Knowledge. Insight on Trends. Forecasts.€¦ · USA Vacancy Rankings Top 20 Rank Market Q2 14 Q2...

The Retailers Strike Back: How Bricks and Mortar Will

Survive and Thrive in the Age of E-Commerce

Market Knowledge. Insight on Trends. Expert Forecasts.

ICSC 2014 Tennessee/Kentucky Idea Exchange

National Retail Research Director [email protected]

Garrick Brown

mailto:[email protected]

Industrial is on Fire!

20.8 Billion SF

Inventory

Occupancy Growth

MSF (Q4-12)

MSF (Q1-13)

MSF (Q2-13)

MSF (Q3-13)

MSF (Q4-13)

MSF (Q1-14)

2014 Might Break Records

20.8 Billion SF

Inventory

Top Five Industrial

Occupancy Growth

Years USA

MSF 1997

MSF 1995

MSF 2013

MSF 2005

MSF 1998

2014 Occupancy Growth Will Likely Reach…

MSF

E-Commerce Mega Space

Technology Changes Everything

The Future According to a Visionary…

“We always overestimate

the change that will occur

over the next two years

and underestimate the

change that will occur in

the next ten.”

Bill Gates The Road Ahead

1996

The Future According to the Rest of Us…

“I was a peripheral

visionary. I could see the

future, but only way off to

the side.”

Steven Wright

U.S. Shopping Center Development

.

Source: Cassidy Turley Research, Costar Group

24.1

19.5

17.7

14.2

20.7

25.5

20.9

18.4 19.3

8.6

3.2

5.1

2.4

17.1

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Mil

lio

ns

, S

F

Shopping Center Development

Shopping Center Deliveries 137 Million SF of

Shopping Center

Space Built in US

2002 - 2008

Amazon Today:

56 Million SF of

Distribution Space

Throughout the US

The Amazon Effect

The Amazon Effect

Amazon in 2016:

90 Million SF of

Distribution Space

Throughout the US

Game Changer or Sport Changer?

20.8 Billion SF

Inventory

The Race for Same Day Delivery?

Old Paradigm:

A Few Days/A Few Warehouses

New Paradigm:

Same or Next Day/Lots of Warehouses

Approaches to E-Commerce Fulfillment

20.8 Billion SF

Inventory

Existing

Bricks &

Mortar

Storefronts

Combination

E-Commerce/

Distribution

Centers

Segregated

E-Commerce

Fulfillment Centers

Retail Boom in Form of Industrial Space

20.8 Billion SF

Inventory

Amazon’s Not the Only One Growing….

Industrial demand is all about retail demand…

A Quick Case Study…

20.8 Billion SF

Inventory Kohl’s Shifted CapEx Budgets Away from Bricks and Mortar

to Building E-Commerce Platform and Supply Chain…

They’re NOT the Only One….

CapEx Budget Store Unit Growth E-Commerce as % of CapEx (estimate)

12 Months Ending 2/14 $643,000,000 12 60%

12 Months Ending 2/13 $785,000,000 48 10%

E-Commerce as Share of Retail

2%

3%

4%

5%

6%

7%

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Total E-Commerce $ (millions) % of Total Retail Sales

Source: Census Bureau

($)

Mil

lio

ns

The Good News?

E-Commerce Only Accounts for 6.2% of all US

Retail Sales

The Bad News?

E-Commerce Only Accounts for 6.2% of all US

Retail Sales

E-Commerce as Share of Retail

Source: FTI Consulting

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Forecast Online Market Share (excluding groceries, gas & auto)

ForecastOnlineMarketShare(excludinggroceries,gas &auto)

Source: FTI

Consulting

E-Commerce The Rise of E-Commerce

1,877 1,915 2,014

2,105 2,442

165 190 221 254 292

-5%

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014

Y/Y

Ch

an

ge %

Gro

wth

in

$B

U.S. Retail U.S. Online Retail

Retail % Change Online % Change

Online vs. Traditional Retail Sales Growth

Retail Sales Performance

-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0

ALL RETAIL

Retail (excluding automotive)

Department Stores

Sporting Goods, Hobby, Book & Music

Gas Stations

Miscellaneous

General Merchandise

Electronics & Appliances

Grocery

Clothing & Accessories

Food & Beverage

Restaurants

Health & Personal Care

Furniture & Home Furnishings

Non Store Retail

Automotive

% Change Sales Y-o-Y May 2014

% ChangeSales Y-o-YMay 2014


What’s the Difference?

