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Disruption:US Retail in the Age of Amazon

ICSC Chicago

Retail Real Estate Program & P3 Program

March 22, 2018

Garrick H. Brown

Vice President, Retail Intelligence

[email protected]

Amazon Innovations

Recent Patents Issued to Amazon

Will Amazon really build flying

warehouses, parachute

delivery systems for drone

package drops or self-defense

systems for drones?

Is it real?

Or just great PR?

Does it matter?

Amazon Patents

Source: Cushman & Wakefield Research

The Store of Tomorrow?

Welcome to Amazon Go

Amazon Go opened in Seattle

in January 2018, roughly a

year later than originally

planned as engineers worked

out issues in the technology.

BingoBox has been active with

a similar technology in China

for a couple of years now.

Cashierless Stores


Beacon Technology

It’s only just begun…

Indoor Navigation

Proximity Marketing

Automatic Check-in

Cashierless Payment

Tracking Consumer

Movements

Beacon Uses


Beacon Technology +

Beacons connected to…

Iconeme

Mannequin has a beacon

inside. Mannequin (beacon)

detects consumer. Mannequin

notices consumer lingering.

Mannequin sends consumer

details about what he/she is

wearing.

Who You Talkin’ to Dummy?


Automated Pricing/Digital Price Tags

Kroger is testing it NOW.

Automated Pricing/Digital

Shelf Tags

Algorithms keep retailers

pricing competitive and take

human error out of the

equation.

The shelf tags can be

programmed to update prices

automatically based upon a

pre-determined timeframe.

Who You Talkin’ to Dummy?


Interactive Mirrors

It’s only just begun…

Interactive Mirrors

Interactive Fitting Rooms

Body Scanning

Interactivity

Uniqlo Magic Mirror

MAC Magic Mirror

Rebecca Minkoff

Magic Mirror

Kiepierre

Inspiration Corridor

(Body Scanning)


Customizable Clothes

Design it yourself, onsite manufacturing…

YRStore app already being

utilized by dozens of retailers

for simple, onsite

customizable clothing.

Consumers create their own

designs onscreen with user-

friendly, touchscreen.

Those designs are then

printed on t-shirts, etc.

Onsite 3-D printing and

textiles are coming.

Customizable Apparel


Other Visions of the Store of Tomorrow

Eye Pay: Retina Scan or Thumbprint

Retina or Thumbprint ID

“Husband Pods.” Pods where

you can relax, play video

games, watch television,

connect to the internet, etc.

Diversions for those who hate

shopping. Already in use in

China.

Credit scores based on your

smartphone number. Guess

what? Already in use in China.

Futurists Weigh In

Source: Jim Carroll, Doug Stephens, Money Magazine, Cushman & Wakefield Research

The Store of Tomorrow?

“Would you like fries with that? Bleep Blurp Blop

Automation will increasingly

be a reality for major fast food

chains.

Robots will increasingly be

utilized for the lowest level

customer service interactions

in retail categories.

They are not likely to replace

humans for quite some time in

higher level customer service

interactions.

Robots

Source: Techjuice, Cushman & Wakefield Research

Beacon Technology +

This actually exists today…

How Does it Work?

1. Beacon recognizes

consumer in store.

2. Retrieves shopper history

& likes.

3. Sends shopper text

coupon as they pass near

item.

4. Uses shopper’s mobile

phone to take picture of

shopper as they look at

promotional offer.

5. Facial recognition software

determines if shopper

pleased or not.

6. If not pleased, will send a

different coupon.

Realeyes


Why You Haven’t Seen These Things… Yet

Through November 2017

Source: eMarketer, Cushman & Wakefield Research

Convenient or Creepy?

Most of these technologies already

exist…

So why haven’t they been

implemented more widely?

Cost

Other Priorities

Fear of Being Creepy

But they will be part of the retail

landscape…

Sooner, rather than later…

0% 10% 20% 30% 40% 50% 60% 70%

Company's profitability model is based on standardizedassortments and store layouts

Business leaders are concerned about the "creepiness"factor in tracking

Need more proof around ROI/business case

Overreaching concerns about consumer privacyprevent us from even considering these types of…

Technology seems unproven, don't want to be the first

Business leadership can't see value of locationalanalytics beyond site selection

Other omnichannel priorities take this off the table

Leading Organizational Barriers to Using Location-Based Analytics, According to US Retailers (November 2017)

Ask Alexa: 2018 is the Year of Voice

Virtual assistants are listening devices… sort of

Virtual assistants are live 24/7

listening devices. All current

systems needs to be activated

by your command (“Hey

Google” before contacting the

cloud. Twenty years ago, how

would you have responded to

the idea of putting a listening

device in your home for the

sake of convenience.

