Top 5 Retail Real Estate Trends with Karly Iacono
Guest: Karly Iacono
Topics: Retail trends, holiday shopping
Transcript:
Chris Ressa 0:01
This is retail retold the story of how that story 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.
Before jumping into the podcast, we have a quick new segment called Data drops brought to you by pacer.ai. Today’s data drop is about Bath and Bodyworks, BestBuy, and Dick’s Sporting Goods. While they may operate in radically different retail categories, these chains have one thing in common all three brands survive the pandemic with flying colors. Let’s dive into the foot traffic trends to understand where these category leaders are positioned going into 2022. Bath and Bodyworks made headlines over the summer when its parent company took the Bath and Bodyworks name and spun off Victoria’s Secret into an independent company. There are many reasons for this split, including the difference in foot traffic trends between the two chains. Year over year and year over to year foot traffic visits to Bath and Bodyworks have been soaring. q3 foot traffic was up by an average 16.9% Compared to 2019 and October visits were up by a hefty 24.6%. While some of the increase comes from new store openings, visits per location have also seen impressive growth with an average visits per location year over two year increase of 13.5% in q3 and 19.6%. Increase in October. For most of 2020. BestBuy maintained a relatively minimal year over year visit gap and 2021 has brought visit growth for the electronics leader. Year over two year visits per venue were up 6.5% and 3.4% in July and August respectively. And by 13.9% in October. Best Buy’s growth and overall visits is all the more noteworthy given the company is operating now with fewer locations than it had in 2019. We’ve talked about Dick’s Sporting Goods strength before in the past couple of months have been no exception. Year over two year visits have been up every month since March with q3 visits up by an average of 9.2% and October visits up by a whopping 14.6% Compared to 2019. While Dix is also expanding its physical footprint the brand’s year over two year visits per venue have also been increasing significantly with average visits per venue up 7.8% In October visits per venue up 13.5% I find this really interesting. I think Bath and Bodyworks is a really interesting one Bath and Bodyworks primarily their products, our direct to consumer, meaning that it’s mostly Bath and Body products. So for majority of Bath and Body Works products if you want it you have to go to Bath and Body go to their website. And I think you know, they were probably on the DTC trend before it became hot and heavy. And clearly they’re in the personal care space. They sell soaps and lotions and things like this which obviously in 2020 were hot and it seems like the personal care industry is set to take off for a longtime BestBuy has just done a phenomenal job over the last decade. You know, people were concerned with, you know, electronics going online, but they’ve just done such a an amazing job as a retailer in the store, the products they carry. They have operational excellence. So I’m not surprised by these numbers. And I think we saw last year, people want to get out exercise go out and about and play sports. And that’s growing and Dick’s Sporting Goods is you know, the top retailer in that space and no surprise that they are taking advantage of you know the consumer trend to be outside exercise health and wellness. play sports. Enjoy the show.
Hey, everyone, welcome to retail retold. I’m your host Chris ReSSA. And today we have a unique episode for you. Today’s episode is actually a recording of the live show what’s in store that I do once a month on on a Thursday with Carly Iacono and the episode is really interesting. It’s Carly and I’s top five retail real estate trends for 2022. I think you’re going to love it. Stay tuned. It’s a pretty cool episode. Thanks everyone.
Karly Iacono 4:52
Good morning. Hello, everybody. Thanks for joining us for episode two of what to do. or we are live right now on LinkedIn and on clubhouse simultaneously once again a tech Marvel never ceases to amaze me. What’s in store is an interactive discussion on the cross section of retail and real estate, where we hope to bring members of both communities together to talk about hot button items that affect all. If you are joining from clubhouse please note that this is recorded. So if you end up sharing your thoughts through backchannels, typing questions that they will be shared live as many as we can get to through the LinkedIn broadcasts. You’re joining us on LinkedIn, please type your questions into the chat bot. We would love to hear from as many of you as we can. So today we’re really excited because we have a fantastic show with a lot of great content. So let’s get started.
Ressa 5:53
Hey, how’s it going? Carly? How was your Thanksgiving?
Iacono 5:58
It was good Thanksgiving feels like about two months ago. But that’s okay.
Ressa 6:03
The same my my house is already Christmas galore I got garland and nutcrackers and the Christmas tree in the lights we we went the day after Thanksgiving. We went to Christmas tree farm got the Christmas tree lights were up on the tree ornaments up so we are in the Christmas spirit Elf on the Shelf was everywhere. So we’re in the Christmas spirit. The rest of household Christmas music on 24/7 love this time of year
Iacono 6:36
100% were the same I actually did what I never thought I would do which is decorate before Thanksgiving. I was so excited. And I doubled down on the lights outside to where it’s like borderline obnoxious, white, they’re all white. But it’s amazing amount of lights outside. So excited.
Ressa 6:52
So So what do you want for Christmas?
Iacono 6:57
Well, I actually already bought my embarrassing, I already bought myself a Christmas present. Because I was very worried about the supply chain issue. And I wanted to make sure it got here in time. So I pre ordered and already got my new Apple Watch, which I am wearing right now. And I’ve had three days to play with. And that’s what I wanted. And it already came. So pretty, pretty happy about that. How are you?
