Analytics, Direct Speech, EU – Baltic States, Latvia, Real Estate, Retail, USA
International Internet Magazine. Baltic States news & analytics
Wednesday, 24.04.2024, 19:14
The boom of the sharing economy, the smart strategy for retail and partnerships that amaze
Ann comes from a broad retail real estate and financial
markets advisory background with 20+ years of development and leasing
transactions experience worldwide. That includes developing multi-year asset
management strategy for a 6.4 bn USD, 43-asset regional mall portfolio held as
a joint venture.
Ann agreed for a brief interview with us ahead of her talk
at the BREL Forum on 8 November, which turned out to be even more interesting
than expected.
You have an extensive international experience, working
on projects from San Francisco to Puerto Rico and co-chairing the International
retail practice group in the U.S. for Colliers International. What are the
latest developments in retail you’ve observed; which retail segments are
booming right now?
Ann Natunewicz: Companies are producing a lot of
clothes as we’re continuing to buy them, but - because it's gotten relatively
less expensive to make clothes - clothing takes up a much smaller percentage of
our budget than it used to.
We’re spending a higher percentage on other things,
particularly cosmetics and beauty which are very, very hot right now globally,
and there are a lot of reasons for that. They’re available at a variety of
price points, which makes them like a small luxury - you can buy a tube of
lipstick or a new perfume and feel like you’re treating yourself without having
to exceed your budget. They’re also not dependent on body shape or your
size.
And - because the margins on cosmetics are relatively high -
international makeup, cosmetics and fragrance brands are increasingly more
comfortable going into other markets. Obviously, there’s always a risk, but
these days, there’s also more room to play with the margins.
A good example is MAC, which does very well all over the
world because they recognize different skin tones and have product available
for everyone.
We see a lot of Asian brands into the US, to the West Coast
and California, because they have a lot of customers here.
Aside from cosmetics, fitness is big, too, especially in the
US. We’re all living longer and want to be healthier.
And what about the retail sector - where do you see it
developing in the next 10, 15, 20 years?
A.N.: What’s happening globally is that there
are many places like China, India and other parts of the world that are
under-retailed, so to speak.
You also see development happening but there is scarce
supply of resources - of steel, concrete, etc. As a result, what we’re starting
to see here in the US, is a new focus on different materials. For example,
there was a multi-level apartment building built off the ground with wood,
which seems mind-blowing. Everything old is new again.
In the US, retail development has definitely slowed down
because we have too much of it as it is. I think in general, since the
financial crisis 10 years ago, lenders around the world are cautious about
approving new developments.
Many projects - not just in the US, but the UK, Canada,
Australia, and other places, as well - probably have more retail square footage
than they need, so retail is being repurposed in other types of uses, which I
can talk plenty more about in November.
In other parts of the world, given the rise in middle class,
especially in China, we can see more new developments.
People are using stores differently. The whole idea of what retail experience has changed.
I don’t see the number one purpose of the future
retail store to sell a product. It will be to allow a customer to engage with
the brand, to build loyalty and excitement about it, as some brands are already
doing.
That will be a way toward future sales. It will not be about
having a lot of inventory in the store. You may, but that won’t be
necessarily.
Interesting. So does that mean that the current trend of
stores becoming entertainment centers may not even be enough?
A.N.: Yes, and it also relates to building a
development project.
The reality is that most of the retailers anywhere in the
world are in the business to sell something. If you need to fill a mall with
tenants, you’re going to fill it up with tenants who sell things.
You have to therefore have a very clear vision of
where you’re going as a company, especially if you see yourself being around
20-25 years from now.
We can see that brands that have been around for longer are trying to figure
out where they want to take their brand next. They want to have smaller stores
because they need less inventory as they’re able to get their product to people
more easily via e-commerce.
The more futuristic tendency in the US is brands
placing customer loyalty at the core of their strategy because if you're loyal
to a brand you'll buy their merchandise - you will consume in a way that makes
the company profitable.
There’s an increasing investment in the brand, and how that
translates for each retailer is of course different. This is a trend that’s
going to be a big part of any project going forward.
For a developer it means that when you build a new project,
you need to be really honest about how much retail you think the project - the
area - can support.