Fun Stuff:

Ask Alexa…

What Gordon Ramsay thinks of your

cooking?

Where Chuck Norris is?

Do you want to go on a date?

What’s the magic word?

Can you give me some money? (ask twice)

Do you have a job?

Say: More cowbell!

Convenience Overcomes Creepy


Proceed with Caution

The “personalized” experience could cross the line

Enhancing the consumer

experience is critical in the

newCommerce Age...

There are easier ways to do it,

than through the unauthorized

mass collection of their most

personal information.

Use of invasive technologies

could backfire: damaging or

even destroying brands.

Let the consumer choose the

level of personalization that

they are comfortable with.

Don’t Curate Creepiness


The kinds of data mining that

consumers currently accept on their

computers and devices may be due,

in large part, due to a lack of

awareness or simply different

situational norms for cyberspace.

Similar tactics employed in physical

space, especially if executed poorly,

might result in strong negative

reactions from consumers that feel

their privacy is being violated.

Privacy concerns will increasingly

become an issue with Big Data.

What is Happening with American Retail?

Don’t you know there a “retail apocalypse” under way?


There are real challenges, but the

perception is becoming worse than

the reality.

Unfortunately those perceptions

will contribute to the reality by

harming healthier retailer and REIT

values.

Bloomberg launched an online interactive game in February 2018 where the goal

is to save a dying mall.

The Mainstreaming of Doom

So Why the Gloom?

Is US retail really doomed?


Consumer Confidence

February reading of 130.8 was

the highest in 17 years!

Retail Rebound Underway?

Recent positive developments…


All of these will help retailers

in 2018. But will these factors

help slow closures and

bankruptcies heading into

2018?

Positive Signs for Retail Real Estate?

1. Great underlying consumer fundamentals; will they improve in

2018?

• Unemployment

• Wage growth

• Consumer Confidence

2. Strongest holiday season since the Great Recession (+5.5%).

3. Trump tax cuts

• Corporate impact

• Consumer impact

4. Did a landlord action just slow a strategic closure (Simon v.

Starbucks)?

5. U.S. Supreme Court to review bid to collect internet sales tax.

Sales Up, But so are Closures…

Retail challenges are structural, not cyclical…

Source: TradingEconomics.com, US Bureau of Economic Analysis, Cushman & Wakefield Research

Outside of the 2009/2010 downturn

in consumer spending during the

Great Recession, consumer

spending has been consistently on

the rise, even as retail

bankruptcies and closures have

accelerated.

Consumer Spending vs. Major Chain Store Closures

$B

illion

12,000

11,500

11,000

10,500

10,000

9,500

$B

illion

2009 2011 2013 2015 2017

Structural Issues in Retail

What’s really driving today’s wave of consolidation?


All of these will help retailers

in 2018. But will these factors

help slow closures and

bankruptcies heading into

2018?

Recent positive signs are

helpful, but won’t save many

troubled retailers.

1. Over-retailed marketplace.

2. Acceleration of eCommerce.

3. Race to the Bottom Discounting (Rise of Off-Price)

• The rise of off-price, growth of dollar stores, discounters, etc.

4. Shifting Consumer Spending Patterns.

• Millennials spending less than previous generations.

• Millennials spending differently (experience over stuff).

eCommerce Acceleration

Will continue with new categories coming…

Source: Company filings, Department of Commerce, Cushman & Wakefield Research

Ramping Up 2018 & Beyond

eGroceries

ePharma

eFurniture

4.2%

12.0%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

% o

f Tota

l R

eta

il S

ale

s 9.3%

Amazon US Market Share

2017 Analysis

Source: Company filings, Department of Commerce, Cushman & Wakefield Research

Total eCommerce growth is

healthy, but always lagging

total Amazon growth.

Amazon still taking largest

share of a growing pie.

-15%

-5%

5%

15%

25%

35%

45%

55%

Q4 2

008

Q4 2

009

Q4 2

010

Q4 2

011

Q4 2

012

Q4 2

013

Q4 2

014

Q4 2

015

Q4 2

016

Q4 2

017

Total Retail Sales eCommerce Sales Amazon Sales


eCommerce to newCommerce

How online keeps evolving…

1995 - 2000 2001 - 2009 2010 - Present 2015 - Present

The Early Days

Desktop

Initial Launch of

eCommerce

Rise (and Fall)

of Early Players

Pure Play

Years

Desktop

Mobile

Post Tech Wreck Ramp

Up of New Pure Play

Internet eCommerce

Distribution Strategy:

Tax Advantages

over Speed

The Age of

Amazon

Desktop

Mobile

Tablets

Amazon Distribution

Strategy: Speed to

Consumer over Tax

Amazon Dominance

Retailers Rush to Build

eCommerce

Infrastructure

2017 - ?