20.8 Billion SF

Inventory

Typical Big Box Industrial:

• Land Cost: $24

PSF/$12 LSF

• Building Cost:

$26 PSF

• Soft Cost: $20 PSF

• TOTAL: $70 PSF

• Rents: +/- $4.20 PSF

Annually

(So Cal Costs)

Source: Ware Malcomb/Panattoni

What’s the Difference?

20.8 Billion SF

Inventory

E-Commerce Fulfillment:

• Land Cost: $20

PSF/$30 LSF

• Building Cost:

$149 PSF

• Soft Cost: $45 PSF

• TOTAL: $214 PSF

• Rents: +/- $12.75 PSF

Annually

(So Cal Costs)

Source: Ware Malcomb/Panattoni

Mega Bulk Industrial Market

40 – 70 Million SF Total Demand Next 3 Years

20.8 Billion SF

Inventory

MSF

Suitable for

Modern Users

Industrial

Development

Skyrocketing!

Grim Outlook for Bricks and Mortar Retail?

Closing 175

Closing 150

Closing 400

Closing 80

Closing 100+

Closing 30

Bad News Keeps on Coming…

Closing 225

thru 2015

Closing 50

Closing 1,100?

Closing 125

Closing 40

But Wait… There’s More Coming…

Closing 76

Closing 200+

thru 2018

Closing 130

Closing 100

Closing 170

thru 2017

DECLINING

↓ Bookstores

↓ Video Stores

↓ Mid-priced apparel

↓ Mid-priced grocery

(particularly unionized)

↓ Office Supplies

↓ Stationary/Gift Shops

↓ Shipping/Postal Stores

↓ And Casual Dining

(Older, Struggling Concepts Shrinking)

DECLINING

Retailer Contraction | 2014…

So Why is Vacancy Down?

20.8 Billion SF

Inventory

San Francisco

San Diego

Santa Barbara

Miami

Oakland/East Bay

Orange County

Austin

San Jose

Boston

New York City

Minneapolis

Washington DC

Pittsburgh

Shopping Centers Top 20 All Below 7.0% Vacancy

Salt Lake City

Source: Costar Analytics/ Cassidy Turley Research

North New Jersey

Little Rock

Des Moines

Baltimore

Los Angeles

Hawaii

National Shopping Center

Vacancy Q2 2014 (Prelim):

8.4%

Q1 2014: 8.5%

Q2 2013 8.8%

USA Vacancy Rankings Top 20 Rank Market Q2 14 Q2 13 Rank Market Q2 14 Q2 13

1. San Francisco 2.9% 3.5% 11. Los Angeles 5.6% 6.1%

2. Hawaii 3.2% 4.4% 12. Baltimore 6.3% 6.7%

3. San Jose 4.4% 5.6% 13. Austin 6.4% 6.9%

4. Pittsburgh 4.7% 5.2% 14. Salt Lake City 6.4% 5.7%

5. NYC Metro 4.7% 5.1% 15. Des Moines 6.5% 6.4%

6. Oakland/East Bay 5.2% 6.4% 16. Miami 6.6% 6.9%

7. Washington DC 5.2% 5.7% 17. San Diego 6.6% 6.8%

8. Boston 5.3% 5.4% 18. Little Rock 6.7% 7.0%

9. Orange County 5.6% 6.3% 19. N. New Jersey 6.7% 7.0%

10. Santa Barbara 5.6% 6.1% 20. Minneapolis 6.8% 7.1%

Shopping Center Vacancy Q2 2014 (Prelim)


