Why retail is not dead, say experts at Las Vegas gathering

Attendees gather at the JLL booth during RECon at the Las Vegas Convention Center Monday, May 22, 2017, in Las Vegas. RECon is the largest retail real estate convention with more than 37,000 attendees representing 58 countries.

LAS VEGAS —  In the 1990s, the mantra for retail stores was much like the one from the baseball movie Field of Dreams: If you build it, they will come.

Consumers, hungry for new product and a convenient place to shop, did just that.

And a large footprint symbolized profitability and success for retailers.

“It was about building shops and filling them with as much product as possible, and getting people to buy as quickly as possible and leave,” said Ross Bailey, CEO and founder of London-based Appear Here, which rents space to pop-up stores with offices in New York, Paris and London.

Bailey moderated a panel at the International Council of Shopping Centers’ RECon confab here last week, called “The Anna Wintour Effect: Why Landlords Need to Think More Like Editors.”

That means edit out the losers. 

RECon, considered the largest retail real estate gathering of its kind,  attracted more than 37,000 mall owners, developers, retailers, and brokers, among others, from 58 countries for three days of networking and deal-making.

The message this year was clear: Retail isn’t dying, but evolving, and those that fail to invest online are being pushed aside or off the cliff.

Some of retail’s biggest names are caught in an online race to keep up with the e-commerce competition that includes Amazon. Several are reducing their footprint to have a more agile fleet to react quicker to changes in consumer demand.

Target chief executive officer Brian Cornell announced this year that his company was investing $7 billion over the next three years in digital and supply-chain enhancements. The company has hired more than 1,000 engineers over the last two years and launched a revamped Target.com last year.

“We’re putting digital first and evolving our stores, digital channels, and supply chain to work together as a smart network that delivers on everything guests love about Target,” Cornell said.

The effort is paying off. Last year marked the third straight year of close to 30 percent gain in annual online sales growth.

The brand with the largest store count in the United States, Walmart, is also mounting a full-court press online.

“We’re being pretty active. We’re behind and we’re trying to catch up,” Marc Lore, CEO and president of Walmart eCommerce U.S.,  said in March during the Re/Code Technology Conference here. He was addressing the company’s acquisitions of online companies jet.com, shoebuy.com, and modcloth.com over the last year. Lore used to work for Amazon until Walmart lured him away eight months ago. “We’re buying time,” he said.

The giant retailer can buy in mass quantities and deliver truckloads of product from a central warehouse to more than 4,000 stores fast and efficiently, which “can’t be underestimated,” Lore said.

It’s why warehouses and distribution centers are getting attention, as supply-chain logistics – moving product from warehouse to store to a customer's front door — is taking center stage even though it's known as the back end of retail.

“The pendulum has shifted” to logistics, said Adam Mullen, senior managing director of industrial and logistics in the Americas for commercial real estate firm CBRE Inc., which for the first time dedicated a room for the supply chain in its 12,800-square-foot RECon booth. 

Mullen said at this year's event that he saw a 50 percent jump in the number of retailers and developers asking how to build a distribution network to meet online demand.

“It was a revolving door,” Mullen said. “About 15 years ago, the thought among retailers was to have an empty warehouse and stores full of stuff. That’s reversed. Now they want these warehouses to be full and high tech to react more quickly. The supply chain is now viewed as a competitive weapon and not a necessary evil." 

Melina Cordero, CBRE's head of retail research in the Americas, who was seated at the same table, said: “That’s what has pushed many retailers over the edge,” referring to the slew of recent bankruptcies. Teen apparel retailer Rue 21 filed for Chapter 11 on May 15, and plans to shut roughly 400 stores to focus on online sales.

“It’s the final nail," Cordero said.  "With the shift, their in-store sales have dried up, and they can’t make the investments to adapt to the new marketplace.”

Amazon is seen as contributing to the demise of the traditional bookstore. Yet the e-commerce giant will soon open its seventh bookstore, in Midtown Manhattan.

The online race is spawning new tools. At RECon, Pitney Bowes principal/consultant Bill McKeogh demonstrated the company's new Geo Insight Platform, which uses digital analytics to help retailers  better understand customers and targeted markets.

On an LED screen on Monday, he punched up a map of Center City Philadelphia that highlighted the Market East section. The Geo platform showed potential market penetration and annual sales after adding a dot to represent a new store. 

“It’s about risk mitigation,” McKeogh said of the tool. “There’s very little wiggle room for retailers to make a mistake these days. About half of those I’m meeting with want to close stores, and those that are expanding have become much more strategic."

Lease restructuring specialist Andrew Couch at real estate firm JLL calls the store closures a necessary phase to keep retail profitable.  

“It’s like pruning a tree for it to stay healthy,” Couch said while at Drai’s Beachclub & Nightclub at the Cromwell Hotel during an after-conference party — one of many throughout the Las Vegas Strip on Monday. “The retailer has to get rid of unhealthy and dead branches to maintain a healthy core.”

Experiential retail remains a growth area. At his panel earlier that same day, celebrity chef Todd English talked about food halls (such as the new Savor pavilion at King of Prussia Mall) becoming an integral part of malls and lifestyle centers. Some food halls are replacing traditional anchor stores that have closed.

“Food is something that [Amazon CEO Jeff] Bezos hasn’t figured out yet,” joked English, who opened his first food hall nearly eight years ago at the Plaza Hotel in New York City after enlisting the Cushman & Wakefield real estate firm to find the right spot. He is expanding his brand to Los Angeles and London and just opened in Atlanta. "It's a driver of bodies. People want to experience food."

In Las Vegas, aka Sin City, where retail —which includes hotel, entertainment, clothing stores, and food and beverage establishments — accounts for 64 percent of revenue from about 42 million tourists a year, versus 36 percent from gambling,  a memorable shopping experience is critical.

Many travel from afar to indulge, such as Ronaldo Sunglao, 37,  of Manila, Philippines, who was vacationing in Vegas for a week with his family. Sunglao and his daughter, Rochelyn, 10, shopped at Havaianas,  Portuguese for Hawaiians, at Bally's Grand Bazaar Shops, an outdoor mall. The store sells rubber handmade Brazilian flip-flips ranging from $18 to $115.

“Sometimes, the picture [a retailer] posts online for an item is different from what arrives at your door, and you’re very disappointed,” Sunglao said Tuesday. “Customer service — having staff take time to talk to me,” is what matters most to him, he said.

Sunglao wasn’t quite ready to make a purchase that day, but said he would return later in the week. Sales clerk Abby Quidachay directed him to the store’s website to see the full inventory before coming back.