Omnichannel

Age

Desktop

Mobile

Tablets

Amazon Dominance

Continues

Retailers Still Building

eCommerce

Infrastructure

Emergence of Bricks

to Clicks Movement

newCommerce

Age

Desktop

Mobile

Tablets

?

Seamless Integration

of Omnichannel (now

a GIVEN for Retail

Survival)

eGroceries

ePharma


eCommerce/Retail Real Estate

Disruption Meter as of Q1 2018

0.0 1.0 2.0 3.0 4.0 5.0

Cellular Stores & Cellular Repair

Car Audio

Cameras & Video Equipment

Bridal Shops

Book Stores

Boating & Boat Supplies

Bicycle Stores & Repair

Bars, Pubs & Nightclubs

Bakeries

Automotive Repair & Service

Auto Sales

Auto Parts

Arts & Crafts Stores

Art Galleries

*Apparel (Off-Price)

*Apparel (Mid-Price)

*Apparel (Luxury)

Amusement Concepts

Alcohol/Package Goods Stores

Retail Real Estate Disruption MeterCumulative eCommerce

Impact on Retail Real

Estate by Category: 2018

*Apparel includes all categories, as

well as accessories.

No/Minor Disruption

Modest Disruption

Disruption

Major Disruption

Devastating Impact




Cumulative eCommerce



No/Minor Disruption

Modest Disruption

Disruption

Major Disruption

Devastating Impact

0.0 1.0 2.0 3.0 4.0 5.0

Formalwear

Food Specialty Retail

Financial Services (Banking)

Financial Services (Lending/C.C.)

Financial Services (Insurance/Tax)

Film Developing

Farm Supply/Ranch Stores

Eye Care/Optical Stores

Entertainment Concepts

Dry Cleaning/Tailoring

Drug Stores

Dollar Stores

Department Stores

Convenience Stores/Gas Stations

Consumer Electronics

Computer Repair

Childcare/Learning Centers

Retail Real Estate Disruption Meter







No/Minor Disruption

Modest Disruption

Disruption

Major Disruption

Devastating Impact

0.0 1.0 2.0 3.0 4.0 5.0

Pool & Spa Stores

Pet Stores (Pets & Supplies)

Pawn Shops

Party Supplies

Office Supplies

Music Stores—Records, DVDs & CDs

Music Stores—Instruments

Medical Retail

Luggage Stores

Laundromat

Jewelry Stores

Home Improvement/DIY Mega Stores

Health Clubs (Gyms, Etc.)

Health & Beauty (Cosmetics, Etc.)

Hardware Stores (Small Format)

Hair & Nail Salons

Grocery Stores

Gift Shops/Cards/Stationary Stores

Garden Stores








No/Minor Disruption

Modest Disruption

Disruption

Major Disruption

Devastating Impact

0 1 2 3 4 5

Warehouse Club Stores

Video Rental Stores

Video Game Stores

Travel Agencies

Toy Stores

Tobacco, Cigarettes, Vape Shops

Tire Stores

Thrift Shops/Consignment Shops

Theaters

Tattoo Parlors

Superstores/Category Killers

Sporting Goods

Spas (Day Spa, Massage Concepts, Etc.)

Sign & Banner Stores

Shoe Stores

Shoe Repair

Shipping, Packing & Postal Stores

Restaurants (All Types)

Portrait Studios


What’s Up With Pharma?

Will this be the next category disrupted?


Walgreen’s

+ Rite Aid (Half)

Albertson’s

+ Rite Aid (the Other Half)

CVS

+

Aetna

Amazon

+

JP Morgan

+

Berkshire Hathaway

Race to the Bottom Discounting…

Off-Price brands present just as big, if not bigger, a challenge to mid-priced apparel

Source: CreditNtell, Cushman & Wakefield Research

Sales levels continue to fall for

department stores…

While rising significantly for

off-price retailers!

Nordstrom growth has been

driven by Nordstrom Rack.

Macy’s is going downscale:

Has opened more than 100

Macy’s Backstage locations

within existing Macy’s stores.

-8

-6

-4

-2

0

2

4

6

8

2012 2013 2014 2015 2016 2017

Comparable Same Store Sales Analysis

Traditional Department Stores Off Price Department Stores

IT’S ALL ABOUT MILLENNIALS!

0

20

40

60

80

100

Generation Z Generation X GreatestGeneration

MIL

LIO

NS

MILLENNIAL VALUES:

• Experiences Over “Stuff”

• Authenticity! Uniqueness! Choice! Variety!

• Intimacy in Shopping Experience!

• Curated Retail - NOT COMMODITY!

• Non-Conformist!

• Cool is a Value!

59% of Millennials Look for Physical Store Presence When Buying Online.

