Future of Retail — “hunters,” “experiencers” and “fitness buffs”
The retail industry’s uncertain prognosis received yet another jolt in September with news that Toys R Us was filing for bankruptcy. But Bay Area retail experts are finding ways to thrive in this brave new world that’s been rocked by online shopping.
“It’s all about an experience,” said John Machado, a veteran broker with Colliers International based in San Jose, at a “future of retail” panel event on Sept. 13 hosted by the law firm Hoge Fenton Jones & Appel. “The retailers surviving and excelling are offering an experience. There are certain things people aren’t going to buy online.”
Machado was joined for the event at downtown San Jose’s Capital Club by Cynthia Czech, senior vice president at Pacific Retail Capital Partners (owners of San Jose’s Eastridge Mall); and Ashton Simmons, general manager of Concord’s under-construction The Veranda shopping center.
Here are some of the highlights:
Not all of retail is struggling. Value-oriented and discounter retailers are doing just fine, thank you very much, Czech said. She described “hunters” as a district tribe of shoppers who are brick and mortar devotees, no matter what. “It’s a different mentality, and they’re going specifically for that hunt,” she said. “They’re not necessarily looking for anything in particular.”
‘Experience’ has been a big buzzword in retail for several years, but for good reason, Machado said. “A few years ago, people were building these big home theaters. Then we saw a trend of those things not selling. What happened was the experience,” he said, noting the rise of dine-in theaters.
Czech agreed. “That’s the answer to Netflix,” she said. “It’s so convenient today to sit at home. But if you still want that interaction, which most people, including Gen Z, does, there’s your solution.”
Take Eastridge’s recently opened Round 1 bowling center. “Round 1 at Eastridge is No. 1 in US. They’re always packed.”
Eastridge– which welcomed H&M earlier this year – also sponsored a “taste for the space” contest, in which 14 finalists competed via a public taste-off, competing for six months of free rent, a kitchen space and a $50,000 investment. The winner? Trifecta Cooks, which will offer Japanese cuisine “using quality local ingredients with traditional techniques and modern flavors.”
Fit is fab. Drugstores and supermarkets used to exercise their power to exclude health clubs from shopping centers. “They said, no one shops. They lift weights and get sweaty. Now with Lululemon and the Gap, it’s acceptable to go out in workout clothes. People are very health conscious. So we’re including these (uses) and backfilling a lot of boxes with these health clubs.”
Making a day of it is another successful strategy. “Retailers are wanting to join this new type of experience where people will hang out for four five six hours and sit by the fountain, go to the wine bar, go to the Imax theater and enjoy the overall experience in the lifestyle center,” Simmons said. His property, The Veranda, is slated to open in late October, with an Imax and CitySports club, as well as a 365 by Whole Foods.
But to be sure, not everything is rosy for retail. Rents are sky high, making it tough for tenants without big balance sheets. Machado noted that triple-net expenses have been rising as investors snap up well-placed assets, leaving tenants to foot higher property tax payments. And residential developers – who can pay much higher prices for land than retailers or retail owners – have squeezed site opportunities.
“The biggest thing that challenges my business isn’t boxes going out, it’s the residential,” Machado said. “High density residential can just pay so much more for the land.”
Cities and developers also need to do a better job on retail design, especially as retail is increasingly occupying ground-floor positions in mixed-use projects. “Not a lot of people build both residential and retail,” Machado said. “Some developers would just put it … Then they’d come to me and say, Can you lease this? A lot of time the obvious uses are restaurants. But some of these buildings were not designed with grease interceptors,” which are impractical to add after construction.