USA Vacancy Rankings 21 thru 40 Rank Market Q2 14 Q2 13 Rank Market Q2 14 Q2 13

21. Raleigh/Durham 7.0% 7.3% 31. New Orleans 8.0% 7.9%

22. Seattle 7.4% 7.5% 32. Tulsa 8.1% 8.4%

23. Denver 7.4% 7.8% 33. Richmond 8.1% 8.5%

24. San Antonio 7.6% 7.8% 34. Louisville 8.2% 8.9%

25. Portland 7.6% 7.7% 35. Tampa 8.7% 9.7%

26. Philadelphia 7.7% 8.0% 36. Omaha 9.1% 10.3%

27. Charleston 7.8% 7.9% 37. Albuquerque 9.1% 9.9%

28. Houston 7.8% 8.6% 38. Orlando 9.1% 10.0%

29. Tucson 7.9% 8.9% 39. Dallas 9.6% 10.2%

30. Hampton Roads 7.9% 8.5% 40. Charlotte 9.6% 9.6%



USA Vacancy Rankings 41 thru 60 Rank Market Q2 14 Q2 13 Rank Market Q2 14 Q2 13

41. Nashville 9.9% 10.9% 51. Cincinnati 11.3% 12.1%

42. Indianapolis 9.9% 10.1% 52. Atlanta 11.4% 12.4%

43. Oklahoma City 10.1% 10.6% 53. Detroit 11.5% 12.1%

44. Inland Empire 10.1% 10.7% 54. Birmingham 11.7% 12.1%

45. Milwaukee 10.2% 10.6% 55. Sacramento 11.8% 12.3%

46. Kansas City 10.3% 10.1% 56. Las Vegas 12.0% 12.1%

47. Jacksonville 10.5% 10.6% 57. Phoenix 12.0% 12.7%

48. St. Louis 10.6% 11.1% 58. Cleveland 12.1% 12.5%

49. Chicago 10.7% 9.9% 59. Memphis 13.6% 13.7%

40. Mobile 10.7% 9.7% 60. Reno 14.8% 14.5%



Top Rents Growing Rapidly

20.8 Billion SF

Inventory

Rent Growth MSA’s in the US


Seattle

Portland

San Francisco

San Diego

Los Angeles

Miami

East Bay

Orange County

Inland Empire

San Antonio

Austin

Denver

Raleigh San Jose

Boston

New York City

Minneapolis

Washington DC

Pittsburgh Salt Lake City

Houston

Atlanta

Orlando Tampa

Charlotte

Jacksonville

Nashville

Cincinnati

Indianapolis

St Louis

Louisville

Cleveland

Detroit

Chicago

Milwaukee

Kansas City

New Orleans

Sacramento Reno

Las Vegas

Phoenix

Dallas

Oklahoma City

Hartford

Columbus

New Jersey

Philadelphia

Greater than 10% Growth

5% - 10% Growth

Shopping Center Absorption

Q1 2013 – Q1 2014

20.8 Billion SF

Inventory

Growth: 750k sf+ last 12 months

San Jose

784k

Orange County

823k

Sacramento

1m Denver

1.4m

Boston

1.1m

LA

1.2m Phoenix

2.3m

Inland

Empire

1.3m

Dallas

2.5m

Houston

2.5m San Antonio

1.0m

Northern New Jersey 1.3m

Washington DC

1.8m

Atlanta

2.6m

Detroit

1.3m

Philadelphia 1.1m

St

Louis

1m

Tampa 1.3m


Orlando 940k

Cincinnati

805k

Cleveland

793k

USA Top Rents Rank Market Top Rents Rank Market Top Rents

1. Hawaii $50+ 11. San Diego $40+

2. Los Angeles $50+ 12. Chicago $38+

3. NYC Metro $50+ 13. Oakland/East Bay $38+

4. Orange County $50+ 14. Dallas $36+

5. San Francisco $50+ 15. Las Vegas $36+

6. Boston $45+ 16. Houston $33+

7. Miami $45+ 17. Northern New Jersey $33+

8. San Jose $45+ 18. Seattle $33+

9. Washington DC $45+ 19. Atlanta $30+

10. Miami $40+ 20. Austin $30+

Top Center Rents Q2 2014 (Prelim)