Millennial Generation Born Between

1981 1996ARE THE LARGEST CONSUMER GROUP

Major Retailer Bankruptcies

2017: Major retailer bankruptcies


2017

Aerosoles

Alfred Angelo

BCBG Max Azria

Bob’s/Eastern Mountain

Central Grocers

Charming Charlie

Gander Mountain

Gordman’s

Gymboree

HHGregg

Limited

Marbles: The Brain Store

MC Sports

Papaya Clothing

Payless

Perfumania

RadioShack/General Wireless

Romano’s Macaroni Grill

Rue 21

Sheikh Shoes

Sports Zone

Toys R Us

Traffic Shoes

True Religion

Vanity

Vitamin World

Wet Seal

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Major Retailer Bankruptcies

Major Chain Bankruptcies Forecast Total

2018

Charlotte Olympia

Agaci

Bon Ton

Kiko USA

Walking Company

Claire’s

The Problem for These Retailers?

It’s leveraged buyout debt… not relevance or eCommerce

Source: Cushman & Wakefield Research and Moody’s Analytics

Over the past 20 years, we

increasingly saw private equity

groups borrow money to

acquire retailers and then put

that debt on the retailer

balance sheets. This risky

practice, known as leveraged

buyouts, is creating issues for

many relevant retailers today.

Many of the latest

bankruptcies (Toys R Us, etc.)

have come about from this

practice.

Albertson’s

JoAnn Fabrics

Chuck E. Cheese

Pep Boys

BJ’s Wholesale Club

HBC

Guitar Center

Neiman Marcus

Belk

Shopko

Staples

GNC

Talbots

Claire’s

Academy Sports

J. Crew

Charlotte Russe

Southeastern Grocers

Hot Topic

99 Cent Only

The Fresh Market

Bon Ton

PetSmart

Petco

Major Chain Store Closures

2017: Surpassed great recession levels


What’s Really Happening (it’s not

just about Amazon)?

Convergence of Four Factors:

1. Acceleration of newCommerce

2. Over Retailed Marketplace

3. Race to the Bottom

Discounting (Rise of Off-Price)

4. Shifting Consumer Patterns

(Millennials Spending

Differently than Past

Generations)

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Major Chain Store Closures

Major Chain Closures Forecast Major Chain Closures

RadioShack

PayLess

Gymboree

Hancock Fabrics

Teavana

Sears/Kmart

Sports Authority

Walmart

Aeropostale

Sears/Kmart

Teavana

RadioShack

Office Depot

Dots

Wet Seal

A&P

Top Retail Chains in Contraction Mode

2018: Announced store closure plans


Top Contraction Categories:


Apparel

Department Stores


Media (Books, Video, Music,

Etc.)

Office Supplies

Sporting Goods

More of Same in 2018

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Claire's*Toys R Us

rue21Walgreens

Mattress Firm*Ascena Retail (various banners)

Best Buy MobileSignet Jewelers

GameStop*H&M

Carter'sFootlocker

KmartDestination Maternity

Applebee'sCVS

The GapSam's Club

SearsWalking Company*

Agaci

Major Chain Closures 2018

Potential Closures 2018 Announced Closures 2018

*Estimated likely closures based on market intel

This is NOT the Retail Apocalypse

14,239 OPENING

10,123 CLOSING

4,080MORE STORES OPENING

IN 2017 THAN CLOSING

TOP 3 OPENING SECTORS IN 2017

MASS

MERCHANDISE1,905CONVENIENCE

STORES1,700

GROCERY674

This is NOT the Retail Apocalypse

56%

59%

54%

56%

51%

54%

57%

60%

AllRespondents

Millennials Generation X Baby Boomers

% ONLINE Shoppers Who Say a Nearby Physical Store Presence is

Important to Them When Buying Online

Top Retail Chains in Growth Mode

2017: Announced new store openings


Top Expansion Categories:

Dollar Stores

Discount Grocery

Off-Price Apparel

Beauty/Cosmetics

Super Stores (but often in

smaller sizes—Target)

Fitness/Health Clubs

Fast Food

Coffee

Fast Fashion

Clicks to Bricks

2018: More of the Same

Value, Value, Value

0 200 400 600 800 1,000 1,200

Dollar General

Dollar Tree

Aldi

Starbucks

McDonald's

AutoZone

TJX (all banners)

Retro Fitness

Five Below

ULTA

Lidl

Ross

H&M (All Banners)

Sally Beauty

Tractor Supply

Athleta & Old Navy (the Gap)

Walmart

Wendy's

Sephora

Dollarama

Major Chain Openings 2017

Announced Major Chain Openings 2017

Dollar Stores Added Roughly

1,700 New Units in 2017.

