LAS VEGAS — With more than 30 years of experience representing tenants and landlords in retail negotiations, Jedd Nero, principal and executive managing director at Avison Young’s New York office, has worked with household-name retailers such as Hershey’s, Hugo Boss and Verizon Wireless. Nero was one of about 37,000 retail professionals who attended ICSC RECon in Las Vegas in late May.
As the crowd jostled through the Las Vegas Convention Center in search of their next networking opportunity, Northeast Real Estate Business found time to chat with Nero. His insights into the rapidly changing landscape of retail real estate are detailed below.
Northeast Real Estate Business: Since the beginning of the year, we’ve seen a rash of store closures nationally. In terms of the volume of these closures, what has precipitated that? Is it just online shopping or are there other factors at work?
Jedd Nero: I think it’s a combination of several factors. I think we can all agree that the country is over-malled. There are about 1,200 malls in the country. By the time everything is said and done, there will probably be about 900 left. Class C and D malls have been affected the most.
Certainly online shopping has been a contributing factor, but it’s not the end-all. I think retailers got very complacent and stale and stopped paying attention to the consumer today, mainly the millennials, who represent the top demographic profile. If you haven’t been paying attention to the way millennials think, live and shop, then you’re behind the eight-ball.
Jedd Nero, Avison Young
Millennials aren’t hung up on stuff. They’re hung up on experiences, traveling, doing things and doing things collectively. That’s why the food thing has taken off — because they all like to mingle and eat and socialize. It’s all about convenience and it’s all about speed. The consumer today isn’t hung up on paying for high-ticket items if it’s convenient.
NREB: As a demographic group, millennials have surpassed baby boomers in number (75.4 million millennials compared with 74.9 million baby boomers as of 2015, according to the Pew Research Center). Is it only the millennials who are driving these shifting trends in shopping?
Nero: The thrust of the change is coming from the millennials. Technology today allows you to go online and avoid going to the mall, spending half the day shopping and dropping money on gas. Instead you can spend a couple hours online and get free delivery in two days, and there are a lot of products today that people are willing to do that for.
I think many retailers have been blind to that. And in my opinion, the ones that have gone out [of business] — they’re stale. They didn’t stay with the times. Their marking and product mixes haven’t changed.
When I was young, I always admired The Gap. It was really the initiator of so many retailers that followed. But what I loved about The Gap then — which I don’t see today — is how every week when you walked past the window, there was something new on display. They moved the store around. There was always a certain vibe and attraction that made you want to come in.
Certain stores got lazy. Every day, I walk by J. Crew on the way from the train station to my office. Not to pick on them, but this is a retailer I used to love shopping at. But I haven’t shopped in one of their stores in several years because I think their product mix just went south. I think they lost their sense of who they were and where they were going. It’s a prime location on the corner of Madison Avenue, but the display is unattractive; it blocks you from seeing in the store. It’s a beautiful store and they’ve got tons of merchandise — lots of color and things going on. If I could see that stuff, I would go into the store.
NREB: What went awry for these retailers who got complacent?
Nero: It depends which market you’re talking about. But in general, they probably had too many stores. We’re over-retailed and there was less need for that many stores. Now, with online shopping, there’s really no need for all these stores. What’s happening now is that retailers have realized they need to balance brick-and-mortar and online shopping. And if they haven’t spent time working on their e-commerce, they’re putting the brakes on and letting go of brick-and-mortar stores to create balance.
It’s all about connecting the dots for the consumer in different ways. You constantly have to be there for them in the way they want you to be there. It’s not a matter of “if you build it they will come,” but rather the other way around. With the retraction we’re seeing across the country, I think that cities like New York will become that much more valuable because people will travel from all over the world to come visit. And if you’re going to open a store, that’s the place to do it, because people will see it.
It’s a blank canvas right now. The 100-year-old model has just been thrown out the door and started over with no guidelines. Use technology, embrace it, come up with something new, because that what’s the consumer wants.
NREB: What was the 100-year-old model?
