Anchor Shops in Philadelphia, PA with Shlomo Chopp

Guest: Shlomo Chopp
Topics: Anchor Shops, commercial real estate

Transcript:

Chris Ressa 0:02
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.

Welcome to the show, Shlomo.

Shlomo Chopp 6:28
Thank you, Chris, for having me.

Ressa 6:32
Why don’t you tell us a little bit about who you are and what your company does today?

Chopp 6:38
Well, my background is pretty interesting, diverse, but focus more on the real estate side. I was working for a flooring company. And down the hall for me was a guy that would buy shopping centers across the country. And His thing was you buy a 10 cap with a grocer that did 300 bucks a foot and enamored by that because I’m sitting there hacking flooring trying to sell to

Ressa 0:20
I’d like to thank one of our sponsors, retail openings and closings.com. In today’s dynamic retail landscape, tracking openings and closings before they take place has never been more important. Having this intelligence is an undeniable competitive advantage, retail openings and closings.com also known as Rock Tracks, future openings and future closings, comprehensive, accurate and reliable the rock is your crystal ball and the key to making well informed decisions with confidence in today’s evolving retail climate. Welcome to retail retold. Today on the show we have Shlomo chop. Shlomo is the CEO and founder of shop fulfill and anchor shops. Shlomo brings a really fascinating perspective on the convergence of digital e commerce and physical retailing. He said something on this show today that is profound, which is there isn’t a lack of demand for shopping for products in a physical store. There is actually a supply problem of great products in a store. I hadn’t heard it put that way. And he says that all the hottest cool brands are actually in are on the internet and not found in stores. And one of the things that’s happened is all these stores have similar products. And you can find Pepsi and pampers my example not his everywhere. But that cool lifestyle brand, that cool his brand that’s online, that Instagram brand you can’t find in stores. And that’s what he’s looking to bring into his stores that he just signed to deal with. In Philadelphia, I think you’re going to find it really, really interesting, long episode today. But worth a listen. Before we get there, I wanted to go over something that happened to me today I was giving a presentation at the ICSE open air conference, I was talking about social media and its impact on commercial real estate. And one of the people noticed was talking to me about how much time I spend on social media. I always say the same thing when people asked me how much time you’re spending on social media and I say not enough. And they raised their eyebrows at that because they view me as someone who spends a significant amount of time on social media, I don’t typically go into a simple math breakdown. To me. People who are breeding business, generating business doing work should not be spending a ton of time, the email, it’s a reactive place. It’s not the best proactive communication and collaborative platform yet, whether you’re an accountant, a lawyer, a salesperson, you get tracking email. But how trapped do we get an email? So I asked the audience what you know how many emails that someone getting a day, and you get a lot of like 300 200. But for purposes of this episode, let’s just say the number is 100. I don’t know how long it takes to go through an email, some are five seconds because we just delete some or 10 minutes because you have to sit there and think for argument’s sake, let’s say the average email takes one minute. And between the amount you send and receive it’s 100 emails a day, which based on what I heard today seems light. But for round numbers, let’s say it’s 100. That’s 100 minutes a day on email. If you take that, and you take 500 minutes a week, because five days and you might be doing email on the weekends as well. But let’s just say a Monday through Friday workday, let’s say 52 weeks 500 multiplied by 52 weeks because you spent 500 minutes a week 26,000 minutes a year you’re spending an email. Let’s divide that by 6060 minutes to get the the hours it’s 433 hours spent Click on emails. And let’s just divide that by a standard 40 hour work week. That is 10 full weeks spent an email 10 Full work weeks. So your 50 to work week 10 of them, all you’re doing is email 20% of your time, I would venture to say that there’s probably time better spent doing some other things. So as you’re looking through your, you know, early in the year better time management, I think a good place to start is email in for you think you know whether it’s social media, or whatever it is, you don’t have time for it. I would look and say, am I spending too much time? In my email, we all have to email. There’s no way around it. It’s how business is done in corporate America. You can’t ignore people. But I would look at encourage people in there’s a lot of things you can do to lessen the amount of emails you get. And you know, it’s a lesson that emails you send, I would encourage people to think through can they get some time back by spending less time in email. That’s what I have for today. I hope you enjoy the show. I think it’s a really great one. And I look forward to talking to everyone next week.

