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The Next Iteration Of Retail Is All About The Customer Experience

As more big-box stores declare bankruptcy and announce closures, landlords are dealing with more large, vacant spaces. Many Bay Area landlords see these vacant spaces as an opportunity instead of a death knell. 

Merlone Geier Vice President of Project Management Brett Christopoulos and Marine Layer Director of Real Estate Josh Gladding

Retail is becoming about finding ways to break up these large boxes into smaller spaces that can provide an experience that will keep customers coming back to a shopping center.

“Shopping centers, just like a community park, should be that local community center,” Merlone Geier Vice President of Project Management Brett Christopoulos said during a Bisnow event Wednesday.

He said it is 100% on the landlord to provide an experience to support retailers and sales are down at centers that have not been really focused on creating an experience for shoppers. Christopoulos said people want to go out and be with their friends and share experiences.

Jamestown Properties Senior Vice President Joshua Callahan said creating an experience is not automatic. The center has to be well-designed and programmed to meet the needs of the tenants and shoppers.

At its shopping center in Alameda, Jamestown Properties put in a kids' playground that has become very popular and brings people back. The center offers an ice rink in the winter. At its Ghirardelli Square, Jamestown Properties has created kid-friendly programming and will add more family-oriented retailers and amenities.

“If you’re not on … a truly dominant, actual shopping street, you have to focus on who you’re trying to serve and go out and serve them well,” Callahan said.

Jamestown Properties Manager of Creative and Marketing Alyssa Tomfohrde, Senior Vice President Joshua Callahan and Senior Construction Manager Matthew Anderson

Vestar prefers lifestyle shopping centers and has found combining big-box stores with lifestyle, such as what is seen at its center in Downtown Pleasant Hill, works really well and is popular, according to Vestar Regional Director Jennifer Nettles. It also will take large spaces and cut them into smaller stores.

Vestar typically hosts 50 events at its properties each year, which include concerts, outdoor movies and parades, according to Nettles. Shopping centers become a gathering place when the customer decides to go to a particular center not because of the shopping, but because there is always something going on there, she said.

Nettles said the tenant mix, architecture and redevelopment opportunities and entertainment mix have helped Vestar bring its centers to over 95% occupied.

Forest City Senior Vice President Jack Sylvan, Ghirardelli Chocolates Vice President of Restaurants and Retail Patricia King and Field Paoli Architects principal Christen Soares

At Pier 70, Forest City is planning to create a maker hall that will provide an experience while also creating a space for local small manufacturers, according to Forest City Senior Vice President Jack Sylvan.

Since it is in the early phases of design and not everything will be built at once, figuring out how to attract retailers while the project is still under development will require a balancing act, Sylvan said.

Forest City plans to deliver about 30K SF of food and beverage space during the first phase, which will include retail, office and multifamily. He said he does not want to deliver a bunch of food and beverage that is cannibalized by the rest of the project later in the development process. Signing on early may require a leap of faith from the retailer and Forest City may consider lowering rent to decrease the retailer’s upfront risk.

“I think it is going to be a very creative process, which is exciting and daunting,” Sylvan said.

MBH Architects Studio Director John Schmid and principal Dimple Manghani, Field Paoli Architects principal Christen Soares and Holland Partners Retail Development Director Jeff Bernard

As retail shifts to more entertainment and experiences, the definition of an anchor has shifted as well. Amenity and entertainment-focused retailers are anchoring many shopping centers now, replacing the big-box stores of the past, Field Paoli Architects principal Christen Soares said.

Retail West principal Matt Holmes said this could mean bringing in a more innovative use, such as a WeWork co-working space or medical use — something different than a Target.

“Millennials have a contrary sensibility, so the more mainstream you make your projects the more it will be looked at as a dud project,” Holmes said.

Soares said there has been a shift to designing spaces to be smaller, more flexible and able to accommodate multiple tenants. For example, the Nordstrom in Melrose Place is in a small space with concierge services and provides access to products customers want to buy without that department store experience, she said. Customers can pre-order products and quickly pick up the product in the store.

Another shift in retail is coming from food and beverage. The percentage of food and beverage at these redeveloped centers is much higher than in the past, which creates more design complications because of the utilities and ventilation needed for all those spaces, according to Soares. She said her firm has been doing a lot more work in interior architecture and repurposing existing spaces.

Location Still Matters To Retailers

Merlone Geier Vice President of Project Management Brett Christopoulos, Jamestown Properties Senior Vice President James Callahan, Vestar Regional Director Jennifer Nettles, Marine Layer Director of Real Estate Josh Gladding and HFF Senior Director Eric Kathrein

Location is another key component that is becoming an even more important consideration for retailers that ties into the creation of an experience.

“Retailers don’t want to be on B and C streets,” Callahan said. “They are very selective on where they want to open stores.”

Jamestown Properties has been working with the Copeland family in Downtown San Luis Obispo to develop and grow the downtown area and continues to look for parcels in San Luis Obispo. While the Bay Area is a great retail market with strong demographics and employment, it is difficult to find ideal locations, and Jamestown Properties has not bought any new projects in the last few years.

For retailers, it has been difficult to find ideal spaces on high-traffic shopping streets, especially in the Bay Area. Marine Layer, which has a location in Hayes Valley, prefers Class-A streets with high foot traffic, Marine Layer Director of Real Estate Josh Gladding said.

In addition to high-value streets, it will consider boutique lifestyle centers with interesting architectural elements, since these locations best reflect an authentic brand experience, Gladding said.

Ghirardelli Chocolates Vice President of Restaurants and Retail Patricia King and Cushman & Wakefield Director, Retail Sales Susie Hall

At Ghirardelli Chocolates, half of its business is creating an experience for  customers at its restaurant and fountain shops, Ghirardelli Chocolates Vice President of Restaurants and Retail Patricia King said. Ghirardelli’s latest strategy is to fall back on its roots as an experience-based retailer and looking at new sites is about bringing that experience to life, King said.

“Many people … remember their first trip to Ghirardelli Square and their first sundae and it left an indelible mark in their memory,” King said. “We’re very much about experience.”

The retailer does not need a big space and prefers 1,500 SF to 2K SF and prefers places with high traffic and in tourist areas and areas with strong demographics of families and kids.

Its Ghirardelli Square location is considered the company’s crown jewel, and its spaces around the Bay Area also do well, she said. It also has three stores near Disney theme parks in Southern California and in Orlando, Florida.