By Jorge Lizan
Managing Director of Lizan Retail Advisors (LRA)
As part of a series of articles on The Future of Retail and Shopping Centers, I was fortunate to interview some of the clearest minds on today’s retail worldwhose have shared with me extraordinary insights on how retail will evolve in the coming years and decades and how this will shape the shopping center of the future.
This is what he told us:
Ok, ok, we know the internet is here already. What we are not paying enough attention to is how it has/will 1) eaten our lunch and 2) create opportunity for traditional bricks and mortar retailers. If you accept premise number one, then you will be free to explore, leverage and capitalize on concept number two. Below are five opportunities worth exploring for centers to be a force to be reckoned with in the future.
1. Have your Center be the Center
IM, chat, hangouts are cool, but they just don’t compare to being together. Actually, together. Owner’s, operators and managers of shopping centers have the opportunity to roll back the clock a little and get retro-cool by being the CENTER (think Rouse’s original vision for Columbia, MD). Municipalities, schools and churches have forfeited this responsibility (right, wrong or otherwise) and there is a huge opportunity for the center, the heart of the community, to be, once again, the shopping center. The internet has a long way to go to crack this code; no one else seems to have the resources or desire. Retail can easily grab the wheel and steer the ship. Create the backdrop for the experiences worth sharing on Snapchat, Instagram and Vine.
2. Turn your Center into a Playground
The buzz for the last years has been about creating entertainment centers to stay relevant and ahead of the curve. Simply put, if I can get it at home tomorrow, you need to give me a compelling reason to get it somewhere else today. This is why experience is so important. Frankly it is vital for survival. Shopping is fun, other things can be more fun. For some dancing is the answer (me included – TMI). Crossing the street (or more accurately waiting) has never been as much fun.
This idea gets you on so many levels. Keep people safe. Keep them entertained. Slow them down. Allow people to contribute. Make everyone involved feel like a star! Whether it is a billboard, a fountain, a play area, a performance or a show – keep people longer. Let them linger.
Like it or hate it Vegas has this down like no other. The Bellagio’s dancing fountains. The Freemont Experience light show and canopy. The Mirage’s pirate thing – whatever that is. The street performers at the corner of Flamingo Road and Las Vegas Blvd. near Bally’s. All get people not only to slow down, but to queue up and wait.
Play videos on LCD screens on green walls. Have local performers showcase their skills. Create a playground, for both kids AND adults.
3. Amusement, Elite Status and Membership Clubs
While recently traveling with my family to Orlando, we had the privilege to experience the Wizarding World of Harry Potter at Universal Orlando. All pun intended, it was truly … well .. magical. As Ron Weasley would have said, the “brilliant” thing about this all was that not only did I shell out more than $300/day simply to enter the premises, but dropped just about as much in the retail stores on wands and maps and 9 pound chocolate frogs. Furthermore, there aren’t even that many rides (6 to be exact including the train and Diagon Alley). I essentially paid Universal (and J.K. Rowling) for the privilege to SHOP. The dirty little secret is that I did so willingly! It was amazing. If I could afford it I would go back in a second.
We can learn a lot from the theme parks at Disney, Universal, and others. Amusement can be worth the price of admission. Let’s make our centers worth visiting even if you NEVER step foot in a “shop”. The Landlord’s job is to get shoppers on the premises. This is one amazing opportunity for study.
Realizing that every center can’t (and probably shouldn’t) be an amusement park, make sure that yours is the most envied of its class. If you are a pure convenience center, make sure that the parking is easiest, that the building is clean, that trash is properly put away. Look for opportunities to make it even MORE convenient; add an ATM, have a pick-up and drop-off zone, offer wi-fi in the parking lot or anything else that may make running an errand easier and more enjoyable.
EVERYONE loves to be at the front of the line, on the right side of the velvet rope or receiving perks. Additionally, if their is a strong sense of perceived value for the services, people will even pay for the privilege.
