z. Use your social media for marketing
campaigns, consumer interaction and to advertise in-store events.
How Do I Cultivate Experiential Retail?
Wait! There’s even more…
“We always overestimate the
change that will occur in the
next two years and
underestimate the change that
will occur in the next ten.”
--Bill Gates
“The Road Ahead”
1995
The Future is Now
9. Capture emails addresses for direct marketing, social media, etc.
10.Find ways to eliminate queues… Automation, adequate staffing,
salespeople equipped to ring up sales via mobile technology on the
sales floor all can help.
11.Don’t ignore the critical importance of the visual importance of your
store and it’s product displays. Be “Instagrammable.”
12.Host events… and not just sales. Product launches, celebrity pop-
ups, fashion shows, spa days… anything to pamper your
customers, give them a great experience and lure them to your
store.
13.You MUST go omnichannel to survive and thrive in the
newCommerce Era, only a rare few categories are exempted.
The New Retail
Retail space will need to fit one of these needs…
Source: A.T. Kearney, Cushman & Wakefield Research
Premium Destination
Centers Large regional centers
anchored by popular
attractions, which draw
from broad local, national
and some international
audiences.
Value Oriented Centers Local retail focused on
local service and value.
Amenity Retail Mixed-use centers where
people live/work/play.
Innovation/Experience
Centers Every store is a smart,
active environment
featuring the latest in
high technology.
Premium Destination Centers Value Oriented Centers
Amenity Retail Innovation/Experience Centers
Hybrids
The New Retail
In the newCommerce Era, the use of space is radically different…
Source: Cushman & Wakefield Research
The New Retail Ahead
Shopping
Centers
Tenant Mix
Role of
Technology
Primary
Focus
Organizing
Principle
Anchor
Tenants
Mass Market
Powering
the System
Selling
Things
Retailer
“Push”
Traditional
Retailers
Old Model
Market of One
Connecting
Buyers, Sellers &
Places
Consumer
Engagement
Consumer “Pull”
Retail
Residential
Entertainment
New Model
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