Phoenix retail landlords have begun to eschew national chain brands in favor of local mom-and-pop retailers. There has been a retail evolution this cycle as the popularity of ecommerce has created demand for unique brick-and-mortar concepts. It is a trend that has become commonplace in major markets, but the need for boutique retail concepts in secondary markets like Phoenix shows the ubiquity of experiential retail. Landlords are starting to see local retailers as a way to drive traffic and sales growth.

“Over the course of the last 15 years there has been a homogenization of retail chain stores expanding from coast to coast, and as a result a majority of the shopping centers tended to look the same across America,” Jenny Cushing, VP of leasing at Vestar, tells GlobeSt.com. Millennials, who are now driving retail sales and who grew up with that offering, have developed an appetite for something more varied and unique.  Local tenants offer a flavor and specialization that chain stores cannot replicate and it's the individual expression these operators provide that are driving traffic to our centers.  This is validated by the fact that we are seeing higher sales volumes from local restaurateurs than the chains.

Generally, the benefit of larger chains is better credit and stability; however, today that is changing. Still, there it is important to properly vet smaller retailers. “In today's retail environment and with the ever-changing economic turbulence these chains are facing, it's a delicate balance,” adds Cushing. “We carefully underwrite each tenant looking at their business acumen, financial wherewithal and creditworthiness. This process is the same for a 2,500-square-foot tenant as it is for a 25,000-square-foot tenant.  Assumptions are no longer made on the viability of their success and one cannot rely simply on the reputation of a retailer, big or small.  It continues to be one of the many challenges a landlord faces today.”

While there is a preference toward local retailers, a mix of both local and national tenants is important, both for stability and in underwriting the asset. “If you tried to build a project entirely with local tenants, it would be significantly challenging to obtain any sort of financing,” says Cushing. “However, if you could take an existing stabilized asset like Desert Ridge, which we opened 15 years ago with all national tenants, and remerchandised with a mix of local tenants, it becomes less of a challenge. We have the benefit of the roster still being over 90% national with some of the highest sales volumes in the state.  We can afford to augment the lineup with unique best in class local retailers and as a result have been able to create a very unique hybrid destination that any Lender would be willing to finance today.”

On the other hand, it all depends on the property acquisition details. “We have a 1.4 million-square-foot project in Salt Lake City called The Gateway that we bought on such a favorable basis, it give us the ultimate flexibility to merchandise how we see fit,” explains Cushing. “In that instance we are choosing to lean more towards the local and experiential retail versus the nationals due to the unique nature and location of the asset.”

A local tenant mix isn't the only way to drive traffic and a successful center. Community events also play an integral role in providing an experiential center. “While other landlords are choosing to cut back on their marketing programs, we have allocated more of our resources towards these initiatives,” says Cushing. “Most of our large-scale assets, including Desert Ridge, host up to 300 events free to the public including live music and entertainment, local art muralists, charity work and festivals.  A vast majority of these events are in conjunction with our local retailers and are intended to create a sense of place and community gathering, all while increasing sales throughout the centers.”