Chopp 7:00
trying to sell to the ups of the world and and I sell to Xerox, and there’s this guy doing deals. So that was exciting to me. So I looked into it. And then I found it pretty interesting. So I got into that into commercial real estate. And my first real job in commercial real estate was on the tech side. I was hired by a guy that name IRAs, a lot of us he has a mortgage brokerage firm called Eastern Union, but he developed this piece of software to manage brokers, like a CRM for brokers. So I gotten on that end and was selling that software sold to some really nice companies including Ziff, Colliers out of New York City. Back in the day, it was Kylie’s ABR even had a sale to to Marcus and Millichap while I was headed out the door, and then said, Okay, I want to get back into the real the real estate game, the buying and selling game. Did that for a while, the market tanked. 2009 had an attorney friend Amir kornblum, he says, Shlomo, you gotta you got to really understand what’s going on the CMBS stuff and read the CMBS trust documents start to finish. And literally it was it was common sense how to restructure some of these things. But it was very foreign to a lot of my friend investors, and did restructuring for a while. And when that petered out, got back into the investment side. And then though real estate, the retail issues, so to speak, hit, I’m not going to call apocalypse, I think it’s ridiculous. I think apocalypse is a good word for people who don’t know what’s going on, I took a look at that and said, Okay, we got into get into something unique and came up with an idea to essentially address what I believe is the underlying issue in retail, and why it’s been certain extent slow to respond. That is, we’re living in an age of technology where you can make a massive investment, the tech and by the time you install it, it stated. And if you’re a tech company, if you’re just coding, if you have, you know, code on a computer or a web program, then it’s a matter of sitting a few more quarters at the desk and putting in a lot of hours and tweaking and changing it. But if you’re in a physical business, transporting product or selling products or anything like that, then what ends up is that you make massive investments, and those investments don’t change. They’re very static, the physical pieces of just physical, right. So how does a retailer that doesn’t have the volume of an Amazon compete in the innovation game with an Amazon so the idea was to put together a platform that innovated on behalf of multiple retailers and multiple brands. charge them a as a service and as a service model where they pay monthly Li, by using the power of all these various brands and advertising this expense across all the sales of all these brands and retailers, then you can have a proper innovative platform and, and move forward in, in staying ahead of the game in retail e commerce etc. So it came up with something called shop fulfill, which was essentially in its initial iteration. And our first patent application that we have is a combination of retail and logistics and a massive facility that serves as the hub or the mothership to distribute to multiple community centers, multiple power centers, to allow the stores to be smaller, but actually have a larger selection as a result of this logistics integration, without going into great detail. That’s morphed into where is the demand, they spoke to the largest retailers, and sat with, you know, their teams in a room. And they’re like, What a great idea because the next guy said, you know, this isn’t gonna work. And we looked where the demand was. And we saw there’s a lot of emerging brands that desperately want to come into retail. And what we’re doing now, in short, is providing them the ability to get into retail for no real upfront costs, but also give them the ability to sell from the shelf. And by being able to put product on the shelf, allowing this customer to walk out, you essentially are able to have a store that produces customers. And it’s profitable on its in its own right, which means that you’re now generating customers are really no cost on a net basis. And that’s something that any ecommerce company and brand would love to do. And that’s what we’re doing. I know there’s a lot there to unpack. But that’s, that’s my background. That’s the that was the career. And that’s where we are now.

Ressa 11:47
Wow, that is a that is a lot to unpack, just to try to bring it back home for a second. What was the job where you were in the office with the guy who was buying shopping centers,

Chopp 12:00
I was selling a commercial industrial tile, to warehouses. So let’s say they have a crack floor, we have this interlocking vinyl tile, that you’d lay over the crack floor and you can run you know, dollies over it and forklifts without a problem and two offices down. There was this guy, Joe Weinberg. And he’s a player, you know, he’s bought from you guys over time, I’m sure you know, he is. And he would buy these properties, you know, across the country. And it was just really interesting to me. Because sitting in New York, you know, growing up in New York, what is a shopping center, right? I live in the middle of the city. And just just, you know, seeing and learning about okay, the grocery this 300 foot they do? Well, 350 they’re really doing well. 200 Don’t touch him, right? And then saying, okay, the gross is doing well, we have a vacancy, who do you put in here? And you say, Okay, you put an errand rents in there? Or do you put a you put a tailor or you put a shoemaker? Or do you put some other retailer sort of to fill it out. And it’s almost like a template where this guy was able to constantly do it over and over and over again and build himself a really great portfolio. And to me, that was really exciting. For two reasons, I think, I think number one, just the ability to do that. Secondly, I’m I’m you know, I’m from religious Jewish community. And historically, when our families came to the United States, you know, we don’t work on on Saturdays and thing was used to tell our parents that, hey, if you don’t show up to work on Saturday, don’t show up. Just don’t show up on Monday, right. And what happened as a result is that the religious community started taking on jobs that does not require them necessarily to be in a certain place a specific time. So my father became a computer programmer. And that was later on after this issue has passed. But just from from a culture perspective, and one of the things that the Jewish community got into was real estate, you know, you don’t have to show up at a desk at a specific time, you could own it. And you have a lot of flexibility with regards to being with the family, which is very important to us as well. So just from that perspective, the real estate business as a whole really spoke to me and really resounded with me and I found it really interesting and exciting. Got it and that

Ressa 14:25
that led to a multitude of iterations where you were in commercial real estate tech. And ultimately, you saw a hole in the marketplace in retail, and came up with shop fulfill is shop fulfill a store.

