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Experiential Retail Still Needs The Fundamentals To Work

Ax-throwing bars, shoe stores with in-house spas, clothing stores that offer self-guided meditation spaces and a mattress store chain that allows customers a place to nap.

Welcome to the new world of experiential retail.

But one Atlanta commercial real estate executive sees that term as a little bit of a misnomer, one that will not matter if the fundamental real estate is simply poor.

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The Ardent Cos. Managing Director John Dubovsky

“I have a real issue with the word experiential,” The Ardent Cos. Managing Director John Dubovsky said Wednesday morning during Bisnow's Atlanta retail event at the InterContinental Buckhead.

He said a center can sign those unique concepts to deals, but they need to be followed up with a well-designed center and strong customer service and solid in-line retailers. If not, then the project is likely destined to fail, Dubovsky said.

“We sort of recategorize our concepts with new names now, but at the end of the day, it's about fundamentals,” he said.

The event focused on the state of Atlanta's retail industry as the economy heads into the longest expansion period since the end of World War II, and topics discussed ranged from the convergence of brick-and-mortar and online retail to the need for public gathering spaces in retail destinations.

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The Shumacher Group founder Harold Shumacher

“I wonder how many ax-throwing businesses really make sense? Or indoor racing cars? We've fallen in love with terms [like] 'experiential' [and] 'chef-driven.' It's all experiential. The question is what makes it better,” The Shumacher Group founder Harold Shumacher said. “That will be the continuing challenge of retail.”

Retail is vulnerable to fads that somehow spark in popularity — it wasn't long ago there were cupcake and frozen yogurt chains expanding by the hundreds — so landlords need to be wary of their long-term viability, Ackerman & Co. Retail President Leo Wiener said.

“The challenge with ax-throwing is one or two [locations] work. But then like everything else, the next thing you turn around there there are 20 of them,” Wiener said. "Not all of them will survive."

Regardless of if "experiential retail" is a misnomer, the push by brick-and-mortar retailers to offer something more than just products in their store is a real change, especially as traditional retailers eye more ways to battle Amazon's growing dominance.

According to a 2017 study by research firm PSFK, more than half of 400 retail executives surveyed expected to see more of their marketing budgets to be spent on in-store customer experiences by 2020. Even mainstream retailers are focusing more on the customer's in-store experience, especially those things that are immersive and meaningful, according to a recent JLL report.

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RocaPoint Partners principal Phil Mays, The Shumacher Group founder Harold Shumacher, Ackerman & Co. Retail President Leo Wiener and The Ardent Cos. Managing Director John Dubovsky

Consumers are willing to travel to a store for an experience, Edens Senior Vice President Herbert Ames said, but buy products online. That will blur the distinction on where those retailers actually earn the sales, with less importance on whether it happens in the store or on the web.

“We're kind of [in] this VHS/Betamax moment in time when the gap between e-commerce and brick-and-mortar is not only closing, it's blurring,” New City President Jim Irwin said.

He said that is being driven by smartphones, which are becoming a shopper's “third appendage” in many ways. At New City's 725 Ponce project, the developer is seeking ways to integrate online ordering with the Kroger on the site, such as having groceries delivered to office workers' desks or in lockers, Irwin said.

Both Irwin and Simon Property Group Vice President of Leasing Michelle Smart said pop-up retail spaces and kiosks are ways to inexpensively test out new retail concepts. Those that take off quickly make longer-term leasing commitments. Some of the fringe retail concepts will take off, Shumacher said.

“There will emerge out of all the ax-throwing businesses in the world something that is cool that will turn into the next national chain,” he said.