Ressa 7:24
So I So a while back, like first met my wife, she was looking for ideas. So I gave her a list of A to Z. And then there was more things I wanted. And I made like double A double B she was like, there’s 60 things on here. This is about $200,000 worth of presents. What are you talking about right now? What do you sell? Sold. So I think the basic thing that I want, so I have a home gym. And it’s a lot of rogue fitness is the brand that I have in my gym of all the equipment. And they make these like amazing shelving units. So like kettlebells and medicine balls, like they’re on my like, gym floor everywhere. So they can go in a nice, neat spot. That’s what I that’s what I really want.
Iacono 8:21
Wow. All right. So picture when you get everything professionally set up,
Ressa 8:25
we’ll do. Okay. So today we’re going to talk about our predictions, our top five, retail real estate trends for 2022. So we’re gonna go through our predictions. And these weren’t, and give you a little bit about how we kind of everybody how we got there, which is these weren’t some economic analysis or science, these are predictions and we took a couple of bold shots, we probably won’t hit them all and never see anyone nail these. But what I do think is, I think these will all end up playing out at some time. I don’t know if it’s all in 2022. But I think the time is right for these to happen. So that’s how we went about it. And they’re from, you know, our experience in being in the industry is where the trends are coming from, and what we’re seeing day to day, and kind of kind of pattern recognition in what we think would be the most logical outcome based on what’s happening.
Iacono 9:44
So I said it better myself.
Ressa 9:47
So we wanted to see what everyone else thought would be a trend in 2022. So last week, we put out a poll. We got hundreds of votes on the poll. by a landslide, which is not one of our trends. The trend that people thought would happen in 2022, based on that poll was the store size would get smaller. So, Carly, I’ll lay that out to you. We think store size smaller. What do you think of that?
Iacono 10:23
I think for a lot of retailers, that will be the case. And we’ll talk about why a little later. But they’re just right sizing. They’re really looking at their prototype. I don’t want to give too much away of our top five, but I think yes, but not universally, I don’t think we can just say store sizes are getting smaller across every type of retail. But I think in certain cases, yes, that’s necessary as a relook at their product mix the real estate costs, etc. What do you think?
Ressa 10:52
I think that it’s a little just too broad, broad brushstroke? I don’t think that Well, first, let me back that up. So I, the store size is getting smaller. My first question is why why is this always painted in a negative light, it’s always painting in a negative light store size getting smaller. And the first thing I say is like, it’s like negative, just as you said, like people are optimizing number one, if they’re getting smaller, right, they’re getting better at inventory control. I think that store size getting smaller, has helped me in a lot of scenarios. We had a center in Frederick, Maryland, where it was a Kmart. It was 85,000 for Kmart, but if we had backfill did with single tenant, which maybe there were less 85,000 square foot single tenants today than there were yesterday year, probably would have been a lower per square foot rent, but we chopped it up we brought in Lidl Harbor Freight tools, Ali’s bargain outlet, and we were able to squeeze four stores goodwill into a Kmart box. And so some regard small small stores are better. And I think the more important fact is, we’re going to have, you know, CBRE says they put out a report that said 25% of all retail space will be repurposed by 2025 into something else. So taking supply off the market, that means retailers going to supply is going to be constrained. And therefore retailers are going to have to figure out how to get into spaces, which means maybe get smaller, not necessarily bad thing. So but are some retailers optimizing? Yes, I can tell you one of the ones. Burlington store size has gotten smaller. And so we’ve made like eight deals with Burlington in the last 24 months, we would have never been able to make deals with them because we didn’t have the space size for them when they were 60 70,000 feet. So that’s my take on things.
Iacono 13:09
Retailers pay higher rents, for smaller footprint stores or like the same retailer, apples to apples. So let’s say you had a I don’t know, come up with a retailer. I know. Some of the drugstores are downsizing, but they’re probably not a huge part of your portfolio. But if you got a 12,000 square foot store, and that same retailer wants to work with you, but open a 9000 square foot store at 8000 with their rent per square foot and go up or not necessarily.
Ressa 13:37
The The answer is traditionally, the smaller the store, the higher the per square foot rent, right? If you have a Walmart anchored Center, which we do have, Walmart’s dollar per square foot rent is going to be less than the 2000 square foot pizza tenant. Now on a gross dollars, Walmart’s paying more dollars annually then heats a tenant but on a per square foot basis. So yes, as long as you can get that cost to rent ratio, right that return on cost. What does it cost you to get the space smaller? Can you get a positive return for that through rent, then it works right? As construction costs rise that does get challenging even the tenant might pay significantly more, but it might not make sense based on the cost to get it smaller.
Iacono 14:30
And then if they are shrinking their square footage, are they chopping off the back piece of those big boxes? What are you doing with that or are they just taking more narrow stores that still go the full step? Is that an issue for you?
Ressa 14:43
That that that’s something people talk about but it’s doesn’t happen a ton. We had a grocery store in Derby, Connecticut, it was a 93,000 square foot Walmart we put in big why? The supermarket and yeah had a cut off the back to do that compensated through economics but had a cut off the back. But that’s like one of the rare ones typically not.
Iacono 15:10
Okay. Could be when door sizes getting smaller could be a win for real estate owners and investors.