Chopp 14:45
Shop fulfill is a platform shop fulfills infrastructure. And it’s essentially everything a retailer needs outside its core, merchandising and sales capacity to sell product and bringing the product to the customer. Okay,

Ressa 15:03
who were some of your clients today that, you know, you’re you’re doing shop fulfill for they’re using your platform.

Chopp 15:11
So we’re opening our first location in July. It’s comprised of two facilities. One is a warehouse facility in Morristown, New Jersey. And the other one is a retail facility in downtown Philadelphia. And that’s opening, slated to open in July.

Ressa 15:27
And so in the retail facility that will be emerging a bunch of emerging brands in the location.

Chopp 15:39
Yes, 100%. There is, you know, there are, you know, we hear all the bad news and physical retail, how you know, all these brands are losing, you know, losing money going out of business, a senior retail is down 90%, trailing 12, you know, Macy’s down 35% I mean, all this terrible, terrible news, and people think, oh, physical retail is dead. But the missing the point, it’s not, it’s not a demand issue. It’s a supply issue, right, the really cool products that you find online, unfortunately, you know, find in store. And the reason for that is because the guys that are coming up with these products, these innovators, these subject matter experts, just don’t have the dollars to get into physical retail. Number one, you know, a build out is expensive, and a landlord’s not going to do a build out for you unless you have the proper credit. And number two, you know, having an inventory to put on the shelves, even if you do open a store, how do you quantify it that actually works for you, I guess you could say the online sales increase, but you don’t really don’t know that for a fact until you close down the store. And that’s sort of, you know, self defeating. So, what we’re doing is actually giving brands that ability with no real upfront costs to get into a store on a month to month basis, put the product on the shelf. And whereas most real estate owners are looking for long term leases, because heck, that’s what JP Morgan was looking for, right? They weren’t long credit, so they could only give you a mortgage. And that’s that’s how real estate works. We’re taking a little different approach, we’re looking at The Gap Report, right, this X amount of the man to sell a product in a market, we believe you missed our emerging brand, have a really great product, we will put you into a shop and set you up for success and we believe that you will ultimately sell if you don’t, we actually have a very turnkey way to sort of put someone else in your place without spending a lot of money. But the gist of it is, we’re taking brands who are dying to get into commercial real estate to get into retail in order to cut their acquisition costs. And we’re giving them away to get in. And we’re giving them a way to plug into an infrastructure including logistics, meaning we put product on the shelf and cut the E commerce fulfillment costs at a very, very reduced cost. I mean, up to 60% quicker and 40% cheaper on that. And we’re giving them away to be a retailer without the challenges that a lot of comic retailers have today with regards to lack of tech integration with regards to lack of great product with regards to ease and lack of great locations. So we’re democratizing retail and getting the next generation of retail tenants into stores by starting them out in a small way where they could eventually grow to have their own stores.

Ressa 18:30
Wow, that is incredible. And I don’t want to misspeak here. What is this similar to neighborhood goods and show fields?

Chopp 18:47
In some ways, yes, in some ways, no. It’s pure. In its most simplistic fashion. It’s a collection of multiple brands that are located with each other. They serve to benefit each other, right? You come to look for one, and you end up discovering another so you have that level of discovery.

Ressa 19:11
But we were different

Chopp 19:13
is that it’s I think the easiest way to explain it

Ressa 19:19
is that brands,

Chopp 19:22
emerging brands on their own need a way to grow their brands outside the store itself. What I mean by that is a store is a great location to sell product if you have product on the shelf to sell. That’s a challenge with those two concepts. Secondly, a store is a great place to sell but it’s even a better place to have a resounding a halo effect to cause online sales. And what we’re actually doing in order to grow the brand is We’re not being purveyors of space, we’re being purveyors of product. There’s a concept in one of the most successful department stores in the world out of the UK called Selfridges. And Selfridges, essentially is a group of many brands laid out across a department store. And it’s done in a really great way where it’s not just put down one year the other there’s a rhyme or reason. And it’s very much focused on transaction velocity. I think some of what’s happened to the really up and coming new retail shops is that they’ve bought into this concept of store as media, right? The store is a glorified billboard. That’s meant to drive awareness. And I say if stores media and then diamonds, a paperweight. If you’re going to look at your store as a place just to drive awareness and not drive sales, both online and offline, then you’re missing out on what the store can do for you. And then what we do beyond that, is enable the logistics infrastructure. So if I may, you know, if you look at it, right, Amazon is all about supply chain targets, all about supply chain, Walmart’s all about supply chain, right. But yet, it’s ignored by so many retailers, and so many brands are all into giving a really exciting retail experience. Well, you know what that experience is only enabled through having the ability to put product at the show on the shelf at a in a cost effective way, meaning you’re not shipping small boxes of ups to put it on the shelf, you’re actually shipping it in bulk. And you’re able to actually take from that bulk and put it on the shelf in measured fashion, not just to rack them, I’ll let them fly but enough that it’s aesthetically pleasing, but also have a reserve amount of

