Caruso, Starbucks and More: Retail Tricks of the Trade

Connect Media’s Retail West conference drew more than 300 CRE leaders to LA Live’s Conga Room on March 16, 2016. The inaugural retail-focused event focused on every aspect of the sector from neighborhood centers to luxury experiences. Expert speakers covered investment, development, leasing and answered the question of the moment: Should retailers be focusing on clicks or bricks?
Here’s a few takeaways from each panel:

The Future of Neighborhood Retail
• Starbucks’ Charlie Arbing says the coffee retailer has evolved over 20 years to a point that people use stores as “gathering places.”
• The Ratkovich Co.’s Clare De Briere says developing “wonderful environments” for the multiple communities surrounding a project is key. She believes retail augments the place, but does not necessarily attract guests.
• Panda Restaurants’ Mark Miller says they “can’t go wrong” on location decisions that involve regional or power centers, especially when there’s a Target or Walmart there.
• Newmark Merrill’s Sandy Sigal says disruption is good in the long run because it creates opportunities to make money. Technology has increased trade areas by offering retailers multiple opportunities to personalize and connect with how customers want to shop.
• Primestor’s Arturo Sneider says neighborhoods become the developer of their projects, even going as far as including them in the tenant selection process. The industry is at a crossroads trying to decide how to flexibly adapt hard assets and rigid processes to the expectations of today’s customers.
• CBRE’s Richard Rizika says public transportation has become an important factor that’s “changed the dynamics” for retail by “increasing the size of the neighborhood.” DTLA is becoming more of a “center point” for LA now, as a result. Common areas used to be the first place to cut out of a project, today they are central elements.

KEYNOTE: Retail Development: Outlook and Opportunities
JLL’s retail research guru James Cook predicted digital is the future, yet says he sees the demise of pure play online retail coming.

•Given 85 percent of the U.S. population lives in urban areas, it is realistic for same-day or next-day delivery to become the norm.
•Customer service areas evolve into an omni-channel connection point that’s bigger, has larger staffs and features more technology. Retailers are increasingly finding ways to use technology to improve the physical shopping experience.
•For low end products that are ripe for commoditization, technology can be used to expedite the process since little human interaction is desired by the shopper. As one moves up the scale to higher end luxury products, more human touch is required.
•People don’t go malls to be entertained they go to shopping experiences to share time with others.

Evolution of Retail: Cap Rates and NNN Investments
• NGKF’s Glenn Rudy sees demand increasing as investors display a “flight to quality” to primary markets. He says the buyer pool has thinned and in secondary markets, he’s seeing different pricing as a result of choppiness of debt markets. There are opportunities to turn negatives into positives. But if you don’t get the fundamentals right, it could be a downfall and a path to lose equity. There’s crazy competition out there.
• Passco’s Bob Peterson says transaction volumes are at 2007 levels and are expected to go higher in 2016, especially driven by cross border capital flows. Still he’s not seeing the buyer pool that previously existed.
• Marcus & Millichap’s Lior Regenstreif says the CMBS market has hurt the investment market over the last 90 to 120 days. California is a market you can always buy and trade in. Institutional investors continue to gravitate to ‘best in class’ assets. It is back to the basics- location, location, location.
• Matthews’ El Warner says demand is because of capital being pushed out to the market. The nature of competition means some brands will survive others won’t. In core markets, it is difficult to find deals and there’s just not much being traded.

Should Your Shovel Be in the Dirt or in the Cloud?
• Caruso’s Sam Garrison continues to believe the indoor mall is obsolete. A heavily curated experience brings communities together and activates them more than any advertising. Consumers want to feel it’s their space and their community when they visit a property. Finding out what residents from the community want helps curate the right tenant mix.
• DJM Capital’s Stenn Parton says customers are willing pay a premium for an experience. That’s especially true when it feels good and is natural to the community and not forced on it. If you bring in the wrong tenant out of the gate, it sets a tone that creates a domino affect. It requires patience to get the right tenant mix. But when you “bring magic to the space,” people will respond.
• Federal Realty’s Jeff Kreshek wants to make Black Friday irrelevant. He says he cares about every day. That’s because retail is an ever pervasive element in what he calls “life retail.” His approach is to get the specific tenants you want to make a place special. It is a sniper shot approach. Otherwise the wrong tenant could undermine the environment you’re trying to create.