One idea is to follow the highly enviable Costco model – charge a membership subscription. According to the Wall Street Journal, in one quarter of 2014, Costco made $784 million dollars from membership revenue. While this only represents about 5% of their total sales – this is nearly pure profit. Why not create a zone in the center that is for members only and that allows customers to get other perks such as priority and/or free parking, baby sitting, express check-out or other low-cost benefits. In a podcast for NPR’s PlanetMoney program, Gary W. Loveman, chairman, president and CEO of Caesars Entertainment Corp., stated that one of the keys to their Total Rewards program was to deliver perks with high perceived value, but with little or no cost. He stated that he loved velvet ropes, because it is nearly free to create VIP areas and then access.
Try developing a simple loyalty plan for your center (or better yet entire brand) similar to the one developed by the company Belly. You get points for merely showing up! Maybe more points buy doing things (scavenger hunts, participating in events, tweeting about the center). Even more when they buy stuff. By embracing with both hands the mobile and beacon technologies available today, you can easily reward your loyal customers by being the place to be.
4. The Internet of Things
Wearable technologies are big buzz for 2015. The Apple Watch (no longer iWatch by the way) is set to release on April 24th and will be leading the charge for not only all things wearable, but all things internet. Be prepared for the Jetson’s house to become a near reality and soon. According to Cisco’s Internet Business Solutions Group (IBSG), they predict some 25 billion devices will be connected by 2015, and 50 billion by 2020. This will change everything that we do, the way that we do it and will present unimaginable opportunities to change the ways that we will want to see it, experience it and buy it.
If we change our perspective just a little bit, we can 1) overcome our fear of show rooming and 2) break down the barriers of the traditional retail threshold. The common area can be leveraged as a mutual platform for intentional display and product performance. The shopping center has so many advantages over every other class of real estate and should be the very first space to completely embrace the internet of things. Interactive media boards to check your Facebook and check in on your foursquare accounts. Parking retrieval apps. Interactive vending machines/kiosks that create custom items. The more that we accept that.
5. Smaller, shorter, partnered, omni-everything
The shopping center by creation was the second great evolution of the omni-channel experience (department stores laying claim to the first place spot). It was the one place where you could get and do a lot of different stuff with a single trip. Facts are facts and most retailers are shrinking their footprints. They are evolving to meet their customers’ needs, but the centers are reacting to these needs rather than looking for new opportunities. Fundamentally this means that centers need to find additional retailers to fill what will be a gap.
A creative new method for investment and financing will be required to take advantage of these opportunities. If not, the cool new restaurants and retailers will choose some other location than your center. We’ll be stuck with test-tube corporate concepts. Shorter term leases coupled with an online presence can be one way to capture new concepts. With a more collaborative and less “collect the rent” mentality, centers can actually expand their traditional store selections by incubating new online only concepts. This seems like sacrilege, but it if we keep relying on others to take all the risk, we will be left with no reward.
Take a look at two of the most talked about brands that have come from clicks to bricks: Warby Parker and Bonobos. Both of the men’s focused retailers proved their concept “on the line” and have become upscale darlings. Bonobos operates out of 900 sf+/- and creates an experience for having custom wearables chosen and measured in store. Your final garment is then delivered to your house in a couple of days. Warby Parker has changed the way we purchase eyeglasses. They have hip traditional frames which are fun and affordable sent to your house to try on for free. Just choose the one you like and tell them your prescription – glasses arrive in a couple of days. The key here is that they tried their new business out WITHOUT paying the 8 – 12% occupancy cost typical of having a location in the mall. When they were ready, they chose to pay for the advantages of a physical locale.
Using this as an example then expand even more deeply with intentional pop-up/short term tenants. Put together a small area of new concepts only (good place for velvet rope access). Call it designer market. Pick out the freshest styles and make everyone else envious. This becomes YOUR minor league farm team for the seasons to come. Get something for the space while you are raising your crop. Not all will work, but the more that Owners and Tenants collaborate, on nearly everything moving forward, the better it will be for everyone.
Retail is changing, just like it always has. Is your center going to be the one that gets outpaced? Be bold and take advantage of the opportunities that all centers have at their disposal to steer your center for lasting success.
Jorge Lizan is Managing Director of Lizan Retail Advisors (LRA), an advisory firm specialized in the Global Retail Real Estate Industry. LRA helps retailers, developers and investors with international business development, through Market Strategy, Franchising, Market Planning, Tenant Representation and Advisory services. Before founding LRA, Jorge served as the Vice President of Business Development of the International Council of Shopping Center (ICSC).
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