Ressa 21:52
stock. But then here’s the trick.

Chopp 21:55
How do you not have to have a separate pile of product for E commerce fulfillment, what we’re doing is allowing you to take one big pile of product, put in shop as needed. And we run milk runs on an ongoing basis to make sure that that stores stocked, but from that same pile of product as the E commerce or comes into your website. And it’s within the region that we will fulfill for you. That order gets routed to us when we take from that same product and deliver it to home. And these regions are all localized. So the cost of shipping, that product for ecommerce is cut dramatically. Furthermore, because you have product on the shelf, the customer, if they get in, they don’t like it, they can walk into the store and return it, which we all know when you return to store there’s a chance of exchange and when you return from home exchange becomes a headache, right? So you give people the ability to have a home base to go and visit and visit that store. So essentially, we’re not a new type of retail, we’re the same old type of retail that they always was, except we’re now tech integrated. And we provide and when we’re not changing, we’re going back to the to the origin, but doing it in a better way. And in a way that works for small emerging brands that don’t have their own massive infrastructure.

Ressa 23:20
Going back a little bit. You said something that I haven’t heard said so eloquently, and I’m gonna have to borrow it, which is we don’t have a demand problem for physical shopping. We have a supply problem for great products. I think that is, you know, that’s really interesting, because so true, you go into so many stores, that they’re all selling the same thing. And that is definitely a demand from the consumer. And that demand is demand for great product. And that demand was fulfilled through these e commerce emerging brands. And now were talking to someone who’s bringing those brands into physical, which I think is really, really cool. You did say something and I want to make sure we caught it. The difference between you show fields and neighborhood goods. You said something about that. That was a challenge for them. And I wasn’t quite sure if you were saying that they’re focused on the stores media, or and there wasn’t it wasn’t really about people buying the products. Can you just highlight you know, again, what you think that the difference between you show fields, neighborhood goods?