This means not building a site saying ‘We’ll fill it
up’, but instead being precise about what the area can support and not going
above that.
It’s difficult, I know, because it makes the economics
harder for the developer to pencil.
It also means making sure that you're building a facility
where you can demise smaller spaces for retailers more easily because they may
eventually want less space, and that's not always a bad thing - if you have
less space for a tenant, you can accommodate more tenants.
Overall, the trend seems to be going back to the origins -
like the souqs or the Bazaar in Istanbul - with a vibrant tenant mix housed in
smaller spaces.
It’s important that the physical facility of a project can support that, which you can't ensure without thinking well ahead.
As we’re looking at these developments, what is the
impact Millennials and Generation Z have on the global retail market?
A.N.: Millennials are now in their mid-to-late thirties, moving
into their prime household formation years. There has been so much talk they’re
so different from their parents and the Baby Boomers; that they're doing
everything so differently, but what we’re actually finding is that they’re
still buying houses, having kids, and so on.
They’re getting married - granted, later than previous
generations, in part because they became adults during the recession and they
either came out of school with a lot of debt or were underemployed for a while.
They're also scared so they’re thinking about things differently.
Millennials, and especially Gen Z,
aren’t as interested in buying things.
Yes, they are buying houses, they’re moving to the suburbs, etc., but in general,
they’re not buying as much. They can afford less real estate because they don’t
have as much money; they’re also moving into smaller places, which obviously
makes you question how many things you have.
As a result, the sharing economy is very big here in the US, and it’s growing.
Some early examples are Uber and Airbnb, which are
also big in Europe.
Here in the US, there are many models for sharing clothing, whether resale or
rental clothing services, where you can have that freshness and newness of
buying something without having to own it. This is something that's becoming an
enormous business in the US.
Some of the US companies are now starting to look at the Western Europe to open
something similar.
That’s very interesting. The US has long been known for
its low prices on clothing, so it’s interesting to see rental and sharing
expanding as a trend there regardless.
A.N.: It is. This could easily be a separate discussion, but I’m
trying to stay on your questions. (laughs)
In general, Millennials and Gen Z are starting to become very aware of the
impact of their choices, so they don’t like to just buy things and then throw
them away - it’s like throwing money away.
Say you need a dress or a ball gown for a charity or other dressy occasion -
you’re not going to wear that dress more than once or twice, so why buy
it?
Many people are embracing this model of the sharing economy where they can have something new without shopping and packing their closet all the time.
Millennials are also very interested in customisation and personalisation - being marketed to directly - so much so, that they're willing to trade off some of their personal information and privacy in return for receiving a message tailored to them and their interests. They want to see the brand caring about them.
This is another new development we're seeing a lot of these
days. This goes hand in hand with the trend towards companies wanting their
consumers to engage with the brand, and it’s obviously working.
Gen Z wants to identify with brands. They're a little bit
more community focused, wishing to bring about a positive change.
They want interaction with a brand. They want to feel special, to be part of
a community of other people who are interacting with that brand.
Will they continue to have a strong impact on commercial real estate, as
well?
A.N.: I think it comes back to recognizing that
stores may want to modify their concept mid-lease in order to be able to
accommodate their new corporate vision. This means we have to think about the
physical space.
As a mall owner or its Head of Marketing, you need to understand that
your tenants will likely want ways outside of their premises to engage with
their clients, such as, in common areas, the mall’s marketing events,
promotions, through new partnerships, and so on.
This requires a certain flexibility within a shopping center; the landlord just
needs to be aware and open to that.
Sounds like ingredients for a smart retail development strategy…
A.N.: Yes. Brands will want to engage more - not
just with their customers, but also with the community, through philanthropy,
social projects, etc. If a developer or a shopping center owner can
offer that platform to their retailers - that's a competitive advantage.
It can be complicated and expensive to implement but once you have a certain
structure going, especially if you can leverage it across multiple shopping
centers in a region or in a portfolio, then you start to build a reputation
among tenants as the place to go - this developer, this owner is
innovative.
