The future of retail real estate

If you want to see the future of retail real estate, look no further than Apple or Tesla. These brand-centric retailers who push products through multiple channels and the innovative use of space represent the nimble nature of today’s retailers, the chairman of the International Council of Shopping Centers said Tuesday.

During an address to the 2015 Real Estate Circle of Excellence Breakfast in Richmond sponsored by Virginia Commonwealth University, Robert Welanetz outlined major trends in retail real estate to an audience of 175 people.

Whether it’s smart phones and mobile devices — Apple’s speciality — or Telsa’s electric-powered cars, retailers must be prepared to market products over various channels to be relevant, said Welanetz.

A global adviser for Blackstone Real Estate Partners, Welanetz lived in Shanghai, China, for eight years, 2004-2012.  He said Apple’s first four stores in China experienced $800 million in sales in the first year, more than some sales for U.S. department store chains.

Apple stores, he added, are some of the most productive in the world. He credits the company’s success to the “culture of the whole organization from creating the product to delivery apps for the consumer to attach to the product.”

Tesla’s stores are the second most-productive behind Apple’s, he said. Founder Elon Musk’s ability “to predict changes to the consumer is an example of what will go on on in the retail world,” Welanetz said.

Appealing to shoppers over multiple channels is a huge trend. “Most retailers will tell you that the multi-channel customer is more valuable,” said Welanetz. That’s because they tend to spend 170 percent more than a single-source shopper, he added.

The use of social media is growing, and it’s important to tap into this trend, he advises, with 53 percent of the people on Twitter recommending products. Studies show that 90 percent of consumers trust peer recommendations, he said, so positive exposure on Twitter is valuable.  

Overall, Welanetz identified global instability as the biggest threat to retail real estate. With wars, ethnic unrest and terrorism in many parts of the world, “how can people think about consumption when so much is going on?”

Asked what shopping malls are doing to shore up security in response to a recent revelation that a terrorist group was advocating attacks on malls in North America, Welanetz responded that many malls employ heads of security and off-site contractors to boost security. Some have police stations within their premises, and malls are working hard to stay ahead on internal and external security.

“I think we are doing our part,” he said.  Yet with large numbers of people coming through, “it’s hard to be 100 percent protective, but I hope we’re meeting the benchmark.”

Other key drivers that Welanetz said are driving retail real estate:

·         Shifting demographics.
More than half the world’s population is made up of people under the age 30.  These people use mobile devices.

·         Social media
While retailers need to use it to stay relevant, clicks don’t necessarily mean the death of bricks, with some shoppers still wanting to come in person to see merchandise before buying. Welanetz said studies show that 48 percent of consumers say they have ordered an item online and picked it up at the store, while another 37 percent did research online about an item and made their purchase in a store.  Another 35 percent said they purchased merchandise online. 

In the U.S. online sales represent about 12.2 percent of all retail sales. In the United Kingdom, Welanetz said the figure is 7.9 percent and in China the rate is 1.6 percent.
It will probably level off at some point, he added, with some experts guessing that the figure will grow to between 15 and 20 percent.

·         Urbanization and resurgence of urban population growth
In the U. S. the lack of new development in recent years as a response to the Great Recession prompted more urban infill and the suburban regeneration of existing assets.  Mixed-use developments that combine, residential , retail and commercial, are popular.

·         Food
“The importance of food in retail settings has jumped dramatically,” he says.
Today, in a one million-square-foot project, developers are devoting about 30 to 40 percent of the space to food and food-related retailers, such as restaurants, bars and grocery stores, Welanetz noted. That compares to about five percent of the space in previous years.

Food trucks represent another big trend.  “In most major U. S. cities, food trucks have become a gourmet distribution point for ethnic goods.” 

Psychograpics
This is the science of matching up what consumers are thinking about and what they will respond to. “While customers all look the same, they don’t all act the same,” he said. ” … Relevance to the end user is the key question.”

·         Sustainability
“People want the context of their shopping centers to be real.”