Chopp 24:57
Yes, I think you could throw beta in there as well. There’s a great Gotta Yeah, this is a great podcast with my buddy Chris Walton, he had the CEO of beta. And the CEO of beta said, you know, we’re not about selling product, we’re about awareness of the product. He said, I’m paraphrasing, but it’s pretty spot on. We’ve never had a meeting about transaction velocity. Okay, we’re not about selling the product. There is a movement out there called stores media. And essentially it states that if your store has a great media value, think a Netflix shows a lot of people watch it, then therefore, your store is more valuable, because people naturally will be in the store. I feel it’s a little the tail wagging the dog. But you see, there’s immediacy in a retail environment is paramount forever, right? And you go into your local grocery, you’re checking out and there’s a magazine, you pull it, right. You take it, it’s an impulse buy, people buy product, even online, what’s the biggest thing what’s Amazon investing billions and getting the product to you quicker, right? People want to walk the product out the door. Now, they may not want to carry it physically out the door. I get it right you have bags, you come from the mall, your bags coming from all sides, it’s a challenge. But people do want to go home and try out the product, they just walk. And to do that you must have stock on the shelf. And to have stock on the shelf and do it in a cost effective manner. We’re not paying $8 a product to have it on the shelf for sell a $40 product that to begin with costed you know 1314 15 bucks to sort of to make you need to do it in a better way. Now, historically, retailers, they would get pallets of product, break it apart, put it on the shelf and store number 252 needed an order, you’d take 20 different cases, you’d put it onto a pallet and he’d send it out to the store. These emerging brands don’t have that. So what what neighborhoods and Showfield does, which which is a service that’s often needed, is take premier locations, put the product on the shelf, and have people come in and see that product and learn about that product. And then the intent is that you will go online, and you will buy that product. Now just just for clarity. I believe neighbourgoods Does stock I believe Showfield does that but in a limited fashion. But here’s the one thing that we tried to different, one of the ways that we’re trying to differentiate ourselves is that we don’t want people to come to anchor shops. That’s not what we’re looking for. We’re looking for people to visit Brand X, we’re looking for people to visit brand y our goal is to take a brand and with a couple of products on a table and 10 in the fulfillment center, to grow to be able to make money off of that products are selling in store. And it’s a self contained profit center, right? digital marketers just don’t get it that stores are profitable in their own right. They think everybody is Sears. And to take that product, grow your business and actually grow as a brand, say, Okay, now I don’t have 10 products anymore. Now I have 40 products, I’m now going to take a larger display in your store, to where you actually grow your business even more and say, Okay, now I need a shop and shop, I need my own little area to sell my product to where you say, You know what, I have way too much product to be part of a concept. I now want to have my own retail store. And the only way you grow your business that quickly is to have retail stores. Otherwise, whatever money you’re making online, you’re reinvesting into advertising, customer acquisition costs. So what we’re doing is actually growing the brand and asking the shopper to visit the brand, asking the shopper to treat that brand as if they treated their Macy’s stores, I could buy off the shelf I could return. I could exchange, everything’s there. Okay. And in a worst case, it’s buy online pick up at fulfillment center, which by the way, the fulfillment center is more based. And the fulfillment center has all the product you ever need. But here’s the next step. Okay. When you walk into the store, you want to have a sense of where you’re going. You walk into CVS, right? You Where do you go you have a cold, you go to the cold aisle. You have you know you have a baby, you want to buy a pacifier diapers, you go to that oil, you know where you’re going now, it seems it seems the concept of having departments and aisles are just so passe. It’s so simple. It’s not cool. We’ll, it doesn’t have the runway, it doesn’t move you to the right to the left the fast moving product, slow moving product. Sometimes science just overwhelms us to think that we’re normally human beings. The reality is when someone comes into a store, they want to understand where they going and the way anchor shops is set up. The oldest thing in the book is product adjacencies. That co tendency you open a supercenter, and you have a Gamestop. Nearby, they always work together, everyone knew that because the family came, you go and you could buy product in the GameStop. The same thing you want to have the beauty with the beauty product, you don’t want to have beauty product here and clothing product here and another product there, you have to be a merchandiser of space, because these individual brands don’t have a self contained store, they have product, and it needs to be enabled one with the next and present in the proper way.

Ressa 30:54
Fascinating stuff you’re talking about here. And you mentioned now, anchor shops, anchor shops is shop fulfills store and anchor

Chopp 31:04
shops is the consumer facing front end of shop fulfill, right. So you can give a brand all the infrastructure they possibly need. But you got to give them a place to sell product through. And what we’ve done is come up with a store concept that brings together multiple cool brands that have a specific point of view. So for example, clean beauty, right? Our focus is to have products that are good for you, and products look good on you. Health and wellness, focus athleisure. family home, right this, these are shops and, and we’re staying extremely true to that meaning. We’ve had just an example, on the beauty side, we’ve had some of the biggest beauty companies reach out to us and say, you know, we have this cool new product that we’re trying to launch and we’d love to bring it into your shops. And we’ve just basically said that, we just don’t see how it’s a fit with our clean beauty point of view. We’ve had large retailers, that have approached us to say we’d love to launch a new line in your store. And we just didn’t feel that that line would be attractive, or the lodge retail will be attractive to our customer base. We’re focusing on emerging brands and enabling them brands that will grow and be with us for a long time. And we’ve decided not to bring not to go down the road with those brands. So it’s important to have a point of view. So that these brands, these, that shoppers know that they could come to the stores and find brands that they know and love and brands that they will know and will eventually love as well, side by side with each other.

Ressa 33:02
Got it? Well, that is really exciting stuff, a different approach. And I hope that you guys continue to innovate and can really help some of these emerging brands get a physical presence, because I think they’re needed in physical. Oh, yes. Thank you. So let’s pivot, you guys just signed your first lease, you’re going to open up your first store in Philadelphia, why don’t you tell us the story of how you landed in Philadelphia? And how that deal kind of came together?

Chopp 33:43
Well, thank you. So it’s, it’s it’s a really a testament to the landlord team. But it all worked out really well. So I’ve been working on this project for close to four years. It started out as something much bigger, focused on trying to solve for retailers that were otherwise failing. And I’ve met with almost every major retailer and I have relationships with a lot of the major real estate owners.

Ressa 34:12
And

Chopp 34:16
I was talking to one and let’s just say I wasn’t that exciting enough for them. And after a while when I expected to get a deal done a deal didn’t get done. And then I decided to reach out to pre Pennsylvania real estate trust and I reached out to the CEO Joe Coren. You know he got it right away what we’re doing. This was July 2, I believe July 3, we had a conference call with his team. Within two weeks, I had a proposal on space. And they didn’t just give me

Ressa 34:53
any space.