That equates to:

ONE EVERY 4.5 HOURS


2018: Announced new store openings



Dollar Stores

Discount Grocery

Off-Price Apparel

Beauty/Cosmetics




Fast Food

Coffee

Fast Fashion

Clicks to Bricks


0 100 200 300 400 500 600 700 800 900 1000

Dollar General

Dolalr Tree*

Dunkin Donuts

Jersey Mike's

O'Reilly Automotive

Aldi

Carter's/OshKosh

Chipotle

Bank of America (retail banking)

Ross Dress for Less

CVS

IHOP

The Gap

Walmart

Tractor Supply

Nektar Juice Bar

Gander Outdoors (Camping World)

Darden (all banners)

Signet Jewelers

Warby Parker

Major Chain Openings 2018

2018 Planned New Stores


Dark headlines always get more press than good news…



Dollar Stores

Discount Grocery

Off-Price Apparel

Beauty/Cosmetics




Fast Food

Coffee

Fast Fashion

Clicks to Bricks


Myths and Realities in the Age of newCommerce

To fully understand, you must first understand the

different types of American shopping centers…

But What Does it All Mean for Retail Real Estate?

The Neighborhood/Community Center…

Neighborhood/Community and Strip Centers doing fine…

Source: Costar Group, Cushman & Wakefield Research

Typical Anchors:

Grocery Stores

Drug Stores

Typical Inline Tenants:

Restaurants

Fast Food

Coffee

Juice

Dry Cleaning

Laundromat

Postal Services

Dental/Medical Offices

Financial Services

Retail Boutiques

Outdoors

Mostly Suburban

Neighborhood

30,000 to 125,000 SF

3-mile trade area

Community

125,000 to

400,000 SF

6-mile trade area

The Power Center…



Typical Anchors (Big Box):

Superstores (w/Groceries)

Home Improvement/DIY

Off-Price Apparel


Arts/Crafts

Pet Supplies


Restaurants

Fast Food

Coffee

Juice

Dry Cleaning

Laundromat

Postal Services

Dental/Medical Offices

Financial Services

Retail Boutiques

Outdoors

Mostly Suburban

Power

250,000 to 600,000 SF

10-mile trade area

The Mall…

When Americans think of retail, they think of malls


Typical Anchors (Big Box):

Department Stores


Apparel

Accessories

Shoes

Jewelry

Gift Shops/Gadgets

Books

Toys

Restaurants

Fast Food

Coffee

Juice

Retail Boutiques

Mostly Enclosed

Mostly Suburban

Regional Mall

400,000 to 800,000 SF

15-mile trade area

Super Regional Mall

800,000 SF +

25-mile trade area

Over-Retailed, But Not All Retail is Suffering



Malls and Power Centers

have been most impacted

by current wave of

closures…

But Malls only account for

8.4% of all USA retail and

Power Centers account for

7.1% of all USA retail.

BUT IN TERMS OF ACTUAL

SHOPPING CENTERS,

MALLS ONLY ACCOUNT

FOR 0.5% OF ALL

SHOPPING CENTERS!

Shopping Centers

(neighborhood, community

and strip centers) have

actually seen vacancy

declines.

Shopping Center

Type

Total GLA

(MSF)

Vacancy

Rate

Q4 2016

Vacancy

Rate

Q4 2017

Share of

Retail

Market

Power Centers 754.5 5.5% 5.0% 7.1%

Shopping Centers

(Neighborhood,

Community, Strip)

3,537.2 8.0% 7.4% 33.1%

Malls (Lifestyle,

Regional Mall, Super

Regional Mall)

899.2 5.4% 6.3% 8.4%

Specialty Centers

(Outlet, Airport, etc.)

85.7 5.0% 4.9% >1.0%

Freestanding Retail 5,400.4 3.0% 3.5% 50.5%

TOTAL RETAIL USA 10,676.0 4.8% 5.3% 100.0%

ROI Performance Along Class Lines

Mall performance gap between best and worst assets…

Source: MSCI Global, Cushman & Wakefield Research

The Retailer Logic Behind this

Gap:

If the goal is to reduce your

physical footprint, while

looking to boost your online

sales… This inherently means

that your remaining physical

locations are more important

than ever before…

CHAINS STRATEGICALLY

REDUCING THEIR

FOOTPRINTS ARE LARGELY

DOING SO IN CLASS B AND

C MALLS—NOT CLASS A.

Class A

Class C/D

Not All Malls are in Trouble

It’s all about class…

Source: Cushman & Wakefield Research, Fung Global, Green Street Advisors, Bloomberg

Class A and above malls

accounted for more than

70% of all mall retail sales in

2016.

There are roughly 670 Class

B and C malls in the US, but

they only accounted for 28%

of all mall sales last year.