Ressa 15:18
So the other one that I think worthy of note is there was a bunch of comments in that poll. And the one that a lot of people talked about was the lease structures changing. Shorter term more flexible. So this is, this is something I talk about, I think that’s good headline news. It’s not happening a ton because as as old as time, one of the smart real estate business decisions is to lock up lease term, a location for as long as possible, at as fixed cost as you possibly can. Right, good business is trying to manage your expense side through fixed costs and control of your own destiny. And I think that if you look at the most successful retailers, that’s what they try to do, the more flexible and they lose control, and they have variable costs, look what’s happening, customer acquisition costs, they’re variable, they’ve risen so much. You don’t want to move that to rent, that variable structure. So I think it’s buzzworthy. But I don’t think it’s happening at scale, like people think, are people trying to incubate small shop tenants? And for sure, but our people? Is that like the new wave? I don’t think so.
Iacono 16:54
Don’t you think the retailer could do a shorter base term guarantee term and just have more options? And wouldn’t that be a way for them to get long term control of the site and flexibility doesn’t work as well for the real estate owner, but from a retailer perspective, would not achieve both objectives?
Ressa 17:12
If they could do that? Sure. If they could do that, I think I think easier said than done, but sure if they could do that, that would be that would be worthwhile for a retailer.
Iacono 17:24
Just makes financing on the ownership side. A little challenging.
Ressa 17:28
So you’re not just financing, right? If just the cost, right? If it cost me a million dollars to build the building, and it’s only a five year deal, then are dependent on that out or to pencil it out. pendant, you know, the rents 100 grand a year then I’m breakeven in 10 years, so hard to pencil that out. Okay, so that’s, that’s what the poll was. Let’s go going into our top five.
Iacono 17:59
All right, I’m excited. And we need like a drumroll. Drumroll sound for the next show. Maybe our tech people on the back end can work on that where we just push a button and it’s like, okay, let’s put that on the radar for next week. Perfect. Alright, so since we don’t have a drumroll you want to want to try? Yeah, tomorrow.
Ressa 18:17
So I call I call the first one. Welcome home. Number five, our number five, retail real estate trend for 2022. Welcome home. This is in a hybrid bread work world, which clearly the world has moved to. The reality is people are staying home more. In the beginning of the pandemic, I was talking to retailers who are like, we were now Wednesday is a big day for us. It never was a big day where you talk to fitness users. And I talked to someone from F 45. And they’re like, what’s the biggest change the pandemic and they’re like, well, we need to figure out how to do daytime classes. We never had that before, because now people want to come work out at lunch and things like that, because they’re working from home. So I think what you’re going to see that Neighborhood Center, people, people are going to get closer in and you’re going to see a flight closer to home from retailers. I think that’s my number one. Welcome home. Number five.
Iacono 19:30
Do you think right not number one, number five are going backwards in proper order here. Do you think that this is a temporary sort of shift because we’re not back in the office full time? Or is this permanent retail needs to be close to home where work live play all the lines are blurred and they’re gonna continue to be blurred?
Ressa 19:50
I think people are going to go back to the office but I think hybrids here to stay not going anyway. And so I think You know, one of the stats we used to look at all the time is what’s the daytime population? Right? fast casual restaurants and stuff used to look at this, what’s the daytime pop? And I think I haven’t seen anything. But I think it’s really hard right now, I wouldn’t necessarily 100% Be certain that any stats around the time pop right now would be like, completely accurate, because it’s so in transition right now. So, but we do know that people are working from home. And I think that if you already have an existing base in a market, right, the population they’ve moved, you know, the population in that market. But, you know, now they’re going to be in that market more, that creates opportunity. And I think we’re going to welcome some retailers home.
Iacono 20:56
I think that’s such a great point that the way we measure population is not really working. Right now, the concept of daytime population almost seems like you would need to measure it every day for seven days and added together and divided by seven, because maybe worker is going in on Tuesday, Thursday, maybe a different one, Monday, Wednesday, Friday, maybe summer, five days or no days. And it’s really an interesting time to try to judge the movement of people. I think that that was a very interesting point.
Ressa 21:27
Yeah, I think we have some stats that are probably gonna get more interesting, like VPD vehicles per day. Right. So where I live when I’m working from home, I live off of Route 23 and kindelan. So my vehicle used to go on that road, past the store twice per day. Now, my vehicle goes past that past the store, like six times, because I make, you know, I need to get some fresh air and I make 17 coffee. Yeah. All right. So VPD is going to change on looking at VPD. I think. I don’t think people being home is actually going to decrease some of those heavily trafficked areas. I think it might increase them, because people are still going to work. And then the other people who are working from home, nobody’s sitting behind the desk for 12 hours not moving. Need to get out make your home depot run. Maybe now someone gets to pick the kids up from school and they didn’t before. So P D numbers going to be really interesting. come sometime 2022 When we can look and track like what’s really happening here. But yeah, hybrid cycling, what people have made permanent choices on hybrid. We have were hybrid at DLC. And I think that’s, that’s not changing. Where are you right now, Carly?
Iacono 23:03
I am home right now. But I was going to the office right after this livestream. So a little bit about a
Ressa 23:08
little bit about right. Are you hybrid in exactly?
Iacono 23:11
I am. Three days in the office two days home? Seems to be the current trend, I’ll probably go back to five days. I’m not sure when.
