SANTA BARBARA, CA–Clarice Clarke sees a lot of irony in the current retail real estate dynamic. “When Amazon was starting in the book business,” the president of Lee & Associates Central Coast explains, “there were some powerful big-box, category-killer retailers in that space. Amazon came along and gave them some meaningful competition.” Meaningful to the point that most are shuttered today.
But here’s the ironic part. “They vanished and cleared the path for Amazon to enter the brick-and-mortar bookstore business,” says Clarke, who is headquartered in Santa Barbara. But the 800-pound online gorilla did so in a very different way, having already collected a trove of data on you–on how you shop and what you want. As a result, stores are no longer pacing out to the 30,000 and 40,000 square feet they once did, but rather are coming in at a more bite-sized 5,000 feet.
And while Amazon itself has not made it to her specific market yet (other than its Whole Foods brand, which is another story of Amazon redefining retail), it’s coming closer. Bookstores are opening around California, with the recently opened Amazon in Walnut Creek as just one example.
What is showing in her local market is the change in retail fundamentals. “The local retail vacancy rate has increased from 2.5% in Q3 2016 to 6.08% a year later,” she reports. “Many mom-and-pop stores have struggled and closed, and the downtown Macy’s, which is about 150,000 square feet, closed earlier this year.” Others are following, such as the 47,000-square-foot Saks Off Fifth that’s due to close in March of next year.
But it should be noted that such closings don’t equate to Santa Barbara as a retail ghost town. Far From it. “Retail is thriving in other Santa Barbara areas,” Clarke says, “including the waterfront, Montecito and the ‘Funk Zone.’ ” That last is a revitalized enclave by the local Amtrak station that caters to what its website calls the city’s “contemporary side,” with galleries, coffee houses, shops and “boutique tasting rooms.”
And so, Clarke indicates that the future of retail belongs as much to independent start-ups as it does to Amazon. They too are utilizing marketing tools that were only pipedreams a few years ago, tools such as artificial intelligence, virtual reality and big data, to “create a more effective sales experience.”
She cites a local group of entrepreneurs who are creating a “micro-brewery combined with a high-end but casual food component. They’re two separate businesses under one roof, and the concept is thriving and hip. They know how their millennial target audience wants to spend their time and money because they’re using technology to gauge their needs as well as to put the word out and bring people in.”
And despite the woes of Macy’s or Saks, there’s still room for traditional names who think ahead. Nordstrom is a brand that goes back more than a century, and yet, they “started a store that has very little inventory,” she says. “It’s a small-format store with selected items tailored for a particular geographic area, and customers can come and browse, expand the choices through virtual reality and the product is delivered to their houses. They’ve done very well integrating the internet, new tools and traditional formats to create a viable brick-and-mortar presence.”
Big data is, not surprisingly, a big factor in that dynamic. And that, of course, brings us back to Amazon. But is it a good thing?
“Big data is a very powerful and disruptive component of retail today,” she says. “After years of headcounting, retailers now have enormous amounts of data points relating to what people like to do and how they like to purchase. Amazon can put books out in a smaller-format store, get real-time data on what’s working and what’s not and change it up on the fly, much more quickly than the old format brick-and-mortar stores could.”
But browser beware, she adds. The new, targeted merchandising isn’t necessarily a friend of the impulse sale.
And building owners, who Clarke says are scrambling to accommodate new retail models, should be aware as well. “Retail property owners have to understand what’s happening,” she cautions. “You can’t be slow to change or embrace different demands for space. Owners need to understand what those retailers will require in terms of landlord contributions and interior improvements if they want their buildings to be more attractive to the new breed of brick-and-mortar retailers.”
Partnering here, of course, is key. “They need their advisors, their brokers, to tell them who else is out there and what they need so they can position their real estate to attract those tenants.”