Originally published by California Centers magazine, September 2017
We all know the retail industry is in a significant state of flux. A new generation is influencing trends. Tried-and-true companies that have been around for decades are biting the dust while unique concepts emerge. The ability to connect with brands, experiences and each other has now become a social currency that shopping centers must accept. And technology is changing the marketing, point of sale and delivery mechanisms of merchandise the world over.
The issue many in the retail world are now facing is whether the implementation of these concepts lies squarely on the shoulders of landlords and tenants — or whether they are larger issues affecting us all. A few commercial real estate firms have found that these are, in fact, issues that impact the industry as a whole and, therefore, must be addressed at all points along the retail experience platform.
The new era of retail is back-end fulfillment networks meet front-end brick-and-mortar stores. It’s online shopping meets shopping centers. It’s industrial meets retail. All rolled into one? It’s omnichannel. And it’s the wave of the future, according to global firms like CBRE and Cushman & Wakefield. These firms believe so strongly in the omnichannel approach that they have created niche groups dedicated to serving these exact needs.
For these firms, this begins by offering shopping center landlords and tenants a full-service approach that allows them to seamlessly move merchandise along the supply chain and into customers’ hands, regardless of where these consumers discovered, interacted with or purchased said merchandise. This encompasses advisory services within both the industrial realm — namely, warehouse, distribution and fulfillment, as well as those within the retail realm — namely, marketing, display, point of sale and delivery.
“CBRE has offered advisory services both for retailers and for logistics companies for many, many years,” explains Brandon Famous, retail leader for CBRE’s Americas division. “But we’ve heard noticeably more often in the past 18 months from retailers who need a single, multi-disciplinary advisor to help them manage the combined growth of their store networks and their e-commerce fulfillment networks.” The firm’s response to this new need was to create an omnichannel real estate practice this past July that will coordinate its end-to-end work for clients that straddle the converging retail and industrial and logistics sectors.
“This all is rooted in what we and many others call the ‘experience economy,’” Famous continues. “More than ever, consumers are putting a high value on companies that provide a rewarding, seamless experience across all channels, including in-store, online and mobile. The retailers that best connect with consumers across all of those channels and provide the most compelling experiences are the ones that will win in the omnichannel marketplace.”
Cushman & Wakefield took a similar approach as it set out to tackle the supply chain challenges that can occur on the industrial side, retail side and all points in between. The firm announced its new group, new Commerce, this past July with the goal being to bridge the gap between omnichannel shopping, back-end supply chain functions and bricks-and-mortar experiential retail. David Gorelick, head of Cushman & Wakefield’s retail services for the Americas, feels this is the right time to focus on the retail-industrial marriage as the consumer experience has moved not from stores to online, or online to stores, but to stores and online.
“Where a sale is made no longer matters,” he notes. “Today’s customers want their shopping experience to be efficient and consistent, regardless of where they shop and how they ultimately make a purchase. The combination of real-time inventory and effective customer service is imperative to attract, satisfy and retain their loyalty. Now more than ever, retail professionals need to make cost-effective, innovative business decisions and craft smart strategies that take advantage of the unique overlap between the retail, industrial, logistics and e-commerce sectors.”
One of the largest drivers in this shifting retail landscape is the change in delivery models, according to Jeff Badstubner, senior vice president in JLL’s San Francisco retail practice. As the borders between ecommerce and brick and mortar continue to blur, so, too, have the methods of payment and delivery.
“With the rise of e-commerce and consumers gravitating to more of a ‘delivery culture,’ greater emphasis has been placed on the last-mile fulfillment side of retail logistics, and that’s where the true symbiosis between the industrial and retail sectors is today,” he says. “It’s not just about getting product out of the warehouse and into the retail store anymore — that’s just one leg of the journey. It’s also about getting that purchased product to the consumer’s office or front door. That’s a leg of the journey that many retailers are having to grapple with. Consumers are also demanding faster delivery, so that means retailers increasingly need fulfillment warehouses closer to their stores and closer to their major trade areas.”
Managing a customer’s service expectations, including delivery time and ease of payment, can be challenging, Gorelick notes. This is particularly true as an appreciation for technology and the lure of the urban core livework- play lifestyle has altered the tastes of Millennials and others.
“Service level and delivery expectations have increased dramatically over the past several years,” he explains. “That shift, coupled with changes in urban migration patterns, has had a dramatic impact on the expectations of retailers’ supply chains and the numbers, types and locations of buildings required to meet those requirements. And, in our incredibly tech-driven society — where smartphones and tablets allow customers to have near-instant gratification — it’s vital to address all points of the retail distribution and delivery network.”
When experts from the industrial and retail sectors work collaboratively, they’re able to successfully identify logical locations for warehouse and distribution centers that can accommodate that “last-mile” fulfillment part of the omnichannel equation. CBRE notes these center generally have to be situated within a few miles of the retailer’s majority consumer base for them to be effective.
“Determining the ideal location and facility for that last-touch function is an intricate decision involving considerations around transportation costs, customer traffic patterns and buying behavior, warehouse-labor availability, inventory management and other factors,” Famous says.
Today’s retailers are also laser focused on opening the appropriate amount of stores in the appropriate locations, rather than the previous approach of opening as many stores as possible.
“A true omnichannel retailer will meticulously select key locations for stores within a certain radius of big populations that contain their target demographic, often through the use of data-analytics tools provided by firms like us,” Famous continues.
“Those stores then are positioned not just as transaction centers, but also as showrooms that highlight the retailer’s brand and merchandise to entice shoppers to visit again — either online or in person. In some cases, those stores can serve limited roles in filling and shipping e-commerce orders as well.”
Further highlighting this new union of retail and industrial is the fact that many retailers are now creating a much more sophisticated back-of-the house operation that can tackle some degree of its warehousing, fulfillment and shipping needs.
“That back-of-house space used to just be a loading and short-term warehouse area for incoming inventory,” Badstubner says. “But now, it’s also become an area where online orders are filled, packaged and shipped. This requires more space, better access to loading and unloading, more employees and, in some cases, advanced technology.”
CUSTOMER, CONVENIENCE IS KING
Shorter fulfillment times, multiple delivery options and numerous shopping platforms are all being developed with one thought in mind: the customer. And that customer is judging her new purchase by more than just the physical item she received in exchange for her hard-earned money.
“Customers are demanding a shopping experience in which pricing, selection, service and customer approach are consistent across all platforms and regardless of how a sale is ultimately completed,” Gorelick notes. “They want a brand’s messaging to tell the same story and convey the same message across all channels, and they are requiring seamless integration of all aspects of retail — from experience to messaging, inventory and service.”
Shopping center landlords may look at this changing environment and assume this is a problem retailers should take up with their own brands and supply channels (not to mention brokers) — an issue that has nothing to do with them. Famous believes these landlords are incorrect.
“The biggest misconception for shopping center owners is that they don’t have much of a role in the omnichannel process,” he warns. “In fact, they play a big role. First, landlords are chiefly responsible for effective place-making. As retailers create compelling in-store environments, they also need engaging venues for their stores to operate in.”
This can encompass everything from the center’s mix of tenants to its architecture, public spaces and programming. That’s why retail acquisition, development, leasing and management firms like Pine Tree have created individuals and teams dedicated to all points that comprise the omnichannel platform. Graham Grochocinski, senior vice president of the firm’s brand, creative and omnichannel marketing initiatives, says it is these considerations that have made it more crucial than ever for landlords and tenants to work together.
“As consumers flock to certain stores out of either necessity, convenience
or for a unique experience, landlords are now taking steps to help tenants evolve with their digital marketing strategies and discover ways to help drive traffic to their respective centers,” he asserts. “Consumers want choice and a satisfying experience. With virtually everything you can buy in-store also available online, and often with a more efficient way to digest detailed information about any given product, the stand-out qualities in retail are mostly convenience, choice and uniqueness.”
Pine Tree is trying to facilitate this relationship with its own tenants through the development and dissemination of a welcome kit that is delivered with each newly signed lease. The kit includes a guide to digital marketing, complete with a full report on the latest trends in social media marketing and omnichannel strategies. The firm then interviews the retailer’s team and conducts an audit of its local marketing practices to see what, if anything, can be improved upon and how Pine Tree can enhance the store’s local business through omnichannel means.
This is the strategy in place at the firm’s Pine Creek shopping center, a 216,683-square-foot outpost in Grass Valley, about 60 miles northeast of Sacramento in the foothills of the Sierra Nevadas. Pine Tree crafted its select mix of retailers and restaurants by focusing on what the area — famous for its Gold Rush roots and remaining small town charm — needed and wanted. The center features 60,000-squarefoot anchor Raley’s and three national junior anchor tenants, including JC Penney, Petco and Dollar Tree. The roster is rounded out by both national and regional tenants like accessories maker Split Pea, Grass and Chantara Thai Restaurant, and much-needed area services like Hospice of the Foothills, McDonald Hearing Aid Center and Grass Valley Laundromat.
Crafting this tenant mix is only half the battle, however. Grochocinski and his team are then tasked with supporting these tenants and their businesses by partnering with them on their marketing and social media efforts. This ensures that the public is aware of the value each tenant brings to the area. It can also attract additional complementary tenants to the center. Grass Valley’s population is less than 13,000, but Pine Creek shopping center is approaching 700 “likes” on Facebook. This platform and others like it allow the firm to remind residents that Little Caesars is the perfect dinner pick-up on their drive home. Or that Hospice of the Foothills offers ample volunteer opportunities.
Pine Creek also partners with tenants to create and cross-promote curated events, such as the Seafood Roadshow Raley’s hosted in mid-August, or the Jammin’ at Pine Creek summer concert that included a string quartet and a Jamba Juice stand that raised money for a local animal shelter. The firm also offers Wifi at some of its centers, which can capture basic consumer data and contact lists that may be beneficial to Pine Creek’s tenants.
Grochocinski believes this is just the beginning of the new landlord-tenant partnership — one that will be crucial to all parties involved at various stages within the brick and mortar game.
“It may sound obvious, but the first challenge is getting landlords to acknowledge the changing retail environment and see how they can adjust their shopping centers’ marketing strategies to correspond with these new digitally integrated omnichannel experiences,” he says. “Shopping center landlords have not had much experience with traffic-driven programs and partnerships with their retail tenants. That is slowly changing.”
Famous also believes today’s successful landlords will have to accept the level of change and flexibility required of retailers if they are to remain as nimble, convenient and cooperative to the consumer as possible. This means fostering growth in all areas of the business, including online, mobile apps, extended warehouse and distribution space and buy online, pick up in store models.
“Owners will need to accommodate the changes their retailers must make,” he says. “This means allowing retailers to adapt to trends and changes in consumer tastes. These companies really are pushing traditional brick-and-mortar players to focus on store experience.”
For landlords, this could mean shorter lease terms or tenant improvements that can be quickly executed at minimal costs. It could also turn some retail stores into showrooms as consumers opt to interact with items before buying online. This, in turn, could translate into less stock on hand and a more curated, visually pleasing display that can be experienced in a warm, welcoming in-store environment.
Changes to the physical store, point of sale and delivery method can also blur the lines regarding where the sale was made. Famous believes this may lead landlords to reconsider lease negotiations based solely on a store’s sales figures and traffic counts.
“Many companies, including some online players, are really pushing traditional brick-and-mortar locations to focus on store experience,” he explains. “They can be much more focused on providing spaces to experience the products rather than just a venue for purchasing them. In that sense, they devote less space to inventory and more to experience, with the ultimate goal of creating a seamless experience regardless of the channel.”
This is a term Grochocinski calls “channel-agnostic.”
“Landlords would be wise to study the channel-agnostic strategy that omnichannel marketing represents,” he says. “They can begin by helping to promote the center and its tenants as a part of the shopping journey, but realizing that this is not the only part of the journey. The key to a successful omnichannel marketing program is realizing that sales channels are now a thing of the past in a consumer’s eye. It makes no difference to them if they bought the product online, in-store or through any combination of multiple channels through their own research — they just see themselves as interacting with the brand.”
Those who haven’t wised up to it yet, or who have yet to connect the dots between fulfillment, distribution and in-store retail, needn’t panic. It’s precisely these needs that have inspired CBRE, Cushman & Wakefield and other firms to evolve their own businesses in the hopes of evolving those of the shopping center owners and tenants.
“Today’s consumers want perfection in the form of both flawless execution of online orders and memorable in-store environments,” Famous says. “And they want it immediately. Retailers’ e-commerce execution must be fast, and their in-store experiences must be fully conceived and implemented. To achieve this, a retailer’s real estate must be perfect. The way to best serve retailers who are striving to build an interwoven, omnichannel network of real estate and services is to assemble a team capable of advising them on any need for their omnichannel growth. We find that retailers prefer to work with a single service provider that can offer the broadest suite of advisory services that result in turnkey solutions during this challenging transformation.”
The transformation may be challenging, but these firms strongly believe the multi-disciplinary efforts will be worth it as we stand on the cusp of an exciting world where everything is literally at our fingertips.