Ressa 23:20
When, when when you’re home? Are you behind your desk in your house all day never moving?
Iacono 23:27
No, but I’ve never behind a desk all day, never moving. I’m always moving around or meeting with people are probably not a great example. But I work longer hours at home. I feel like sure, because there’s just no no end time. It’s just forever. So it’s, it’s productive, but in a different way. Okay. So the second thing I want to bring up on retail getting close to home, is the concept of ship from store. And we’ve talked about this in a lot of our previous episodes in previous discussions. And I think as retailers try to find a distribution model that’s more efficient, and less costly to the end user ship from store is going to continue to be more and more popular. So if you’re doing ship from store, you want your stores to be as close to your retail consumer as possible. You don’t want to be in a major metro trying to get out into the suburbs. So I do think that that plays in well to retail getting closer to the consumer from a distribution standpoint,
Ressa 24:33
as well. Totally agree. It’s, you know, when last mile could be when people are talking about this could be like an hour away from somebody. Imagine now I can get seven minutes from somebody. You want to increase delivery speed that’s going to be really impactful. So I think you’re spot on. ship from store is going to be a catalyst to get closer to home.
Iacono 25:01
It’s gonna be a necessity as consumers continue demanding faster and faster shipping speeds, you know, seven elevens a great example of this. So they’re seven now. They try to get everything to you in less than 30 minutes, there were 3000 items that you can choose from, well, how can they do that less than 30 minutes from when you’re clicking on the ads that arrives at your door? Because they’re everywhere, right? They’re just miles from any of their target consumers. So that works. If it was an hour away, number one, you’d have an hour drive time. And it wouldn’t be profitable to deliver that $10 711 Order 50 Whatever the, you know, the basket sizes. So I think as consumers become more and more demanding for shipping speeds, that’s really the only way to fulfill and that sort of timeframe. All right.
Ressa 25:49
That’s number five, everybody. Number five, number four. Retailers, retailers try new product types in the form of real estate. So we’ve been seeing this, I think retailers are trying something new as the ticker on the bottom says, retailers are testing the waters. The the consumer is more transient, especially in a hybrid model, right? Like, we had employees where I got on a team’s call when we were in the pandemic, I’m like, where are you and they’re like Denver, Denver, doing Denver, working from home, but just homes Denver this month, and next month, it’ll be Miami. And, you know, consumer shopping habits have changed and are changing. And so we’re seeing things like people who were traditionally in enclosed malls now going to open air strip centers. And we are seeing, you know, people test new real estate products out that they hadn’t before. And I think you’re going to see retailers in different types of retail real estate, whether it’s the enclosed mall outlets, power centers, grocery anchored centers, freestanding buildings, whether it’s, oh, dare I say we never had a drive thru. And we’re Shake Shack and we want to have drive throughs now, and I think people are trying new real estate products. And we’re going to see retailers go into new real estate products that they never have before in 2022.
Iacono 27:42
I love that the playbook of who goes where is being thrown out the window. Yeah, right. Yeah, next to Sephora. Next, no, doesn’t matter. Everybody’s mixing it up. Some of my favorite examples of retailer creativity actually are the pop up that we’re seeing everywhere. Just new concepts, trying small format that pop up in a town square for a few days, or the mall kiosk is like the old school pop up concept. We’re just testing right as a concept for a short period of time. So that’s kind of coming out of the mall. And we’re seeing these really creative setups that are meant to be short term. Kind of similar are the seasonal stores. Everybody loves to kind of poke fun at that spirit Halloween, because they are absolutely everywhere you turn around, there’s another one right when it’s October, or leading up to Halloween. But I think we’ll see more retailers not just spirit Halloween, those are the masters of this, trying a seasonal shops to just hit their target market without a long term commitment and an area that maybe they’re testing out. Or they know they just don’t need to be there 12 months a year. So that’s going to tend on Lance and depend on landlords flexibility, but I do think we’ll see more of these are transient shops pop up being tested in different areas, and maybe they lead to permanent shops. Maybe they don’t maybe they’re never designed to be. But the real answer is it’s it’s fluidity change and trial right now.
Ressa 29:15
Yeah. So totally. There’s more right, like Ulta going into Target. That’s a new product type for them, right, or Sephora going in that holes. These are new product types. And I think we’re going to see more and more of this. And I think it’s interesting for the consumer. It’s interesting for the landlord, we this has our potential clients at DLC have increased because people who might not have tried to grocery anchored center or a power center are now trying those product types. And it’s enhancing our merchandising mixes. For sure, and I think it’s going to be really interesting to see what new real estate products retailers try. And we get, we get a couple of the buzzy ones all the time. Like we hear about it like, drive thru was like the biggest one, right? Like, right groups, drive through everyone who’s just matter
Iacono 30:22
what you do,
Ressa 30:23
you need a dresser, or really, right, or that’s the messaging, we’re storing store. Those are like the two ones that I see all the time. But, you know, some of these small groups go in the open air centers, I think is going to be interesting, and we’re gonna see more, but that’s our number for retailers. Before we
Iacono 30:43
get to number three, three more, I just want to take a minute kind of reset the room for everyone who’s just joined us we’re almost at the halfway mark here. I am currently Iacono, Senior Vice President at CBRE joined by Chris ReSSA, COO of VLC and we are talking about our top retail trends and predictions which of course, we will be 100%. Right? For 2022. So we’ve gone through two, we ran a great poll last week, hundreds of people voted in it. If you missed it, check it out on LinkedIn. Poll results for that store sizes were going to shrink. We’ve talked about two other of our top five, which was retailers are moving close to home and retailers are going to try new real estate products and format. So that brings us to number three.