Chopp 34:55
They gave me retail space on the 50 yard line of a brand New $600 million development that as part of the development has a train station with over 22 million passengers a year, literally hundreds of feet, a couple 100 feet from the entranceway to where our shops will be in July. And when you get that attention from a retailer, and I’ll tell you there are retailers that unlike Preet our I’m sorry, real estate owners on like Preet that are really doing badly and just can’t see past the fog. And Preet has been someone that’s been really on top of their portfolio and innovative about and really, you know, focus on what we’re doing. So that was the first step. And then when we looked at what was proposed to us, we’d like this is absolutely great, because not only did we get the space in downtown Philly, but they have a mall outside Philadelphia and Morristown, New Jersey that allows us to fulfill next day for the price of ground in New York City, Philadelphia and Washington DC, essentially, in the Hudson Valley down to North Carolina border. And being able to cover that large swath of land at such a reduced cost as well as have a retail presence in a market that has that’s really dynamic, was really, really interesting and really worked out very well for

Ressa 36:22
us. Interesting. So the, you went to a mall developer about getting a, a store open where you could put all these new innovative brands, they weren’t getting the concept you reached out to pre they got it immediately. Two weeks later, you had a proposal how and not only proposal, a proposal for a 50 yard line location in a hot project, what project is this?

Chopp 36:56
It’s called Fashion District Philadelphia. It’s a partnership between priests and Mesa rich. And it’s in Center City Center City, Philadelphia.

Ressa 37:08
And how big is this location?

Chopp 37:10
It’s 7000 square feet.

Ressa 37:13
How many brands do you expect to have inside the location, I think we

Chopp 37:19
could end up with up to 40 brands and that means we’ll have props approximately of 20 that would have a shop and shop between 100 to 250 square feet along the perimeter. And there’s some renderings on our website anchor shops that calm will give you a better idea. But in addition to that, we have a perimeter set of tables sort of racetrack that holds these shops and shops together. We are a brand could put down three products or a brand could put down 10 Or they can take entire display. And then along the middle you have sort of the you know the center aisle that’s got a got a lot of exciting and new products either individually or you know separate from the brands in the shop, but also potentially, from the brands in the shop as well. So we’re essentially renting out space on a product by product basis is really what it comes down to. So you can have a brand just as an example that puts three products into the store has 10 additional products sitting on fulfillment center for E commerce fulfillment. And it’s that that quantity is able to be juggled between fulfillment center and still an ongoing basis. So really takes a brand that doesn’t have much and gives them ultimate flexibility with regards to online and offline.

Ressa 38:52
And so you were you were able to get this spot for a retail location. And Preet was also able not too far away. Morristown, New Jersey is close to Philly, able to get you a facility where you can set up distribution and have a warehouse facility. How big was that? So

Chopp 39:15
it’s a former Macy’s a former to flow Macy’s, I believe it was totally about 140,000 square feet. They redeveloped the front, they put in multiple tenants. And they had a rear area that was 30,000 square feet. That was still available and really a possible use was what we’re bringing to the table, which is the fulfillment. And what’s so exciting about that location is imagine this. They have a 30,000 square foot fulfillment center. What if you put a 20,000 square foot retail shop in front of that fulfillment center? Now you have an experiential retail shop with a massive backroom of having every possible product you could have So our retail strategy is one that has three types of retail shops. One is the premier location. And the premier location is the downtown Philly location. And it’s an absolutely

Ressa 40:13
great location. The second location

Chopp 40:17
is our let’s call it super center, a hub location, where you have a larger shop. But it’s attached to the fulfillment center with all the product on hand. And this fulfillment center not only can help you buy any product you want in when you walk into the shop, but it’s also still fulfilling its role of getting product on the shelves of the other retail shops in the region and fulfilling ecommerce orders as well. And then the third type of retail shop that we have our small retail shops comprised of many brands, on every major drag in the region. So we have coverage across the Philadelphia, South Jersey region. And we have penetration, essentially on every major drag and this is a future plan as we as we move forward. But basically penetration every major drag. So if you’re a just Just imagine, you’re a retailer, you’re a brand, you came up with a concept has a cool name and have a great following online, you’re selling all you can you want to grow your business, you now can own the Philadelphia, South Jersey market.

Ressa 41:25
Your passion is coming through. And you’re getting me excited, Shlomo, so I am, I’m excited for you, you know, going back to this deal, is it a long term lease?

Chopp 41:40
Yes, we are doing a long term lease, it’s our goal to stay at that location. For the lifetime of our business, it’s a great location is no reason to ever move on from it.

Ressa 41:52
So your first location, rents are high in Philly. And this is a premier project. It’s not inexpensive to get into a project like this. Was there a tenant allowance? Are you building it out? Are they building it out who’s doing the construction of it.

