By Western Business Real Estate, May 22, 2012
RETAILERS REALLY ARE LOOKING ‘OUTSIDE THE BOX’ FOR OPPORTUNITIES
LAS VEGAS — While big box real estate certainly hasn’t vanished entirely, it’s clear some of its biggest players are employing a variety of different “out of the box” strategies to get deals done. With the popularity of online retailers and a fickle consumer base that can vary by region or even city, a number of companies are turning their attention away from the mega spaces to provide more personalized, intimate shopping experiences.
“We are facing unprecedented change in the retail landscape,” said Mike LaFerle, vice president of real estate construction for Home Depot and a panelist at Monday’s “Thinking Outside the Box” session at ICSC. “Customers buy when they want, and they want it quickly and they want to be guaranteed they’re getting the best product and the best pricing.”
This sentiment further bolsters the online arena, where consumers can easily compare prices and purchase products without leaving home. Panelists, including LaFerle, Carl Muller, vice president of real estate and design of Wal-Mart Stores, and Marci Troutman, founder and CEO of SiteMinis, were keenly aware the physical landscape was losing traction to companies that dealt primarily in the virtual arena.
“Five years ago, would you have ever have thought an online retailer would be one of your biggest competitors?” Troutman asked after LaFerle confirmed this was the case for Home Depot. Muller added that retailers must be flexible to remain competitive in today’s market. He pointed to Walmart’s concept stores, including Neighborhood Markets and Walmart Express, as examples. The company has opened 200 Neighborhood Markets so far nationwide, and aims to open 300 more during the next 2 to 3 years. It is currently operating a few Walmart Express test stores in select markets.
“Our strength is delivering 180,000-square-foot super center stores,” he said. “Now we’re going into urban and rural communities and it’s challenging to get those big trucks and deliveries in place.”
Logistics isn’t the only challenge retailers face when penetrating these markets, as John Clifford, a principal at Perkins Eastman, noted. “We have come full circle — our suburbs are over saturated,” he said. “The opportunity markets are now in cities, but it’s hard to go into a city center because these stores must operate almost as individual businesses. A store in Manhattan is going to be very different than a store in Queens.”
Clifford’s point was not lost on the panelists, who agreed bricks-and-mortar stores need to focus on the customer experience. This sometimes includes adapting a store’s traditional format to fit a city’s demographics.
Edward Hogan, national director of retail leasing for Brookfield Office Properties, knows this well. His company recently partnered with Target to launch one of the first five City Targets in the recently redeveloped Figat7th, a 330,000-square-foot shopping center in Downtown Los Angeles. Hogan noted Target typically utilizes 150,000 square feet. However, in order to penetrate this urban area the two companies worked together to successfully integrate a smaller 90,000-square-foot format into the open-air dining and retail center. This included ripping out some older space to accommodate the retailer’s distribution needs.
“What they saw in our project was that we were trying to create something unique to Los Angeles, something unique to the urban experience,” he said. “Retailers are getting smarter and smarter as they figure out how they can achieve the same success in less space.” The new City Target will open in October. It will co-anchor Figat7th along with a sporting goods store that is expected to occupy 28,000 square feet.
The panel was moderated by Kate Peterson, ICSC Southern Division Retail Chair and senior real estate manager at Home Depot, and Andrew T. Stein, a principal at Clark Street Development.