Ressa 31:37
Number three retailers. Retail stores are about to be a little bit more charming. The store prototype is about to get more character, the on the high end for years, a lot of retailers tried to make these cool stores in the neighborhood and whatnot. But for like mass retailers, it’s hard to scale that right something new every time. So what do they do they build a prototype, and McDonald’s looks the same everywhere or, you know, a Walmart looks the same everywhere. Right. And it’s brand standard. I think this is going to have to change, retailers want to open up new stores. And the reality is construction costs are through the roof. And they’ve increased you know, depending on the numbers, your 2020 materials have increased like 23% and 2021. And so it’s going to be hard to pencil to get it to just rip it all apart and start new. And I think you’re going to start to see how do we use this existing thing, make it look like the neighborhood make it look a little cooler. And I think retailers are about to get a little bit more charming.
Iacono 33:02
I love that. That’s a nice tagline. It just feels very wholesome. To have downtown charming retail, I hope that’s the case. I think in the new prototypes that we’re seeing a lot of it is driven by retailers trying to be more efficient and streamlined. So my prediction is we will see less SK use across the board on the floor, we’re going to see the top moving products being offered at let’s say a clothing retailer, maybe less sizes, maybe fewer items being offered an effort to streamline their their supply chain, really, and kind of adapt to a smaller square footage while still keeping in touch with their consumer. Now we’ll see the opposite of Costco and some of these massive stores continuing to thrive. But I think for for a lot of retailers as they changed their prototype, they’re going to be going to a more efficient model.
Ressa 33:58
Yeah, I think that’s so true. I think I think it’s true for for many retailers, I think there’s still some like saturation retailers were like the, you know, old sand wall. And if it’s not on the floor, you can’t sell it. And so I still think they want there’s still some like racquet high and let it fly concepts out there that want to get as much merchandise on the floor. I go to a little bit too, okay, if I’m saving on the store 100 grand in construction costs, can I take 50 of it and put that into more digital tech enabled stuff in the store? Can I make the experience in the store a little better? Because I maybe I can leave the bathrooms where they were I don’t if all my stores the bathrooms are in the back left and in this store. They’re in the back, right? Maybe you don’t have to spend the 60 Grand to move them to the back left and I’ll figure out how to use it. And I think you’re going to see some of that and And I think at some places, you know, retail stores are going to have some character, but I think it’s going to be great for retail.
Iacono 35:09
I have to go back to one point, you just said, Do retailers really spend the money to make sure the bathroom is in the same position in the store? Historically? Is that a thing where the department comes together and says, no, no, we like our bathrooms on the right, we must reconfigure this entire space, that that room,
Ressa 35:25
that’s crazy, the answer is, it’s real. But the reason why the reason why is right, you have a planogram. This is where this fixture goes, this is where this fixture goes, this is where this fixture goes, the minute this is where the bathrooms go, this is where the cash app goes, the minute you move one of those things, it moves everything else in the store. So it’s a domino effect. It’s not as it’s not that simple. And we spend a lot our construction team spends a lot of time with retailers, construction teams, to try to maneuver through that. But from an operational efficiency, just like you said, if every store looks different, it’s hard on the back end to really operate the stores. I think we’re, there’s going to be some force by the market to try to they’re going to have to figure that out. But I think they will. And I think it’s going to be good for retail.
Iacono 36:29
Okay. Seems like that would make sense, though.
Ressa 36:32
Yeah. I’m glad the bathroom things surprised you. But yes, like in our construction notes all the time, right? Because work letter from a retailer might say new bathrooms, right? And so my construction team will price them they’re like, well, it’s new bathrooms in the same spot, or am I going to have to move them? And that’s a whole different cost. Right? I might have to change out the fixtures and give them their tile and whatnot. But if you have to move them and change it, then you’re digging through the floor to trench water lines. So you’re starting to get into a significant Yeah.
Iacono 37:12
Right. So I want to stay on this for one more second, before we move to what are we on number two, one second. So I’m still not 100% sold on this term idea. I love it. I hope you’re right. I think it’s going to be maybe I’m just a little more realistic, pessimistic, a little bit colder, I think we’re going to have technology efficiency, I think it’s going to be about contactless checkout, I think it’s going to be about getting in tracking the consumer, which is great for retailers scares the heck out of consumers, but super effective for promotions, things like that. So we’re gonna see more artificial intelligence, machine visualization, things like that, that are going to make retail efficient. So the prototype is about targeting those high mover items, customer efficiency, and technology, less about what I think of when you say charm, which is like small business, you know, bath bombs and things that you walk in the store, and you’re like, I don’t know what I’m gonna buy here while I’m here. But it’s really cute. And then you leave. So how do we make charm? profitable? And how do you see the technology piece fitting into the chart?