Class D malls accounted for

less than 0.2% of all mall

sales last year…

0

50

100

150

200

A++ A+ A A- B+ B+ B- C+ C C- D

Approximate Number of Malls by Class

A++ A+ A A- B+ B+ B- C+ C C- D

0.0

5.0

10.0

15.0

20.0

25.0

A++ A+ A A- B+ B+ B- C+ C C- D

Approximate Share of Total Mall Value by Class

A++ A+ A A- B+ B+ B- C+ C C- D

Closures Hitting Everyone

Class A replacing with greatest ease…

Source: Cushman & Wakefield Research, Green Street Advisors, Bloomberg

All Classes of Malls Lost

National Credit Tenants in

2017

35% of Class A Malls gained

national credit tenants in

2017.

5% of Class A Malls saw no

change in the number of

national credit tenants.

65% of Class A Malls lost

national credit tenants.

30/5/-65% Class A

13/9/-78% Class B

10/8/-82% Class C-100%

-80%

-60%

-40%

-20%

0%

20%

40%

Net Decrease in National Credit Tenants 2017

Positive Tenant Change No Tenant Change Negative Tenant Change

Class A Class B Class C

Power Centers Rebounded in 2017

Will traditional power center tenants re-tenant troubled malls?


Power Centers saw vacancy

DECLINES in 2017.

Vacancy had spiked in 2016

due to the bankruptcy of

Sports Authority.

Roughly 450 stores, averaging

45,000 square feet in size,

closed.

One year later, approximately

340 (roughly 75%) have been

backfilled.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

20

18

(F)

20

19

(F)

20

20

(F)

Mil

lio

n S

qu

are

Fe

et

Net Apsorption (MSF) New Construction (MSF) Overall Vacancy

Forecast

Feeling Good in the Neighborhood

Neighborhood/Community/Strip vacancy continues to slowly fall


Neighborhood/Community

Centers

0%

2%

4%

6%

8%

10%

12%

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

20

18

(F)

20

19

(F)

20

20

(F)

Mil

lio

n S

qu

are

Fe

et

Net Apsorption (MSF) New Construction (MSF) Overall Vacancy

Forecast

Source: Real Capital Analytics, Costar, Cushman & Wakefield Research

Retail Investment

USA Current Cap Rate Asking Ranges

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Class A

Class B

Class C

Malls &

Lifestyle CentersPower Centers Neighborhood &

Community CentersOutlet Centers

Are There Any Good Investment Opportunities?

Yes, but you have to know what you are doing!


The black cloud hanging over

the retail sector is already

impacting investment

fundamentals.

Many institutional investors

are rebalancing their portfolios

to contain less retail and are

selling off assets.

Many of these assets have

challenges, but many don’t!

Others are jewels in the

rough.

Malls & Lifestyle

Centers

Class A

Class B

Class C

Power Centers

Class A

Class B

Class C

Neighborhood/

Community Centers

Class A

Class B

Class C

Low

Medium

High

General Risk Levels

Are There Any Good Investment Opportunities?



Urban Vs Suburban

In general, urban properties

have performed better than

suburban ones, but this is not

always the case.

Six of the United States top

ten malls (in terms of sales

PSF) are suburban.

Malls & Lifestyle

Centers

Class A

Class B

Class C

Power Centers

Class A

Class B

Class C

Neighborhood/

Community Centers

Class A

Class B

Class C

Low

Medium

High

General Risk Levels

Challenges & Opportunities



Every property must be looked

at individually for its

fundamentals.

The financial health of current

tenants, possible re-tenanting

scenarios and an

understanding of perceived

risk vs. likely actual risk is

required.

Due diligence is a must!

The current landscape s

increasingly becoming a

buyer’s market.

Type Challenges Opportunities

Malls A Few available and most owners unwilling to

sell. Though risk is low, likely low cap rate may

still not be commensurate with risk.

This property type still stable and will strengthen as

more Class C malls fail.

B Many will require extensive repositioning and

re-tenanting. A lot of innovation and

unconventional thinking will be required.

This might be where the most jewels in the rough

are found. Some B malls are in great locations and

were either poorly tenanted or managed..

C Here is where the most damage will be done.

Tenanting these will require unconventional

tenants and means. Many will fail.

There will be great opportunities for redevelopment

or repositioning of properties once properties return

to lenders and can be had for dimes on the dollar or

less.

Power A Malls, especially Class B, raiding the

traditional power center tenant pool to backfill

vacancies could have an impact, but it will be

minimal for Class A.

With investors focusing on core and urban and retail

already making many nervous, there may be some

cap rates here that are far higher than actual risk.

B If tenant pool diminishes, here is where it will

be felt most.

Depending on property, could be some solid value

add buys with high yields.