It is often the case that when a retailer develops its own project, that
project is driven by the anchor department, the anchor store or tenant who
wants to have a lot of control as they’re funding it. And they want to have it
all big, big, big, but this is the part where you have to take a step back and
say ‘We want this to be profitable’. You know who your customers are and how
much they will be spending realistically.
It's better to build a bit too small than to build too much square footage and
then have trouble leasing perennially, or leasing the last 10%, 15% of the shop
space, because that drags down the entire effort made, and the entire project
for everyone.
Essentially, it's about crunching the numbers upfront. I was a developer for 15
years, so I know that any developer would probably cringe hearing this.
However, the reality is that today in the US, we see a lot of developers
struggle trying to repurpose retail spaces that had not been thought of
carefully enough 10, 15, 20 years ago.
If you have control, you need to be smart about it upfront, design projects
that have more mixed use components in them. You might activate that side of
the project at different times of the day, with different types of customers
who are there for different reasons, and you spread the risk around, because at
any given time in the market, hotels might be doing great, but retail might be
struggling; or office is great and medical’s great, but hotels are
struggling.
Hence, if you create an active community place, you have more things
going on to keep it healthy.
I have plenty of data from the US and examples of how retail spaces are being
repurposed and the partnerships that are happening between brands you’d never
think of would be partners.
I don’t want to make you give away too much, but maybe
you can mention a few examples of partnerships and brands that are adapting
particularly well to the current changes in the market?
A.N.: If you look across innovation and customer-focused approach,
I think Zara is just amazing. They have probably the strongest
supply chain in the world. It’s impressive how quickly they can get a product
to the market and really engage with their customers. Now they’re talking of
sustainability initiatives that help them engage customers even further.
They’re a great brand.
Carrefour and Ikea are doing
great. In the US, Target (a kind of department store) is very
popular. They sell across many product categories - soft goods and hard goods,
but they've been trying to invigorate their fashion by having clothing capsules
from high end designers (one example is Missoni) installed in their
stores.
They design a selection of limited edition products to be
placed in Target, build up excitement and then they drop them
in the store. Everybody freaks out and goes and buys them. These products are
at lower prices than you would pay for a Missoni dress in a Harvey
Nichols, for example, but they still bear the same trademark and
logos.
Another interesting partnership here in the US is between Kohl’s,
which is a mid-market discounter - they’re all over the country, and Weight
Watchers, which is a global platform to help people lose weight.
Kohl’s is very interested in families, you can
find them in a lot of middle market areas around the United States, and Weight
Watchers of course wants to be in that sort of family-focused wellness
sector. So they’ve started co-branding and a concession together. Kohl’s lets
Weight Watchers have monthly meetings at their stores; they sell Weight
Watchers branded cooking equipment and other things like that in their
stores.
It’s interesting not just because these two brands have
found each other, but also because a concession model is not typical to the US
stores as it is in Japan, for instance, and to a certain extent, in Europe. The
US is now starting to play catch-up with Europe and Asia in this sense. They
have realized that it’s more profitable for a department store to get rental
money from concessionaires inside their store than by generating sales from
another product.
I think Lidl’s also doing very well. There
are plenty of grocery stores that have tried to come to the US or someplace
else and have not done well. It’s a low margin business. For Lidl to
have taken the risk of coming to the United States grocery market, and
succeed... This is what sets them apart. The amount of research Lidl did
before coming to the US is phenomenal, and they’re seeing the results pay
off.
Alibaba in China is innovating in a huge way as far as
relationships with other brands go. They’re building platforms with brands that
are not purely retail - such as financial services, fulfilment.
They needed somebody on the financial services part to
facilitate transactions, the technology and other layers of the business. It’s
almost like Alibaba are outsourcing parts of their business to
companies that can help them do it better and allow them to stay focused on
retail.
I will come to Riga with many more examples like that. There’s so much going
on; it’s exciting.
And these partnerships work?
A.N.: Yes. They’re new - it’s been within the
past year or two - but so far, they have been successful.
Retail is ultimately a cyclical industry, and, to the extent
that retailers can find a partner that makes sense for them, it’s useful to
partner with somebody in a different part of the economy like Kohl’s and Weight
Watchers do. It benefits both brands and in a way also insulates them
a little from some things that are coming down the pipe.