Ressa 38:25
I think I think the technology piece is here, and it’s not going anywhere. It’s just only going to expand. I think when I say charm, I think my my point is, I think we’re you know, we’re gonna have you have some like old building, we’re gonna try to use what’s there. And let’s divert the money into the things that are most impactful, which is the digital stuff that you’re mentioning the tech stuff, and the experience in the store. I think probably a better use of funds versus, you know, potentially moving the bathroom across the whole store. Got it. So,
Iacono 39:07
all right, we’re gonna get it all. Technology new prototype. We’re all in on our confidence in retailers to pull this off and landlords.
Ressa 39:18
We have here we have some comments here and some comments first, so yeah, yeah. Someone said so close closer to home and ship from store without eliminating urban centers may lead to increased store count, but with smaller formats, potentially. Greg Parsons wrote subways opening cookie way store in New York City this weekend. I think that’ll lead us to the next. The next.
Iacono 39:45
Thank you, Greg.
Ressa 39:48
And, and Liza mentioned that flexible work has enabled customers to shop in new ways new locations and are open more open than ever to changing their shop. shopping habits so totally agree there. Okay, and if
Iacono 40:04
every bit anybody’s on clubhouse, for those of you in the clubhouse room and you’d like to participate, type your comments through Backchannel, and we’ll try to get to those as well. So thanks for everyone joining us on both platforms. We appreciate you.
Ressa 40:20
Okay, number two, I love this one. Number two new concepts are coming. So yes, I am talking to retailers, retailers, mature retailers are talking about innovating and opening new concepts. So that’s number one. But the one that I think about, we talked about this great resignation that’s happening and Beth Azar enlightened me to this. And we’ve seen a flurry of new small business entrepreneurs opening up stores. If everyone’s leaving the corporate world, they’re not just going to go off to the Maldives and chill for the next 20 years. And what we’re seeing, it’s maybe it shouldn’t be called the Great resignation. And maybe it’s the the great entrepreneurial time period. These people are opening new businesses and locating in retail real estate and opening new concepts and new shopping centers, whether it’s in personal care home, some hot clothing line, a couple that with the fact that I think mature retailers, they’re they’ve got a lot of tailwinds from healthy consumer, and strong retail sales. And you’re gonna see new concepts happening, right Dollar General just came out with pop shelf. And we’re going to see more of this happen in 2022. New concepts, both from national retailers, as well as local businesses are about to fire off.
Iacono 41:58
And I love this one too, because I think it’s a big win for the consumer shopping and just the way we experience retail, which is such a broad term, we’ve talked about it many times before. Consumer real estate, I think the better term we came up with, it’s going to get so much more interesting, so much more fun when you go into the store. So we’ve talked about experiential retail, which is a little bit different. But I think the experience while you’re in the store is going to get better, we’re going to have stores that you never knew existed because they didn’t come with this entrepreneurial shift. And then you’re gonna have the existing retailers just really try to adapt to keep customer loyalty and keep drawing new people in dollar general Club shelf is a great example. Really fun concept, I think will do well and is very different from their standard Dollar General prototype. So we’re gonna see things like Dick’s Sporting Goods, how many different store formats do they have now? Five, I think you know, every time we turn around, it’s like, oh, now we’re doing this kind of store smaller, bigger here there. Because everybody’s realizing you have to be nimble in today’s market. And you have to keep trying these new concepts or somebody else will. And it was the old methods of we have a brand. That’s what we are. That’s all we do. And we’re gonna be this iconic brand for 30 years and never change. I don’t think that works anymore. So the adaptation of existing brands to compete, but be interesting in the space of this huge entrepreneurial push. It’s going to create some really fun, new concepts.
Ressa 43:36
So I’ll give you two things. You know, what? retailer has like seven store concepts that I don’t know many retailers that have more concepts than them. Tell me Amazon.
Iacono 43:56
Oh, okay.
Ressa 43:57
Right. So, yeah, so we want to talk about new concepts coming in. We’re taking a you know, a look at an innovative retailer. If there’s any future prediction that we’re going to have new store concepts, just look at what Amazon’s doing, right. They’ve got their go stores, their bookstore, their four star their fresh stores, they opened a salon in London, right, new concepts are coming. DTC brands, to me are really interesting because what they’re doing is I say it all the time, which is I use the line pampers and Pepsi we, we have a lot of stores that sell pampers and Pepsi just commodity products. And so, DTC is you know, bringing new products, which means new concepts to physical retail. So, new concepts are coming How many? I don’t know. But I think it’s gone. When you look at all the digitally native brands, opening stores, when you look at mature retailers, who, you know, are looking for continued growth, they’re opening new concepts. You look at all these new entrepreneurs, whether they’re old entrepreneurs are from the great resignation, we’re going to have a significant amount of new concepts come in 2022.
Iacono 45:28
And I hope a lot of them stick. That’s my only concern with this. I love it as a consumer. I love it being a retail real estate professionals, I think it makes our product more interesting to sell. But where are we going to be in two to five years with some of these brand new concepts? I don’t know.