Nero: Well, you open a store, put product on the shelves and people come. Now people don’t have to do that, so companies have to think about how they’re going to bring people into the store but also balance that with online shopping.
The consumer today has done his homework. It’s very easy to go online, look up a product and its price points and learn who’s selling it. By the time they come into the store, they’re more educated about the product than the employees. It’s about dealing directly with the consumer, but not in the old-fashioned way that involves having salesmen walking around if you need help. Today, it’s about walking into a store and having a cup of coffee, playing with virtual reality — whatever it is.
NREB: How much of that [creativity] has to come from the retailers versus the owners/investors of the shopping center?
Nero: I think it’s a combination of both. The retailer has to come up with its own vision and vibe of how it wants to be perceived. The shopping center itself also has to come up with new concepts that are going to make you want to go there, whether it’s entertainment, music, food, etc.
NREB: Let’s switch gears a bit. What’s your definition of a food hall, and why is this concept gaining steam?
Nero: We’re bringing quality food from a variety of countries into one place. Food halls today use a higher quality of food and have a higher quality of operators. Where else can you go to have all these options?
NREB: Do you see the food hall trend spreading to the suburbs?
Nero: It’s already gone to the suburbs. I live in Westchester, and there’s a town nearby called Mount Kisco where they’ve opened up a similar type of place, but on a smaller scale. It’s right across from the movie theater. People like it. You can get pasta, Japanese food; there’s a bar and it’s very cool and hip. I just think it’s part of the evolution. To me, this is the ultimate entrepreneurial moment. We’re seeing more entrepreneurial activity than ever before, and a big part of that is the online/social media element. Before the Internet, it was tough to start a business and gain a following.
Today, you start a business in your garage, social media catches onto it and before you know it, it’s all over the place and your product is selling like crazy. Then you open up a brick-and-mortar store and people come running because you’ve already built up a client base and everyone knows who you are.
Before it was the opposite: you had to make a long-term investment in a 10- or 15-year lease and invest in all kinds of expenses without knowing whether you were going to make it or not. Now, companies like Bonobos or Dorothy Perkins that started online are opening stores without any product in stock. No inventory costs, no shipping costs, no insurance — think how much you’re saving.
Still, there’s so much opportunity out there today, I think you’re going to see a lot of online retailers opening up stores. The retailers that already established are going to have to reimagine themselves and come up with a long-term plan on how to implement technology into their business, how to come up with a new vision of who they want to be and how to build their Internet [platform] so they can connect directly to consumers. It’s like someone throwing out jigsaw puzzle pieces without showing the picture on the box.
NREB: What’s the big buzz in New York right now?
Nero: There’s no silver bullet out there right now. Rents are very high, but they’re coming down. They’ll continue to come down because the retailers along Fifth Avenue or near Times Square — their rents have just gotten way out of hand. The problem is that a lot of those properties were bought at the peak of the market and with projections of rents going up. You can’t make a retailer stay, but you also can’t have someone come in if they’re not going to pay the rent the landlord needs them to pay. So, you’ve got a lot of empty space and a lot of big boxes that are available in these tourist markets.
NREB: Are we going to see more owners of retail real estate be required to put equity into their properties when it comes time to refinance these assets?
Nero: Those are the issues that are certainly taking place on the landlord’s end, and tenants are balking at the rents. Manhattan will always be a place where people want to live and shop, and I think that with the retractions going around across the country, ultimately Manhattan will be bigger and better than it ever was — once they figure it out.
NREB: What do you know today about the shopping center industry and retail real estate in general that you didn’t know back when you started as a broker?
Nero: As you grow in this business, you understand the elements that drive success and how careful you need to be in expanding. I’ve watched many companies come in and grow too quickly. You need to slow down; you need to control it. I’ve watched tenants that have grown into franchises that haven’t worked out because they lose control. You have to know who your customer is and understand your demographics and price points.
You can’t be asleep at the wheel. It’s a 24-7 operation, and you have to stay up with the times. You can’t get stale. If you do, the next guy is right behind you and will run you over. I’ve watched that happen.
— Interview by Matt Valley. Compiled by Taylor Williams.