USA Top Rents (continued) Rank Market Top Rents Rank Market Top Rents

21. Indianapolis $24+ 31. Reno $21+

22. Nashville $24+ 32. St. Louis $21+

23. Tucson $24+ 33. Birmingham $20+

24. Jacksonville $23+ 34. Omaha $20+

25. Minneapolis $23+ 35. Pittsburgh $20+

26. Milwaukee $23+ 36. Santa Barbara $20+

27. Raleigh/Durham $22+ 37. Oklahoma City $18+

28. Richmond $22+ 38. Des Moines $18+

29. Louisville $21+ 39. Little Rock $18+

30. New Orleans $21+ 40. Mobile $18+



USA Top Rents (continued) Rank Market Top Rents Rank Market Top Rents

41. Baltimore $30+ 51. Detroit $26+

42. Denver $30+ 52. Orlando $26+

43. Inland Empire $30+ 53. Charleston $25+

44. Kansas City $30+ 54. Salt Lake City $25+

45. Sacramento $30+ 55. San Antonio $25+

46. Philadelphia $30+ 56. Tampa $25+

47. Phoenix $30+ 57. Albuquerque $24+

48. Sacramento $30+ 58. Cincinnati $24+

49. Portland $28+ 59. Cleveland $24+

50. Charlotte $27+ 60. Hampton Roads $24+



The Rising Tide Lifts All Boats?

20.8 Billion SF

Inventory

Nope… Divide in Rents Growing

Shopping Center Rent Growth (ALL)

20.8 Billion SF

Inventory

Rent Growth MSA’s in the US


Seattle

Portland

San Francisco

San Diego

Los Angeles

Miami

Oakland

Orange County

Inland Empire

San Antonio

Austin

Denver

Raleigh San Jose

Boston New

York City

Minneapolis

Washington DC

Pittsburgh Salt Lake City

Houston

Atlanta

Orlando Tampa

Charlotte

Jacksonville

Nashville

Cincinnati

Indianapolis

St Louis

Louisville

Cleveland

Detroit

Chicago

Milwaukee

Kansas City

New Orleans

Sacramento Reno

Las Vegas

Phoenix

Dallas

Oklahoma

City

Northern New Jersey

Philadelphia

Greater than 10% Growth

5% to 10% Growth

Hawaii

Tulsa Richmond

Omaha

Charleston

Albuquerque

Baltimore

Little Rock

0% to 5% Growth

Tucson

0% to -5% Growth

Memphis

Trends for Landlords

20.8 Billion SF

Inventory

Rising Tide Not Lifting All Boats

Acceleration of Class Bifurcation

Growth slowing in initial recovery markets because of lack of quality space

Accelerated growth in secondary markets for quality space

Skyrocketing rents for quality

The Moral of the Story?

20.8 Billion SF

Inventory

BE CLASS A!!!

BE CLASS A!!!

BE CLASS A!!!

The Three Types of Malls…

20.8 Billion SF

Inventory

1. Trophies


20.8 Billion SF

Inventory

1. Trophies

2. Trannies (Transitional)

1. Trophies

2. Trannies (Transitional)

3. Terminal (Wrecking Ball)


20.8 Billion SF

Inventory

What Does it Mean for Shopping Centers?

New Shopping Center

have More:

Food-Related

Service-Oriented

Entertainment

Mixed-use

Blending of Formats

Retailers Are Looking For The “Sure Thing”

Landlords Need to Deliver it!

Feeling Better in the Neighborhood

20.8 Billion SF

Inventory

Largely Business as Usual for

Neighborhood Centers

Grocery/Drug Anchors Less

Impacted by E-Commerce

Core Tenancy:

Drug/Grocery (E-Commerce

Immune So Far)

Restaurants

Service

Mom-and-Pop (Coming Back

Slowly W/Home Values)

Power Centers Adapting

20.8 Billion SF

Inventory

The New Power Center:

Beefed Up Food Presence

(Walmart/Target Superstore Anchors

Bulletproof)

Smaller Boxes/More Discounters

Restaurant/Service Concepts

Tenant Mix Exploits Regional and

Neighborhood Draws

But Who is Still Growing?