Ressa 45:45
You know, it’s interesting. So we can maybe it’s more for our our number one prediction. But, you know, there’s this headline, CBS cloning, not closing 900 stores, right? So I get frustrated when I read that, because I think there’s a little lack of context there, right? Like, if I read like Jack Welsh who’s like the seat for CEO of GE, and he’s like, you know, every year you want to let you know, you want to let go of the bottom 10% performers in your company? Well, if your business and you normally your average, you know, return, you know, return on invested capital is 10%. But you got 900 stores, which is about 10% of your fleet that are that are, you know, 5% Well, you just increase your returns if you cut the the ones that aren’t working. So that’s just a normal pruning of stores that everybody should be doing in business, right? Restaurants do this restaurants, right. Smart restaurant owner takes the items that are that the worst sellers of that year. And they take them off the menu the next year. Right? Yeah, I don’t read about that in headline news that I can’t get my, you know, the grilled chicken salad anymore, because it doesn’t sell but we hear about CVS closing the stores. So
Iacono 47:19
let’s scale right? headline, headline, because they have such massive scale that it is bad for the so
Ressa 47:25
my point to that go into what you said was, some of them won’t stick. Some of them are not going to stick. People are trying new things, and some of them won’t stick. But that’s innovation.
Iacono 47:38
Yep. That’s what I was gonna say. That’s part of it. And if they all stuck, then they’re not being creative enough?
Ressa 47:44
Probably not.
Iacono 47:47
All right, number one, number one, I read comments first. Anybody else we need to?
Ressa 47:53
It’s a lot about the design. But so so someone wrote more creative thinking in store designed to achieve more, more with less and to allow future flexibility? Totally. That’s what I that’s what I think’s going on with retailers get more charm. Okay, number one, probably out on a limb. Number one, more online stores will close than physical stores in 2022. So I think we read a lot of headlines about physical stores closing all the time. And the reality is this year more physical stores open than closed. But you hear those headlines. You rarely hear about that box subscription that didn’t work. And I go to their website now and the websites down and it doesn’t work. But you know, Michael prismon said it in 2018. You know, on Jim Cramer. He’s the CEO of Everlane. What online only brand is actually profitable. And he goes, virtually none of them. That’s the dirty little secret. I don’t think that’s going to work. I totally agree that we need omni channel, ecommerce sales will continue to grow. Not saying that, and I think I buy things online, right online retailing is here to stay. But so as physical retail, and they’re both going to grow, and they need to work together in a harmonious retailing place. That said, there are a lot customer acquisition costs are through the roof. Shipping is getting really tough. Majority of consumers can’t afford to pay for shipping. And retailers can’t afford to give it to you for free. And so that’s going to come to roost. And I believe we will see more online stores closed in 2022 than we see physical stores close.
Iacono 49:48
I see it I dropped the mic with it. Right. It’s such a good point though. And nobody really thinks about the online source closing because it’s not visible. You don’t feel it and like you said unless you go for that particular website, no idea, right? It doesn’t really affect you. But the fact that it is so expensive to just get the attention of the consumer in an online world and get on page one to have the search results. And then once you do, you still have to ship the item. And then you often have to ship it back for free both ways. I think of this when I do online shopping and return a bunch of stuff, and don’t even think twice about it. Wow, really, you know, two days shipping both ways. I paid for none of it. And it was a $15 item, whatever it was, how can that possibly be sustainable? And I think it’s just trying to get market share. Amazon perfect sample, obviously. But how is this smaller online retailer? Do you compete with that? How do you how do you work off of non existent margins with no physical presence?
Ressa 50:52
The reality is right now they’re not competing. If you if you look, there are like double the amount of online stores in America than there are physical stores. Yet he 580 6% of all retail stores sales or retail sales happen in store. But here’s the stat that like, to me makes this like this is going to happen. But 65% of all retail sales online. So all ecommerce sales are done by like 10 companies, millions of online retailers fighting for like this 30% of the pie, who don’t have the balance sheet of Amazon, Walmart, Target and Costco that’s just coming to roost. That does it math doesn’t lie. And so it’s just coming to roost is 2022. A little too early? I don’t know. But this has been going on for way too long. And the store is proven to be such a profitable place to, to sell goods, like people always talk about this is the one that gets me people was talking about the purpose of the store should be the experience or the purpose of the store should be to, you know, connect with customers. How about the purpose of the store? is the place where you profit? Why? Why don’t why don’t we miss one? Right? We need a store because it’s profitable. Look, you know, Warby Parker is a great example like their stores, crush it, get the company, you know, just released its numbers, and they were they’re unprofitable as a company. What Why does the store purpose have to be the experience? It’s great experience to connect with people around the showroom. I think that’s good. That’s great. But how about the store is the place where we profit. So we should have more stores. Because we make more money in stores. The cost of entry is more in a store, we just talked about the construction costs. That’s the challenge to get into a physical store costs more, but the reality is majority are more profitable in four physical walls. I just interviewed yesterday at Gribble, rizona, who’s the CEO or the founder and president of Benchmade monitor, total DTC brand, no stores yet. Don’t know them. And he was talking about what he does, the amount of money and what he does, to do everything in his power to make sure that the consumer doesn’t return the item because he’s selling furniture, which is when he has to go and pick that up and get it out of their house and bring it home who costs are really challenging. And he’s like, I don’t want anyone to buy anything. Unless they get the swatches and he has on his website, I encourage you all to go to Benjamin moderns website, and he’s got free swatches at the top. And he’s like, you get the material he’s like, and we have people who pour milk and orange juice on the swatches to see how it will stain. And you can really see the colors he goes, I don’t want anyone to buy anything unless they ship you the swatches. And he goes, I have a paper layout. So when you go and you’re gonna get the couch and you want to see if it fits, he will send you a paper cut out of the couch and you can put it on the floor and see, right he’s doing everything in his power to stop a return. Right to me. That is it’s really, really, really, really tough, not to mention what he has to pay to just get that customer to click. He’s doing great, but I think we’re gonna see online stores close in 2022. Sounds like
Iacono 54:50
he was really going above and beyond. I mean, I can’t think of any other retailers that approaches it that way that I know it’s just sort of pure product. You don’t like it or you do diety found something better, you got the wrong size, whatever can return it. So kudos to him for being so proactive about it.
