At REFA Summer Panel Retail Adapting to New ‘Experiential’ Lifestyle Centers

BOSTON—A packed room of CRE professionals gathered at the Real Estate Finance Association’s Annual Summer Panel to discuss the seismic shift in retail, or as one professional stated, “the death of retail as we once knew it.” Douglas Karp, President of New England Development; Eric Smookler, Chief Financial Officer at WS Development; and Matthew Curtin, Senior Vice President & Partner at CBRE/NE assembled with moderator Justin Smith, Managing Director at Newmark Grubb Knight Frank, to examine retail’s focus on creating unique, memorable and “experiential” shopping venues amidst the thriving and growing e-commerce market.

Igniting the discussion, Smith provided clarification on the “retail rumor,” assuring the audience that the industry is not undergoing a “slow death.” “Retail has always been changing, but the pace has picked up. Distribution changes have altered the way retailers and consumers interact,” he resolved. Smookler also provided some reassurance, noting that while e-commerce has taken sales from physical retail, “it is not a zero sum game.” To combat this challenge, he emphasized that development firms must find the traffic drivers and establish strong community atmospheres in their shopping centers to promote the exclusive, interactive experiences that consumers now desire.

Matthew Curtin agreed that integrating a sense of community into these commercial centers is key. After serving as Senior Real Estate Manager at Apple Inc. for two years, he found himself quoting the tech firm’s goal to enhance its “civic engagement” through its storefronts. He detailed, “It’s now about changing the site from a store with 4 walls, phones, and computers to a place where people gather.” He attributes this mindset to the company’s decision to relocate its storefront from the North Shore Mall to Market Street in Lynnfield, whose central green space provides an open area for various community events from movie nights to yoga classes.

New England Development’s Douglas Karp recalled his team’s decision to initiate a food truck festival at one of the firm’s outlet malls. “Sales went up 15% and the company didn’t have to pay anything,” he praised, emphasizing the importance of thinking creatively when it comes to building that unique customer experience, one that seems to be separating the successors from the wilted.

The panelists echoed that the transformation of retail stores into experiential, event -like atmospheres promoting memorable customer interactions epitomizes the shift in the retailer’s responsibilities. While their primary goal was once encouraging in-store purchases, retailers now find themselves more focused on strengthening brand awareness more than ever. “Retailers are now working differently with the idea that you might not buy anything inside a store,” Curtin asserted, claiming that interactive stores, like the Under Armour flagship store in Boston, serve to implant an exciting brand experience in the customers’ minds that will promote future purchases; which may be at a separate, larger retailer, or online - but still keeping its branded product in play.

The Need For Speed + Creativity

According to Smith, the transformation retail has undergone is a result of an effort to give shoppers their time back. “Everything happens in an expeditious manner,” Smith affirmed, “People now want to be able to do 3 or 4 things in 1 hour, in 1 place.” The fast-paced lifestyle that sends consumers looking for the quickest solution when it comes to running errands has also inspired developers to think more creatively about customer habits when it comes to placing stores within shopping centers. Karp believes this trend has put more emphasis on mixed-use centers. Chestnut Hill Square, one of his firm’s recent projects, focuses on how the different pieces of the typical consumer’s routine could come together in a center focused on health and fitness. The site includes Equinox, a fitness facility, Wegmans, Starbucks, and Athleta, in addition to various health clinics, namely a new Beth Israel Deaconess facility. “People go to the gym and want healthy food after, so there is a Sweetgreen right there … And after they can go to the super market before picking their kids up at day care,” Karp suggested. “You also need to think about the fact that someone going to a doctors appointment may want a good cup of coffee, not hospital coffee, so you put a Starbucks next door,” he furthered. Consumer convenience, he concluded, has become an increasingly important factor in designing these lifestyle centers.

The vetting process has also heightened, as developers work harder to find the right mix of tenants that will attract customers and create a memorable and timely experience for them. Karp noted that in order to drive people off their couches (where they now can order pretty much anything online with the click of a button) developers must lease to local product retailers in order to offer consumers something they will not find anywhere else. “20-25% local stores is a good mix,” Karp resolved. Smookler echoed his opinion, claiming that housing solely national retailers will actually inhibit a retail plaza’s success.

When it comes to placing retailers in specific storefronts, developers have had to re-think the concept of the 10,000-sf department store. Curtin believes there is simply no use for that much retail space anymore. “Now, stores only carry one of every size and color a product comes in, customers make purchases on an ipad, and the products show up at their houses the next day.” He explained that while customers may not need access to the boxes of merchandise stores once carried, they still enjoy a place where they can see and touch the product in person before purchasing it online. For retailers, he suggests, the key to operating in a smarter fashion is to reduce their footprint.

Even the industry’s attitude toward tenant improvements has altered slightly as developers realize the increasing importance of equipping retailers with the proper space to compete in a market focused on store appearance and engagement with the consumer. The panelists agreed that these renovations only benefit the developers in the long-run. “To create a great [retail] space, you need to build an environment where retailers can perform. If they don’t perform, they can’t pay rent,” Smookler resolved.

While the panelists affirmed that retail is not dying, they also confirmed that the e-commerce industry has forced retailers to reevaluate their relationships with customers. The real estate industry is in constant motion to evolve with consumer trends, thinking more deeply about shopper habits when it comes to developing retail centers. The panel expressed that brick & mortar retailers are not disappearing, however, they definitely need to adhere to a contemporary form, which aims to give consumers the time and convenience they desire while creating an experience that they will remember, and plan a return to.

Retail Panel: Justin Smith, Matthew Curtin, Douglas Karp, Eric Smookler

Chestnut Hill Square, Chestnut Hill MA

Under Armour, Boston MA