How Are Retailers Adapting to Density?

LOS ANGELES—Density is coming to Los Angeles. The once sprawling city is seeing vertical development and mixed-use complexes that other cities have had for years. In response, retailers are opening up multiple locations in a single submarket to increase market share and control the path of travel. Many of these stores are less than a mile apart from each other and are fully stocked and fully operational outlets. It is a trend Lee Shapiro, the EVP of brokerage at Kennedy Wilson is seeing more and more. He says that clients are frequently asking for second or third locations in a submarket where they already have a presence. To find out more, we sat down with him for an exclusive interview. Here he was he tells us about this new retail strategy.

GlobeSt.com: Tell me about this new retail strategy in Los Angeles where retailers are opening multiple locations in a single, dense submarket.

Lee Shapiro: In Los Angeles, we are seeing the proliferation of the urban infill mixed-use projects being built, as everyone kind of knows now. All through different submarkets all the way up through Canada, we are seeing an increase in land costs, which is creating more vertical development. It has really kind of called for a change in the dynamics of retailers who are now moving into and seeking out well-designed mixed-use projects. A lot of these projects are in highly desired areas right outside of the urban markets, but the newer product is now moving into more urban markets. A good example of that is Santa Monica and into Downtown Los Angeles, where you are seeing a tremendous amount of growth. We are seeing a lot of tenants now that want to have multiple locations within one submarket to saturate the submarket early on in the development cycle.

GlobeSt.com: What is the benefit of this strategy?

Shapiro: They can literally have the choice of the best corners and they can control the path of travel. They can understand where their customer is going to be living and where they are going to be leaving their buildings, and understand those ingress and egress points. The best-in-class retailers, the ones with forward thinking, are gravitating towards having multiple locations in the same submarket. In West L.A., for example, there is no one main corridor. There are multiple paths of travel. A brand that has a store on Wilshire Blvd. may also acquire a store on Pico or Olympic. Even though it is close, it is a different path of travel and will capture a different segment of the marketplace. 

GlobeSt.com: Are these locations full-fledged, fully stocked stores, or are these smaller locations?

Shapiro: Typically, they are full-fledges stores. Some brands, like a Walgreens, for example, will take a variation of sizing based on the availability in the submarket itself. In Los Angeles alone, the Walgreens has done a flagship store at Sunset and Vine, which is almost 25,000 square feet, and they have done Walgreens pharmacy that is a very small store at the corner of Santa Monica and La Cienega. So, Walgreens has shown that they have been very nimble on their sizing and they will be able to capture market share.

GlobeSt.com: Is there enough demand to justify opening so many locations within a single submarket?

Shapiro: If you can extend your brand throughout multiple submarkets throughout the city, yes. Traditionally retailers would have standard sizes; that was their model. Retailers would try to get a single store to capture a large area and would space those stores several miles apart. Once the area is already established with larger stores, if a store wants to continue to expand its brand for additional market share, they will open infill stores between the existing anchor stores. This is specific to urban markets because they are more densely populated in travel.

GlobeSt.com: What are retailers looking for in a second or third location within a submarket?

Shapiro: They are typically looking for ease of access to the store and visibility for the store as well, vehicularly as well as pedestrian travel. In the urban model, they are looking for the density of residential and the number of units that is being built or that will be built in a particular submarket, as well as the daytime population. Those are all major factors. L.A. hasn't seen the same trends as Manhattan yet, where there is the same retailer on opposite side of the same building. That is very rare here, but based on the density of growth that we are seeing in mixed-use, I am now seeing several of the more prominent tenants approach us with the idea of operating a store a block or two blocks apart in the same submarket.

GlobeSt.com: Is this inherent when a city grows in density?

Shapiro: Yes, the amount of density and the fact that you have to go vertical to build often that you are creating a great opportunity for retail sales. This isn't new. This is new for us in L.A. I think the cost of real estate in Los Angeles compared to other major markets, is considered to be very in expensive.