Ressa 55:08
I encourage everyone to go check out Benchmade modern and go check out the website and you’ll see intentionally the top of the screen. Free swatches, please take the swatches, we’ll say please,
Iacono 55:19
please, we’ll send them to you. So I think we’re gonna see more consolidation. Well, here’s what I think will happen with online but this great entrepreneurial shift, we’re going to see more people open online stores. So I think we’ll have more online stores, right, because it’s a low barrier to entry Sure, easy to open a start a website and set up your store, you can do it in a day, right? Very low cost way to do it shipped from your garage, whatever you need to do to get started. But the long term effects of being profitable in that model, I think is where we’re going to have a lot of turnover and businesses not make it, they don’t really think it’s that sustainable. So getting the eyes on your product, getting the mindshare of the consumer who’s scrolling through feeds, and maybe you’re on the 50th page of Google. That’s really, really tough. That’s the challenge. So because of that, we’re not going to see people stop opening online businesses who can’t afford to store retail. But I think we are going to see more of a consolidation after that first push to SB two, maybe Amazon Marketplace, sellers, eBay, whatever these large conglomerates are that offer eyes on a product without having to pay for pay per click. But those have their own challenges. How do you get on the first page of Amazon? The first page is Etsy, right? It’s not perfect. But I do think the mass companies online will continue to grow in power.
Ressa 56:52
Yeah, you bring up a good point, right like that. I’m saying more stores will close just like when physical stores close. We still open new stores, we’re just talking about the stores. Online stores will continue to open. I just think more will close than physical. We have a comment there. Online shopping is causing a landfill nightmare, since certain returnable items by customers are tossed instead of being delivered back to the seller. Since many items, it’s not worthy of having it re shipped to the seller due to the cost. We’re certainly starting to see all this environmental talk about you know, all the shipping we’re doing this is I will be complete. And this is an area I am not an expert in I am not I don’t know enough. I do know the following that I go to my local recycling center. And I was talking to the guy there Don, who is great guy and go to the recycling center. I sit down. You know what? I’m just curious. What boxes do you see the most? He goes to me, I’ll start an order. He goes, just a electronics is three. So okay, so number two, Amazon. I said, I would have thought that was one. He goes now by far and away the pizza boxes. That’s number one. He goes can’t believe that a pizza, everybody’s eating.
Iacono 58:19
Funny, and I guess those aren’t recyclable. Right. I feel like we’re getting off on a tangent. But there’s some weird coding that you can’t write. They’re not not sustainable. I don’t know. But back to ese. I do think that the younger generations are going to prioritize this more. And sustainability is going to be something that we are going to be at the forefront. And retailers are going to have to figure out how to make shipping. Less resource intensive. You’re already seeing Amazon doing that. If you read their boxes now it says using 30% less material, click your scan here to see why this is relevant. So they’re trying to appeal to that generation, which is a good thing. Who is more sustainability minded? Now still being shipped back and forth? Maybe we started electric vehicles on the road. There’s got to be some other ways that we handle this because obviously shipping is here today. But sustainability will be an increased conversation, for sure.
Ressa 59:18
Okay, so to recap, our top five retail real estate trends for 2022 number five was welcome home. Retailers are going to continue to locate closer to home. Number four was retailers are trying new real estate products whether it’s mall retailers trying open air drive, throughs Sephora going into Kohl’s and Ulta going into targets number three retailers get more charm. They’re going to be more tech enabled stores and they’re I think they’re going to use the existing infrastructure in a store because of construction. Boss number two was new store concepts are coming the great resignation. Entrepreneurs are opening stores mature retailers are opening new concepts. And number one was more online stores will close then physical stores
Iacono 1:00:19
that have fun episode so much good content to everyone listening on clubhouse and LinkedIn. Thank you all for joining us. What’s in store is a monthly show where we will color cover topics at the intersection of retail and real estate. So look for our next date. Be sure to join us type your comments in and in the meantime, reach out to Chris and I with anything retail real estate related you’d like to talk about we always love hearing from you. That’s a wrap.
Ressa 1:00:50
We have a date for that right our next episode.
Iacono 1:00:54
I think we do. Are we going to are we going to push that out now? Why not? A secret kind of exciting.
Ressa 1:01:00
Jamie know what it is January 13. January 13.
Iacono 1:01:04
Okay, you that were so ahead of things. There you go. Join us next month, January 13. We will push out the link of course well in advance because we registered tell your friends and let’s keep this conversation going. All right, everybody. Have a great holiday. Have a great holiday. Bye bye.
Ressa 1:01:25
Thank you for listening to retail retold. 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 revolts as DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are 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