C Weak already and getting weaker… Might make for good redevelopment plays or value

add acquisitions.

Neighborhood A Drug store disruption may eventually have

impact, but these will easily backfill.

The most eCommerce resistant and resilient of the

product types. Class A in secondary markets may

provide best yields.

B Drug store disruption may eventually have

impact, could be a bit of a challenge here.

Largely a safe bet, look for good value adds to turn

B into A and even greater yield opportunities.

C Weak already. Not getting weaker, but will

take significant investment to improve.

Might make for good redevelopment plays or value

add acquisitions.

Myths and Realities in the Age of newCommerce

To fully understand, you must first understand the

different types of American shopping centers…

But What Does it All Mean for Retail Real Estate?

Amazon/Whole Foods Has Some Catching Up to Do

Combined grocery market share in 2016 was roughly 3%

Source: Kantar Worldpanel, Statista, Cushman & Wakefield Research

Look for aggressive growth

from Amazon/Whole Foods

likely to begin 2H 2018.

We anticipate that as many

as 500 new stores in

different formats may be

opened in the next five

years…Amazon began eGrocery delivery from

Whole Foods locations on 2/8/18 to:

Austin

Cincinnati

Virginia Beach

Dallas


Clicks to Bricks

Brand embassies, returns savings driving more pure play growth in physical space

0

10

20

30

40

50

60

70

80

90

Store Count (YE 2017) Planned New Stores 2018

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Food Halls in the U.S.

Projected

Existing


Food Halls ON FIRE!

Food Halls: the shared economy for restaurants


Craft Brewing Explosion

Trend is still not mature nationally

388

199

227

170

133

84

141

134

133

99

100

117

87

73

54

74

75

204

121

88

91

93

116

51

58

56

74

73

44

51

62

69

35

29

156

67

52

80

26

62

76

105

55

44

47

63

33

27

25

42

39

CALIFORNIA

COLORADO

W ASHINGTON

NEW YORK

OREGON

PENNSYLVANIA

FLORIDA

TEXAS

NORTH CAROLINA

ILLINOIS

OHIO

VIRGINIA

MICHIGAN

W ISCONSIN

INDIANA

MINNESOTA

MASSACHUSETTS

STATES WITH 100+ BREWERIES

Microbreweries Brewpubs Planned

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Craft Breweries in the United States

Brewpubs Microbreweries Regional Breweries


Rise of the Indies

Many of the hottest new brands are former pure play eCommerce

(recently

purchased

by Nestle)


Cool Street Contenders

Privately-held hipster brands can take chances the big chains can’t—and they’re connecting with Millennials!


Entertain Us!

Millennials spend more on experience than “stuff”

Golf/Sports/Arcade Entertainment Themes

BarCades/Mixed (Dave &

Buster’s, Punch Bowl Social, etc.)

TopGolf/Miniature Golf/Glow Golf

Baseball/Batting Cage Bars

Axe Throwing Bars

Ping Pong (Susan Sarandon)

Bowling Alleys (Lucky Strike, etc.)

Duck Pin Bowling

Indoor Go Cart Tracks

Indoor Shooting Galleries (Real Guns

Optional)

Event Centers

Experiential Theaters/Dine-In Theaters

IMAX

Restaurant/Theaters

Bar/Theaters

Children Themed Theaters

Hipster/Art House Theaters

Athletics Space

Aquatic Parks

Trampoline Rooms

Indoor Rock Climbing

Indoor Skydiving

Velodromes (Indoor Cycling Tracks)

Culture/Performing Arts Space

Art Galleries

Museum Space

Live Theater Space

Dinner Theaters

Cirque Space

Stand Up Comedy Clubs

Live Music Venues

Float Rooms/Sensory Deprivation


Cool Streets

Millennial-driven up-and-coming alternative urban neighborhoods still hot

EDGY COOL

UP AND COMING

PRIME HIPNESS

STILL COOL, BUT…

GONE MAINSTREAM

The Evolution of Cool Streets

Edgy Cool Bodegas, Bars &

Funky Local… Cheap

Rents

Up and Coming Boutiques, More

Restaurants Arrive…

Rents Climbing

Prime Hipness Funky Local Priced

Out, Cool National

Concepts Arriving…

Rents Climbing

Still Cool, But Going

Mainstream

Whole Foods Arrives

Rents Climbing

Gone Mainstream Creatives Moving On,

Replaced by More

Affluent Crowd.

Pottery Barn!

There is No Room for Mediocrity in Retail Anymore

Follow Viktor Gruen’s Original Vision

“I am often called the father of

the shopping mall. I would like

to take this opportunity to

disclaim paternity once and for

all. I refuse to pay alimony to

those bastard developments.

