Food Halls, Experiences Lead Retail Trends for 2017
In retail, nothing remains the same for long. A century ago, America saw the rise of mega department stores as category killers. In the middle of the 20th Century, regional malls were beginning their rise. That was followed by the power centers and lifesyle centers of 1990s and 2000s. Today, experience is the name of the game; consumers would rather spend time doing what they enjoy than shopping for common goods. They strive to make every trip an experience. In some ways, it is akin to the original days of the department store and regional mall, where every turn was met with something unexpected and new. Like the entertainment industry, the shopping center industry now touts more “original content” than replication in its medium, the physical retail format. Every venue strives to be different, and in some cases chain retailers have strived to make their locations differ from one another.
REBusiness Online’s sister publication Shopping Center Business recently spoke with Garrick Brown, vice president of retail research at Cushman & Wakefield, one of the foremost retail analysts in the industry, to see what trends he is watching as the industry enters 2017. Brown will be one of the keynote speakers at Entertainment Experience Evolution, February 7-8 in Santa Monica, produced by Shopping Center Business.
SCB: What trends are you seeing as we move through the holiday season this year?
Brown: We are definitely seeing another shift towards entertainment, food and beverage. One of my big fears for the year ahead is that we are almost definitely going to see a negative new cycle as retail closures — particularly apparel and department store — ramp up. We recently released a report on food halls. When you look at what’s happening with malls, there’s a reason why we put Eataly at number one when we rank national concepts. Eataly just opened in Boston a couple of weeks ago, so they currently have four stores and are going to have their fifth opening at Westfield Century City in Los Angeles. Eataly is becoming a mall anchor, and it’s all about backfilling these spaces with something that is pertinent and draws a crowd. You’re going to see growth with food halls, and not only from mall operators looking to create them at projects. Hopefully, operators create these spaces intelligently and they don’t just develop souped up food courts. I’ve seen a couple of people calling things food halls that are really a stretch.
SCB: It seems that there are really two models for creating a food hall. One is that you go out and get a master operator, à la the Plaza Food Hall in New York, or you develop it on your own and find somebody to curate the tenant mix for you.
Brown: Small food hall projects are exploding. Suddenly, every developer of a large project in an urban area — whether it’s a high rise office building, an office campus in a suburban market, a high rise multifamily project in an urban market or a hospitality development — they’re all looking for something that will be the ultimate amenity, and food halls are at the top of the list. In some cases, developers are building bite-sized food halls that are around 10,000 square feet or less. In other cases, developers are going a little bit larger. You’ve got growth on that end of the spectrum, and then you’ve got growth at the other end with single operator, Eataly-type food halls. Malls are all over that. Westfield is already doing multiple projects with Eataly. I also think you’re going to see some struggling class B malls attempt food hall concepts. They are trying to figure out a way to get their foot traffic back up. There will be some successes and some failures, but food halls are the hottest area of growth right now. They are hot with consumers, but they are also hot with developers and mall operators out of a sense of sheer necessity. I think that’s going to be one of the giant growth stories of the coming year. We may see power centers attempting food halls, that wouldn’t surprise me. It’s not really the optimal place though; food halls are still going to be mostly an urban phenomenon in either downtown CBD areas or malls — those two extremes.
SCB: What about department stores? Are they continuing to trend more towards discount?
Brown: With department stores, we’re seeing a fracturing of the retail market where there is no middle ground. It’s all becoming niche. Discount is the biggest, most successful and easiest niche to fit into. To me, what says it all is when you start seeing Macy’s Backstage pop-ups in their own full-line department stores. Nordstrom Rack is accounting for most of Nordstrom’s growth. A beautiful, giant full-line flagship Nordstrom is opening in Manhattan next year and they’ve been opening full-line department stores in Canada, but the full-line department concept has seen minimal to no growth, overall.
SCB: It seems like there is no middle ground anymore — it’s all high end or low end, there’s not much between.
Brown: The middle ground theoretically exists online. We had the age of the big box over the last 20 years — say 1990 to 2010 — where it suddenly was about convenience and not about service. This impacted the entire retail landscape. The problem is that the internet does the job of the big box store more effectively, at a cheaper price point and with a more pleasant experience.
SCB: On a positive note, what do you see out there in terms of expansion? Obviously food is one area.
Brown: A lot of it is kind of a continuation of the same story — discounters, off priced apparel and warehouse stores are all expanding. Grocery is interesting because it’s becoming niche-driven. Urban grocery is hot; Small concepts are hot, whether it’s organic, ethnic or discount. You also see consolidation in the middle. The grocery world will be kind of a revolving door, if anything. The interesting thing, though, is that we’re still seeing growth. I’m definitely worried about the sectors that are growing, including automotive and service related stores. These concepts are going to start to reach a saturation point. Dollar stores, if you just add up the top five concepts, basically opened about 7,000 units in the last five years. The math may be a little fuzzy here, but that basically equates to a new dollar store opening in the U.S. every six hours for five years straight. That’s a lot of dollar stores.
SCB: What are you seeing in terms of consumer wants and behaviors? What are consumers attracted to?
Brown: I think you have to have an exciting retail space for consumers to visit unless you’re going for that discount race to the bottom, where it’s all about value and pricing. It’s got to be about the experience, and that’s true on every level of retail, including restaurants. With all of the challenges in this retail environment, there are a couple of major malls that have been built that make you think, ‘how does the market support anything being built right now?’ Consumers tend to flock to the brand new thing, which is a challenge for the old properties. We’re over-retailed in the U.S. and we always will be because the bright, shiny new thing always wins. We might see really muted levels of development, but it will never completely go away. The brand new stuff has to be cutting edge. It’s one of the reasons why retailers are embracing more technology in their stores, like technologically advanced mirrors that allow you to try on different outfits. It all comes down to experience, and that’s everything from having easily accessible wi-fi in your stores to offering things that we didn’t used to have to offer. A lot of the cooking stores are doing great because they’re offering free classes, samples of food, events and cookbook signing. Barnes & Noble just opened one of its first test stores where half of the location is a restaurant and bar. This ties in with what Anthropologie and Urban Outfitters did buying a pizza chain about a year and a half ago out of Philadelphia. I see more and more of that occurring over the next year. There is the problem of how much food one can import into the retail experience, though. I have no doubt that there will be great results for, say, Urban Outfitters and Anthropologie, but it may create all sorts of issues in shopping centers with some of the clauses of leases. What do you do as a landlord if you have not only boosted your percentage of food and beverage tenants, but you also have your apparel tenant wanting to sneak food into its concept, as well? It’s a real challenge and it’s only going to get worse.
SCB: Many urban areas are seeing such innovative concepts. Some retailers blend a lot of uses under one roof. With some, you can go into a shop to buy a coffee and come out with a shirt.
Brown: There’s only going to be so much room for that. This level of competition is going to finally shake out the weakest players in the restaurant space, and most of the bloodletting will be casual dining chains. I think in the fast food world, you’ll also see some weaker players going down. Thousand-unit chains are not viable anymore. I think the same thing is true for apparel. In the apparel world, the real problem for retailers isn’t necessarily what they sell; it’s just the number of locations with shifting shopping patterns. One of the things I continue to hear from especially the millennial consumer, which is the biggest age demographic out there, is that some of the larger concepts aren’t connecting with them. Retailers need to up their willingness to take risks in buying to see what sticks with millennials. If they don’t, they’re going to die as dinosaurs.
— Interview by Randall Shearin, editor-in-chief of Shopping Center Business magazine. This article initially ran in the January 2017 issue of Shopping Center Business.