17,208 15,935

3,437

1,655 1,052 1,016 712

Planned Unit Growth by Retail Sector

(Next 12 Months)

42%

Restaurant Other Apparel Dollar Home Grocery Drug

The retail marketplace will change more in the

next 5 years than it has in the past 20…

E-Commerce is radically impacting who is

growing

Retailer Growth | 2014

20.8 Billion SF

Inventory

↑ Grocery (Smaller Format Concepts) Discount/Ethnic/Organic/Upscale

↑ Pet Supplies

↑ Fast Food/Fast Casual

↑ Upscale Dining

↑ Fitness/Health/Spa Concepts

↑ Medical

↑ Automotive Parts & Services

↑ Thrift/Dollar Stores

↑ Arts and Crafts Stores

↑ Furniture/Mattress Stores

↑ Drug Stores

↑ Off-Price Apparel

↑ Luxury Apparel/Accessories

↑ Children’s Apparel

↑ Sporting Goods

↑ Wireless Stores

↑ Banks

Growth Still Impacted by Economics

Growth at the far ends

of economic spectrum

o Luxury retailers are back

o Discounters exploding

o Mid-Priced retailers

shrinking (mostly)

Growth 2014

Increasingly Impacted by E-Commerce

Retailers NOT competing

with online sales

o Restaurants

o Grocery/Food Related

o Service Related

Growth 2014

Fewer Rooftops to

follow

High Density Population

Higher Levels of Income

Higher Levels of

Jobs

Good Future Growth

Prospects Growing

Retailers Looking for

“Sure Things”

What Are They Looking For?

Stage One of Recovery

(2010 – 2013)

More Rooftops to

follow

Still Higher Density

Population

Still Higher Levels of Income

Secondary and Tertiary

Markets

Slightly More Risk Tolerance

Growing

Retailers Looking for

“Sure Things”

What Are They Looking For?

Stage Two of Recovery

(2014 – ?)

Cheaper Rents

Class More Important Than Ever

Stay Classy Class A

Everywhere

Class B Demand spilling over in

stronger markets

Class C Mom and Pops

Bottom Feeders

The Bad News for Bricks and Mortar

Retailers shrinking footprints

Twilight of the big boxes

Sharp contraction among

segments with heavy

e-commerce competition

o Office supplies

o Consumer electronics

o Bookstores, toys

Negative to flat growth

o Mid-priced hard goods, apparel

What’s it All Mean? Have/Have Nots

CLASS B

CLASS C

CLASS A

Greater

Bifurcation

Between

Classes

Winners,

Losers…

And Not a

Lot in the

Middle

Something to Consider…

Opening 700

Opening 400

Opening 340

Opening 60

Opening 35

Over the past three years

Dollar Stores have opened

more than 1,800 units per

year on average…

ONE EVERY 4.8 HOURS…

Coming to an End?

In April

reduced

planned store

openings from

600 to 400…

Announced

plans to close

370 stores…

Is Market

Saturation

Finally at

Hand?

Something Else to Consider…

Food Sales ($ Billions) 2010 2011 2012 2013 Thru March 2014

At Home 584.6 697.2 716.0 743.2 181.6

Away From Home 554.8 576.4 638.4 667.5 158.3

Percent Change From Previous Year

At Home 1.3 19.3 2.7 3.7 2.1

Away From Home 9.0 3.9 10.8 4.6 -1.2

US Food Expenditures

Restaurants have

accounted for more

than 40% of all unit

growth in US since

2010…

But is the pie big

enough?

Are we due for

consolidation?

What About Restaurants?

Will the Cavalry Come in Time?

Will the Middle Class Consumer Return?

Home Prices Still Gaining

20.8 Billion SF

Inventory

Portland +8%

San Diego +14%

Los Angeles +7%

Atlanta +13%

Las Vegas +24%

Phoenix +9%

Houston +19%

San Francisco

+7%

New York City +6%

Minneapolis +8%

Washington DC+7%

Y-o-Y Gains in Median List Price

April 2013 vs April 2014

Salt Lake City

Source: National Association of Realtors/ Cassidy Turley Research

Chicago +19%

Reno +25% Denver +24%

Inland Empire +20%

Sacramento +20%

Houston +18%

Detroit +17%

Miami +7%

Orlando +11% San Antonio +11%

Orlando +10%

Nashville +10%

Kansas City +9%

Tucson +9%

Oklahoma City +9%

Orange

County+8%

Charlotte +8%

Indianapolis +7%

Return of the Wealth Effect

Source: Cassidy Turley Research/Wells Fargo Economists

“A one dollar increase in housing wealth increases

consumption 9 cents…”

