SPECS-ulation About the Future of Retail Real Estate

I recently attended Chain Store Age’s 49th annual Store Planning, Equipment, Construction and Facilities Services Seminars (SPECS) in Dallas, Texas. While SPECS always gives me plenty to think about, this year was especially interesting thanks to the debut of a new segment on Real Estate Development. In addition to other workshop “tracks” like Facilities, Business Strategies, and Planning & Design, the inclusion of Real Estate Development to the mix really brought new (and important) perspectives.



Aimed at “retailers and developers who deal with site-selection, leasing, portfolio optimization and buildout challenges”, the workshops dealt with a wide range of subjects impacting retail real estate development, including changes in size and format, shopping habits and patterns, and other emerging issues. Though I didn’t attend every session, I did notice a few clear trends that continued to come up again and again throughout the conference and will be, in my mind, among the most relevant and resonant for retail in the years ahead:



Optimizing brick-and-mortar portfolios

Given the strengthening of online and mobile shopping, it’s increasingly evident that optimizing brick-and-mortar portfolios is a higher priority than ever for retailers. It begins with knowing the number of supportable retail stores and knowing the optimal size that your box should be. With the increase in online shopping, the amount of square footage needed for most retailers is shrinking. But there is another piece to this puzzle, and I was glad to see it addressed. You can’t optimize a portfolio without really understanding where and why customers are shopping, and where, why and how the breakdown between online shopping, mobile retailing, and traditional brick-and-mortar shopping is taking place. The other issue that deserves more consideration is how the question of store numbers (chain size) versus prototype size (store size) will play out. Because smaller formats allow retailers to move into different spaces in different markets, store downsizing may facilitate some repositioning and might actually (and counter intuitively) result in more locations.



The importance of mixed use

There was plenty of discussion at SPECS about the central role of mixed-use development, and about how it seems likely to be the genesis of the retail developments of the future — both for new builds or renovation/redevelopment projects. I think the growing popularity of mixed use among retail developers (who, with some obvious exceptions, have generally been a bit gun-shy in taking on mixed-use projects) is an acknowledgement of the fact that density adds value, and that mixed-use unlocks the full potential value of a piece of real estate. I see this as a slow awakening on the part of retail developers, but I also believe it will continue to pick up steam in the years ahead. It’s a way to “build in” demand components that support the retail, and, from a retailer’s perspective, that on-site market is enormously attractive. When the list of potential shoppers features more than just trade area residents and includes on-site residents, on-site workers, or hotel/lodging guests that can be a difference-maker. I wouldn’t be surprised if developers are starting to come around largely because demand is beginning to outstrip supply and developers are feeling the pressure from retailers.



Urban redevelopment is here to stay

There’s no doubt that urban development isn’t going anywhere, and urban environments are likely to remain a key retail development focus in the years ahead. At the same time, however, those environments also pose their own challenges. This dichotomy of opportunities and challenges was a frequent point of discussion during a SPECS session I had the privilege of hosting, titled Smaller Stores, Bigger Markets: Advantages and Obstacles to Urban Growth. Representatives from Starbucks, The Container Store and Chipotle were on hand to discuss urban development, and what I found particularly interesting was how (despite some brand- and sector-specific differences) their thoughts seemed to be generally in sync. The disadvantages tended to be of a logistical nature — issues with store design, store size, parking, etc. — while the advantages boiled down to one thing: customers. It’s clear to me that the attraction of tremendous density and the appeal of an established population (and not a projected customer base or the assumption of residential/population growth) almost always outweigh the compromises and inconveniences of urban retail.



Of course, these three issues aren’t the only important features on the evolving retail development landscape, but SPECS did a great job highlighting the role they will play in the years ahead.



What were your big takeaways from SPECS 2013? Will smaller store footprints pave the way for expansion? Will retail developers embrace the idea of mixed use properties? Comment below to join the conversation, or email me directly at [email protected].

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