Chopp 42:10
So I really, really don’t want to go into the details on it. But I’ll say this to you assume for a second that we’re doing all the build out ourselves. Even if we were to do that, and I’m not saying we are or we are not. We still could get a brand then with four or five products will cost them four or 500 bucks a month to get in and we’ll make a nice profit doing it

Ressa 42:38
and enter the brands paying you rent like a WeWork scenario? Or are you getting a portion of the sales,

Chopp 42:47
the brands pay us rent in exchange for tech, payroll, space, and consulting. When I say consulting, a you have X amount of product and start selling at X ray Do you have Y amount, the product and fulfillment center it’s only at y rate, we think we should swap at the store and the fulfillment center, our stock levels are getting ongoing, you know, going down on this specific product, this product isn’t selling let’s swap man and send back some product to you and you send us additional other type of product. Essentially, my co founder has been in consumer space for 25 plus years, including running Banana Republic, Europe, he was with the Honest Company. So this is you know, we have not only real estate expertise from my side of it, and you know, I’ve I’ve done the whole leasing thing, driving up and down Long Island trying to find a spot for coffee shop, the breakfast side, dinner side, et cetera. And these are things that these are things that brands don’t have. But with my co founders expertise Ryan wolf, the just the ability to take a brand by their hand and guide them through the process is also a benefit. So they’re getting all that literally for a couple 100 bucks a month. And and then they get the fulfillment center presents at no upfront costs, we just charge them pick pack, and obviously delivery.

Ressa 44:10
So the key for you is to have many brands in the location so that you can you know, you can get as much rent as you can from them and make sure that you’re profitable and you can deliver a first class service is is that a key?

Chopp 44:29
Yeah, it’s essentially rent per square. You know, we’re charging rent per square foot, well, we’re paying rent per square foot, and then we’re charging rent per square foot. But there’s also there’s also law of diminishing returns right when you pack it too much and you just have another sure right. So you don’t want to do that. But but but a space like this could really hold. You know, we’re thinking let’s see from it from a SKU level. Let’s see what this could all over or 1000 skews 1000 products within the store. So there could be less brands doing that. Or there could be more brands, it doesn’t depend on the brand depends on the amount of products that we’ve put into the store and will always encourage the brand to put less product on the shelf and restrict it to the fastest moving product and the most popular product and just, you know,

Ressa 45:24
just flooded. And is there any theme to the brands? Or is there going to be an eclectic mix? With it within

Chopp 45:34
within boundaries, there’ll be a mix, I think the first thing is the hat has to there has to be a really heavy it has to be heavily weighted towards brands that have a following that have been determined by the market by the consumer to be interesting and something that they want, whether that means that they have a great Instagram following whether that means that they’re critically acclaimed, or whatever the the, the real the the way that we arrive at it, and that we have several ways that we do, they need to be a prod product that actually is interesting, because the first thing is right, you can always get over a bad location, you can never get over a bad product, right? It’s the first rule on retailing, you could have the best product and the worst product and the best location and you won’t sell anything. So that’s, that’s that’s the first thing. Now our point of view is very important. Meaning the consumer has to know we’re going to anchor shops, we know a visiting Brand X, right, because that’s the brand that we love. And we know we’ll have other brands that fit our profile. So they have to know what is it that they’re coming to visit. And as you mentioned, clean beauty is extremely is extremely important, extremely important to us. Health and wellness. You know, it’s in an environment, it’s an experience is what you’re coming to look for. You’re not coming to us to find a wedding dress, okay? You’re not coming to us to find tuxedo. It’s just not what we’re doing. We’re focused on home. We’re focused on children’s we’re not heavily focused on tech innovation. It’s just not what we’re doing. So the our our focus is to give the shopper a clear understanding as to why they’re coming to us. Because a lot of the other retails a service concepts are competing for your the competing fear museum dollar, right? Like, should I go to museum today? Or should I go look at a really cool retail shop, there’s a lot of great stuff in it, right. And that’s not what we’re looking to do, that that’s not sustainable. That’s that’s, you know, real discretionary, you know, you know, something that you don’t have to spend money on, we’re actually trying to give you a space that you’re coming back to, because that’s where you get your shopping done. And, and we recognize that a lot of sales will be done online, maybe as much as 70%. But it’s going to be the second 70% the first 30% of the process of the sale in our opinion will be heavily weighted towards the store. And by actually combining the online and offline and making it easy for shoppers to transition their shopping online to offline and offline to online. We believe we have something that will succeed for a very long time. And quite frankly, in some ways redefine retail real estate from leased lines to a surface

