Retailers in control at RECon
For retail professionals, the International Council of Shopping Centers’ Spring RECon Convention in Las Vegas is the highlight of the year. There’s always so much to take in, and every year comes with its singular storylines. Here were some of the more dramatic ones at play convention floor:
Food-focused foot traffic
The overall volume of traffic seemed light to me, and I can’t help wondering if the 37,000 attendance figure cited by ICSC is a realistic one. What seemed more interesting than the raw numbers, however, was the distribution: not so much how many folks were there, but where they were. To some extent, the ebb and flow in the world of brick-and-mortar retail can be reflected (or even perhaps predicted by) shifting traffic patterns at RECon. The fact that the foodservice section of the exhibit hall was by far the busiest is very interesting. Given that restaurants represent the fastest-growing segment of the retail marketplace, it might not seem too surprising. Still, I was still impressed by the sheer volume of people there getting deals done. Restaurants seemed to have an abundance of open-to-buy opportunities.
Mixed-use is still a hot topic
Mixed-use development isn’t going anywhere. No matter which REIT or development company you visited at the conference, all seemed to have joint ventures going with hotel and residential developers. I still find it remarkable how many residential and hotel developers are now attending the industry’s premier retail conference. Their presence affirms (or reaffirms) the degree to which they have become part of the retail equation.
Leasing dynamics have shifted
We have gone through periods in the not-too-distant past where a lack of quality retail space meant that rental rates were on the rise and landlords had more control. Today, it’s clear that the supply-and-demand curve has flipped, and that dynamic was clearly evident in Vegas. With retailers cutting back on new stores, there is less demand on the retail side and more demand on the development side. Plenty of space is available in most markets, and retailers have the control in the shopping center leasing arena. Right now, the developer needs the tenant more than the tenant needs the developer, which is resulting in lower rental rates and more favorable terms for retailers.
A (surprisingly?) upbeat mood
Given some of the underlying currents of uncertainty (underwhelming sales numbers, high vacancy rates in some markets, high-profile store closings) the overall mood at the event was more positive than I had expected it to be. Brick-and-mortar retail is not expanding very much at the moment, and the industry is going through some significant structural transitions, which could result in turbulence and uncertainty for years to come. This makes me wonder why investors (more specifically, private equity firms) still seem so eager to invest in retail in the current climate. I don’t want to overstate the issue. The current challenges in the retail marketplace are certainly nothing like 2008-2009, when retail wasn’t expanding at all. No, today’ challenges are not driven by the economy, but by structural shifts in consumer expectations and changing patterns in how people shop. While we might not be in a recession, these changes are possibly a much bigger long-term issue for the industry. They raise worrisome questions about what will happen when another economic downturn comes around. The industry simply cannot absorb that kind of a hit right now – not without significant damage.
Experiential
The passion for experiential retail was everywhere at this year’s RECon convention. I was especially fascinated by the extent to which traditional ideas about what constitutes “experiential” seem to be expanding. Retailers are really coming around to the notion that experiential isn’t limited to the experience of the consumer while they are in the store, but to everything about how the store is set up as well as the retail transaction. A great example is Restoration Hardware, which now has no back room and no stock. Even if you want to buy a towel, they type your order into an iPad and it’s sent to you directly. That kind of showrooming seems to be a big trend. It’s been expanding for years, but it was really on display this year in Vegas.
The customer experience mandate also raises big questions, and I’m troubled that the industry may not have fully thought the answers through. For example, what does showrooming – and the blurring of lines between brick-and-mortar and online sales – mean for calculating and classifying sales and other sales-based numbers? The discussion doesn’t seem to be changing as quickly as it should, and retail professionals need to be searching for answers and pondering the implications for their brands and businesses. I suspect we’ll be hearing much more about these issues in future RECon conventions!
Jeff Green, President and CEO of Jeff Green Partners, provides analytical and interpretive services for retailers, property owners, developers, and municipalities. He can be contacted at [email protected].