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3 Experiential Retail Drivers Lenders Will Queue Up To Get Behind

Remodeled mall in Cleveland

Brick-and-mortar retail may not be doomed. Some conventional retailers are in decline, but others can evolve to adapt to shifting shopper preferences. The widespread idea that the embattled market segment is stagnating may be unwarranted and misaligned with the data-informed forecasts of experts and analysts, who are bullish on experiential concepts.

KeyBank Real Estate Capital surveyed retail real estate owners, developers and investors at the 2017 International Council of Shopping Centers RECon, the largest annual gathering of retail real estate, to gauge retail’s growth prospects.

According to Norm Nichols, head of KeyBank's Income Property Group, over 40% of industry pros projected their deal volume would increase between 11% and 20%, while another 30% anticipated increases of 5% to 10%. The majority’s outlook was somewhat optimistic or more confident despite wariness that e-commerce could cut into tenant demand, even though most (60%) named e-commerce the biggest obstacle confronting retail.

In a number of widely publicized legacy retail failures, e-commerce has outcompeted some retailers, prompting them to shutter multiple locations. But e-commerce still only represents around 10% of total retail volume, and opportunities for innovative and nontraditional concepts abound.

Since physical stores cannot match online prices, inventory or convenience, they must entice shoppers with a combination of experience, expertise and exclusivity. These three hallmarks of experiential retail signal long-term viability to lenders.

1. Stimulating

Anthropologie interior

The ability to delight the five senses is something e-commerce will likely not be able to effectively replicate in the near future.

Stores that can titillate, but not overwhelm, shoppers with sensory stimuli, using perfumes and novel aromas, fun music, aesthetically pleasing design and, when appropriate, great food can engender a truly pleasant, highly differentiated shopping experience.

One store particularly competent in this realm is Anthropologie, which uses its mood lighting, relaxing music and symmetrically arrayed, warm, earthy displays with artistic elements to instill a sense of peace and well-being in shoppers.

2. Fun

House of Vans mini ramp session

Online shopping is practical and expedient, and even addictive according to some neuroscientists. It is not typically fun.

Art installations, concert stages, a cinema, an art incubator, an indoor skate park and more wild amusements intersect at the House of Vans in Brooklyn and a 30K SF facility in London. It is an exciting locus of activity and smacks of skating culture. Its appeal transcends the transaction, and although most of its attractions are income-generating, the concrete bowl is free to use and open to those as young as 5 years old. Destinations like this engender positive brand sentiment and loyalty.

3. Technologically Immersive


Augmented and virtual reality technologies are becoming increasingly prevalent in stores. Retailers that can afford to invest in them and pioneer ways to use them to draw in customers will enjoy increased traffic and conversions.

Lowe’s leverages VR to power its interactive tutorials, which can simulate a number of home improvement projects and give step-by-step direction to DIYers. The Holoroom How To experience is unique to Lowe’s and provides instruction for projects to inspire confidence. Haptic feedback can mimic the vibration of the drill for an intensely real experience. If the Holoroom leaves lingering questions, store reps are nearby to address them. Shoppers are likely to leave feeling empowered with bags brimming with supplies.

The technology’s potential applications in retail and real estate mean it has helped many CRE pros close deals without leaving their offices using virtual tours, and let future owners personalize their spaces remotely with remodels, furniture selection and finish customization.

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Related Topics: KeyBank, KeyBank Real Estate