Ressa 48:37
mile. Haven’t heard that one either. Give me a lot of good nuggets in this episode. So you know going back to this specific location, the two weeks later you had a proposal How long did it takes to get a signed lease? freespin

Chopp 49:00
preachment. Very, very good to deal with I it’s there. They’re fast movers these guys. And they’re focused on not just chasing the obvious you know, some something that we have very much in intune with them

Ressa 49:19
is that

Chopp 49:22
I’ll just give you my perspective and it’s just resounds with us. We’re very much in agreement is that to just throw out everything about retail everything you’ve learned about retail experience about retail just doesn’t make any sense right so a lot of people have abandoned physical stores to look at retail shops and I’m sorry to look at E commerce shops and saying that’s just the way of the future no one needs to shop in store stores have limited reach and online has a great reach and all that and it’s on its surface it sounds like a very good argument but it’s it’s it’s very flawed beneath the surface but On the flip side, on the flip side, everyone recognizes that the usual tenants that are there right now are going to change. Heck, if you don’t no longer have to order massive orders from across,

Ressa 50:14
you know, across the ocean.

Chopp 50:17
For months of supply, by, by its very meaning, you no longer need to have massive stores because you can replenish more reactively. Right. So, so what they see, what we see is that there is a new breed of retail, not a new breed or retail or necessarily we’re new breed or retail, you have to stay ahead of the curve. And they’ve made this a real priority to to get to get this done with us. And

Ressa 50:48
we’re very great. Great. So we’re running short on time here. The I think the one of the the biggest takeaways that I think for me and in this story was the fact that you not only did a retail location, but they also provided another location in a different town and a different property where you put your fulfillment center, which I think is clever, and is going to help you, you know, be successful. Anything else? We didn’t talk about, that you think it was unique about this deal? And how your this deal got done? That would be helpful to the listeners? Did we cover it?

Chopp 51:34
I think we covered it. But I think I do think it’s important. And the one thing I would say as someone coming from a real estate investment background, and I own retail shops and I least own retail properties and at least a retail. Is that is that it’s, you know, many landlords look at up and coming tenants and with with, you know, it makes sense, like what’s their credit? How do we you know, what do we do? What do we figure out? How do we get them in? But But ultimately, if if as a retail owner, well as a retail real estate owner you buy based on location or not based on leases, right? Because that’s that’s that’s the differentiator between, between companies such as yours, for example. And some guy making investments, right? You guys will look at a piece of real estate and say, we know it looks like a total piece of garbage right now. But this thing is a goldmine, right? And then somebody else’s investor goes, what does the lease look like? Are the leases only nine years I can’t get a finance too bad Have a good day, I’m not doing it right. Looking at up and coming retailers and brands has to be looked at in that way too. And the challenge of build out is is significant. Don’t get me wrong. And there are some solutions around it. But but generally it’s a challenge. But it’s important for the for the survival of of retail real estate, not because it’s heading to an apocalypse. No, it’s just you have to maximize what you have to sort of look at, at at retail tenants as a value add product individually, and if there’s one thing I would sort of try to impart,

Ressa 53:11
it would be that. All right. We’re gonna go to the last part of our show. We’re gonna have to make it quick because we’re running short on time, Shlomo, but it’s called retail wisdom. And so I’m gonna ask you three quick questions. And you tell me the answers to those three. So one best piece of commercial real estate advice out there? Maybe you just gave it

Chopp 53:41
I would say the best piece of advice I’ve ever gotten in business is that after you do all your analysis and put everything on paper until you tours just go what you got. If he guts telling you this initial here. Don’t regret it. Just go eat up.

Ressa 53:59
Love that advice. Second question. Extinct retailer you wish would come back from the dead

Chopp 54:07
Service Merchandise we’re trying to bring them back from the dead.

Ressa 54:11
I’ve gotten that one a lot on this show. I think that was a fan favorite from a lot of a lot of people. And then third question. I’m online. I am looking at the Nero he silicone shoe covers their shoe covers that go over your shoes in the rain and protect your shoes. What is a pair of NeuroSky silicone Shoe Covers go for. You don’t need rain boots. Just put the covers on rotting the rain boot industry.

Chopp 54:47
It sounds like fancy galoshes if you ask me. It can’t be 599 Because that’s what the off brand is. Take a stab 1999

Ressa 54:59
You We’re closer on the first it’s 1099. But thanks for playing. Listen, Shlomo. It’s been great. I really appreciate it.

It’s been fascinating and good luck and I hope to connect with you soon.

Chopp 55:12
Thank you, Chris. I really appreciate the time. Have a good one.

Ressa 55:21
Thank you for listening to retail told. If you want to share a story about a retail real estate deal that you were a part of on our show, please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you’re a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode