LOS ANGELES—What were once shopping mall anchors have now decayed to nothing more than antiquated big box shells. Retail behemoths like Toys “R” US and Payless ShoeSource have already filed for Chapter 11 bankruptcy protection, with Payless closing over 400 stores. JCPenney shut its doors to 138 stores in 2017 with Macy’s, Kmart, and Sears not far behind. Credit Suisse released a report stating 25% of shopping centers in America are going to shut down in the next five years. Let’s not forget, according to the Bureau of Labor Statistics, one in 10 Americans work in the retail sector. These brick and mortar store closures could result in up to one billion square feet of empty retail space across the nation, which means the same landlords who used to hold all the power are now scrambling to fill these vacancies.
Coming into Q2, control has shifted to the tech savvy brands in pursuit of retail, capitalizing on these diminishing lease rates. The smart money is repositioning archaic retail concepts as new cultural anchors. We are seeing e-tailers like Amazon, Zappos, Google, Warby Parker, Bonobos, and Lesara use the agile retail business model (i.e. big data) to track consumer metrics. They are then using those analytics to calculatively open physical locations near their last mile distribution facilities in order to reach their customer more efficiently and cost effectively. With time being the new currency, companies are creatively offering personalized interactions (perhaps a second of “ah ha”).
Amazon recently partnered with Calvin Klein to open a pop-up store in Santa Monica, equipped with cutting edge Amazon technology and bustling with seamstresses embroidering each piece. Parachute Bedding and Bath Company occupies a storefront in Venice Beach where their loft serves as a bedroom/showroom, outfitted with Parachute products for guests to sample and slumber on. National Geographic Encounter opened their doors in Times Square, providing visitors with a unique virtual experience through Earth’s oceans, jungles, deserts, and even outer space. With these new concepts proliferating across the States, hopes are that people will share their experience with friends and family via word of mouth and social media. These companies want to build a longer lasting relationship with each person to ensure brand loyalty and customer retention.
In the past, the stock market and investor relations community would admonish developers if they used terms like “experimentation” because it was deemed an unquantifiable concept and veered from the (now outdated) shopping center model. The once favored “bigger is better” retail giants are now giving way to thriving e-commerce brands willing to bring more value to the brick-and-mortar experience. The real winners will be brands that represent local culture (i.e. hosting performances, culinary events, and rotating art galleries). These lean, swift retailers will take back what they lost from those deep-pocketed, big-box brands by personalizing their service, carefully curating their goods, and creating a reason for people to get off the couch and actually come into a store. 2018 has already been and will continue to be one of the most pivotal years in this transformation, so we are excited to be at the forefront of the retail sector for both landlord and tenant representation here in Los Angeles.
Viktor Simco is a former professional athlete turned commercial real estate agent at Commercial Brokers International based in Los Angeles. The views expressed are those of the author and not ALM Real Estate Media.