Consumer Focus On Value And Experience Is Reducing Store Size, Trimming Pricing And Injecting Fun
High-quality, value-priced merchandise is what consumers want, whether they buy online or from brick-and-mortar retailers, said Colliers International Los Angeles EVP for retail Chris Maling during an exclusive interview with Bisnow at the ICSC 2016 Western Conference. As a result, off-price, discount retailers offering high-quality brands are doing record sales, while the luxury market and department stores, especially those offering mediocre quality and service, are struggling, he said.
“This is why outlet malls are proliferating,” Chris said, noting there are six times as many outlet malls today as before the 2008 recession. “And they’re not just in tourist destinations anymore, but are encroaching into urban areas, so people living in LA don’t have to travel to Tejon Pass to find an outlet center."
Chris cited the 700k SF Citadel Outlets, LA’s first and only outlet mall, and Camarillo Premium Outlets on the LA/Ventura County border, as well as the four outlet malls in San Diego County, San Diego Outlets at the Border and Las Americas Premium Outlets in San Ysidro, Carlsbad Premium Outlets, and Alpine’s Viejas Outlet Center off I-8.
He said existing outlet centers are expanding, too. The Citadel added 126k SF of retail in 2008 and another 157k SF in 2010. Camarillo Premium Outlets, which opened in 1995 as a tourist destination with 40 stores, expanded as population growth in LA and Ventura County melded the center’s location into a densely populated market. The center added 220k SF along a promenade in 2009 to provide 160 high-end retailers and off-price stores, including Neiman Marcus Last Call and Saks Off 5th, as well as an IMAX theater and a variety of restaurants.
E-commerce is having a disruptive impact on all brick-and-mortar retailers, but is taking the biggest toll on large department stores, Chris said, predicting department stores in the current 100k SF format will be extinct within seven years. “This is because their footprint doesn’t lend itself to what consumers want,” which is a fun shopping experience and/or goods at a price point that justifies the shopping trip, he said.
“When Nordstrom Rack is doing more sales than the Nordstrom department stores, that tells you something,” Chris said, noting Nordstrom is looking at strategies to reduce its footprint. Pictured is the Nordstrom Rack in Seattle.
Shown above is H&M's 63k SF store in New York City's Herald Square, the retailer's largest store.
Value-priced stores like Target, Kohl’s, T.J.Maxx, Ross, H&M and Forever 21 now offer similar-quality goods as department stores and are experiencing record sales, he said. Retailers growing in today’s environment are downsizing stores and beefing up online marketing, with a strategy of buying online for free store pickup or offer free shipping, Chris said. He expects some department stores, like Macy’s, will survive and salvage their brands by reducing store size and inventory and improving their online presence.
He cited the success of Brooks Brothers under a combined brick-and-mortar/online marketing model, noting the retailer downsized urban stores to 15k SF. “If you can’t find what you want in the store, there is an in-store computer where you can select what you want from the Brooks Brothers website, and it will be shipped to your home for free,” he said. To be successful in today’s multi-channel marketing atmosphere, retailers must be willing to go the extra mile to keep customers happy and returning, he said.
For most retailers, a 2k SF store with a strong online presence is “nirvana” for retail success in today’s retail environment, Chris said.
Retailers began shifting to friendlier online shipping and return policies over the last year or so. Amazon, for instance, now offers free pickup for returns, and Happy Returns kiosks (pictured) are popping up in shopping malls, saving customers a trip to the post office, while increasing shopping center foot traffic.
Millennials are playing a dominant role in changes to the retail sector. “They’re not eating in high-end restaurants, but at places like Chipotle, which have low price points and you don’t have to tip,” he said.
Chris said this is one of the reasons food trucks are popular among Millennials. Their mobility is an added benefit, allowing them to become part of the entertainment at events and other social gatherings. For example, a craft beer pub in Denver that is popular with Millennials partnered with various types of food trucks to provide regular food service on a rotating basis in the parking lot. The pub posts food truck menus and allows patrons to pick up their food and eat it inside the bar to pair with the various craft beers on tap.
Chris said retailers also are adding new concepts, rethinking their merchandise selection, making changes to reflect customer preferences and enhance the shopping experience, and putting stores in locations that offer entertainment and socializing opportunities. “People are willing to spend more for an experience they’re seeking,” he said, “so retailers are looking for avenues to complement their retail offerings with experiences.
“Movie theaters are upping their game, providing different experiences for different groups,” Chris said, noting some theaters are limiting admittance to the 21-and-over crowd and adding a full-service bar and restaurant, while others catering to families offer the typical concession food and beverages with the movies. Pictured is a full-service bar in the lobby of the Regal Dulles Town Center 10 in Sterling, VA.
High-street retailers are doing well due to the exchange of foreign currency to dollars, which brings international shoppers to buy goods, which may be manufactured in their own countries, but are less expensive to buy here, Chris said.
“What retailers are finding out is that they can’t be everything to everyone,” Chris said. He noted Target is having a hard time selling groceries, because people don’t think of Target as a grocer, but as a soft goods retailer. For a similar reason, Target sold its pharmacy component to CVS.
Additionally, mega-chain grocers are shrinking store size and getting more specialized, he said. Historically, mainstream grocery stores have averaged 35k to 45k SF, but are beginning to shrink their model to the 15k to 20k SF after observing the success of German grocery operators ALDI and Trader Joe’s, which are owned by the same company.
ALDI, a no-frills global grocer that has 1,400 stores nationwide, with plans to open 650 across California alone by 2020, is experiencing “sales through the roof,” said Chris. The grocer only sells its own brands, and customers must bring their own bags, bag their own groceries, and pay 25 cents to use a shopping cart. They are rewarded with an average 40% reduction in their food bill, he said. ALDI stores operate with just five employees, compared to 12 employees in a standard-size, full-service grocery, passing the 50% saved in labor costs on to the consumers.
With nearly 79 million Millennials, they will continue to dictate what retail will become, which means more customization, casual environments and good prices, he said.