They destroyed our cities…”

Viktor Gruen

The Father of the American Mall

• You must give people a reason to come to your store or your

shopping center in the age of newCommerce.

• If your shopping center is the center of your community, it will thrive.

• If it isn’t, then build a community around it.

• YOU MUST GIVE CONSUMERS AN IMPROVED EXPERIENCE.

How Do I Cultivate Experiential Retail?

Simple steps to follow…

Beacon technologies are

increasingly being utilized by

retailers and landlords to track

consumer activity in their

stores and shopping centers.

When a consumer enters a

store, a beacon detects their

cellphone signal. It then can

anonymously track the

consumer as they journey

through the store and beyond.

Beacon Technology

1. Knowledgeable and friendly salespeople are your front line.

Provide adequate real world wages and career paths so you

can retail quality people. Enthusiastic and knowledgeable

staff are the least expensive and most productive way for

brands to create experiential retail!

2. Utilize your physical space to collect as much data as possible

(dwell times, foot traffic, etc.) so that you can use that data to

benchmark and improve your own performance.

3. Use those data touchpoints also to personalize the consumer

experience. Consumers are more likely to shop at stores that know

their name and their likes.

4. Loyalty programs, especially those that reward consumers, are

embraced by customers and are one of the best sources of

gathering voluntary shopper information.


More simple steps to follow…

Automation will increasingly

be a reality for major fast food

chains.

Robots will increasingly be

utilized for the lowest level

customer service interactions

in retail categories.

They are not likely to replace

humans for quite some time in

higher level customer service

interactions.

Robots for Some

5. Augmented reality is already being used online and will increasingly

be used in stores (magic mirrors, etc.)

6. Virtual reality will increasingly be available to help with everything

from store design to shopper interaction.

7. Not all retail needs high service levels, but bad service is

unforgivable. Go automated. Robots will increasingly become a

normal part of retail over the next decade.

8. Be sure to create a community; social media is critical to how

Millennials interact and shop; it will be even more so with social

media natives, Generation Z. Use your social media for marketing

campaigns, consumer interaction and to advertise in-store events.


Wait! There’s even more…

“We always overestimate the

change that will occur in the

next two years and

underestimate the change that

will occur in the next ten.”

--Bill Gates

“The Road Ahead”

1995

The Future is Now

9. Capture emails addresses for direct marketing, social media, etc.

10.Find ways to eliminate queues… Automation, adequate staffing,

salespeople equipped to ring up sales via mobile technology on the

sales floor all can help.

11.Don’t ignore the critical importance of the visual importance of your

store and it’s product displays. Be “Instagrammable.”

12.Host events… and not just sales. Product launches, celebrity pop-

ups, fashion shows, spa days… anything to pamper your

customers, give them a great experience and lure them to your

store.

13.You MUST go omnichannel to survive and thrive in the

newCommerce Era, only a rare few categories are exempted.

The New Retail

Retail space will need to fit one of these needs…

Source: A.T. Kearney, Cushman & Wakefield Research

Premium Destination

Centers Large regional centers

anchored by popular

attractions, which draw

from broad local, national

and some international

audiences.

Value Oriented Centers Local retail focused on

local service and value.

Amenity Retail Mixed-use centers where

people live/work/play.

Innovation/Experience

Centers Every store is a smart,

active environment

featuring the latest in

high technology.

Premium Destination Centers Value Oriented Centers

Amenity Retail Innovation/Experience Centers

Hybrids

The New Retail

In the newCommerce Era, the use of space is radically different…


The New Retail Ahead

Shopping

Centers

Tenant Mix

Role of

Technology

Primary

Focus

Organizing

Principle

Anchor

Tenants

Mass Market

Powering

the System

Selling

Things

Retailer

“Push”

Traditional

Retailers

Old Model

Market of One

Connecting

Buyers, Sellers &

Places

Consumer

Engagement

Consumer “Pull”

Retail

Residential

Entertainment

New Model

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©2018 Cushman & Wakefield.

The material in this presentation has been prepared solely for information purposes, and is strictly

confidential. Any disclosure, use, copying or circulation of this presentation (or the information

contained within it) is strictly prohibited, unless you have obtained Cushman & Wakefield’s prior

written consent. The views expressed in this presentation are the views of the author and do not

necessarily reflect the views of Cushman & Wakefield. Neither this presentation nor any part of it

shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to

enter into any contract or commitment whatsoever. NO REPRESENTATION OR WARRANTY IS

GIVEN, EXPRESS OR IMPLIED, AS TO THE ACCURACY OF THE INFORMATION

CONTAINED WITHIN THIS PRESENTATION, AND CUSHMAN & WAKEFIELD IS UNDER NO

OBLIGATION TO SUBSEQUENTLY CORRECT IT IN THE EVENT OF ERRORS.

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