Consumer Wealth and A Changing Wealth Effect,

Wells Fargo Economics Group

=

Income Growth Slowly Kicking In…

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14

$13,000

$13,500

$14,000

$14,500

$15,000

Personal Income ($ Billions) Quarterly Change

$ Billions Income Growth Slowly Improving…

Retailers Strike Back: The New Paradigm

OMNI

CHANNEL

Experience

Convenience

Shopping

Bricks

E-commerce

Clicks

Omni-Channel

Website to Drive Customers to Stores

Store experience to drive customers back

to website

Focus on Demographic Shifts

1. Millennials

2. Boomers

3. Hispanics

Demographic Shifts…

Gen-X… Nobody Loves You

Boomers vs. Millennials

Source: Nielsen

Millennials:

77 Million

Boomers:

77 Million

12%

24%

16%

24%

24%

Population by Generation

GreatestGeneration

Boomers

Generation X

Millennials

Generation Z

Boomers vs. Millennials

81%

70% 68%

55%

27%

83% 81%

62%

58%

26%

Research Products Buy Goods Travel Reservations Banking Auction

% o

f in

tern

et

use

rs

Boomer Internet Users (Ages 46-64)

Millennials (Ages 18-29)

Source: Pew Internet & American Life Project: “Baby Boomers In The Digital Age,” by Lee Rainie, 3/10

Demographic Shifts

13 16 19 23 27 3013

14 1414

15 15

70 65 6060 51 46

45

67

89

0

10

20

30

40

50

60

70

80

90

100

2000 2010 2020 2030 2040 2050

White/Non-Hispanic

Asian

Black

Hispanic


Ethnicity as % of U.S. Population

Hispanic

Population

Doubles by

2050

Demographic Shifts

Asian 142% Growth

Hispanic 167% Growth

Source: Nielsen

Ethnicity Growth Through 2050

Latinos Make Up 20% of

All Youth in US

However Their Share is

Much Higher in Many

States

New Mexico 51%

California 42%

Texas 40%

Arizona 36%

Nevada 31%

Colorado 24%

Florida 24%

The Emerging Hispanic Consumer

$0

$500

$1,000

$1,500

$2,000

1990 2000 2010 2012 2015 2017

Hispanic Buying Power

($)

Bil

lio

ns

Source: Selig Center for Economic Growth, University of Georgia--Athens

Experiential Retail…

Make Shopping Centers the

Center of the Community

Movies

Concerts

Fashion Shows

DIY Workshops

Cooking Demos

Wine/Food Events

Yoga/Fitness

Retailers Adapting…

Experiential Retailing

Interactive Displays

More Store Events

In-Store Tech Experience

Retail Kiosks for

Ordering Goods Online

In-Store Digital Touch

Screens

In-Store Remote

Control/M-Phone

Purchasing

Landlords/Retailers Adapting…

Look for More Retailers

Using Bricks and Mortar

as Online Showroom

Space

Creative Use of Vacant

Space—Storefront

Windows

More Online Retailers

Going Bricks and Mortar Bonobos

Art.com

Google?

The M-Commerce Wave and

Beacon Technologies

Tracking Consumer

Behavior on

Smartphones

Offering Free Wi-Fi

and tracking it

The Future is Now…

Renewed Emphasis on Customer Service

Shopping is about experience. Ignore at your own peril

Thank You!

Garrick Brown Research Director

Cassidy Turley

[email protected]

Get On My Mailing List!

mailto:[email protected]

Knowledge. Insight on Trends. Forecasts.€¦ · USA Vacancy Rankings Top 20 Rank Market Q2 14 Q2...

Documents

Transcript of Knowledge. Insight on Trends. Forecasts.€¦ · USA Vacancy Rankings Top 20 Rank Market Q2 14 Q2...