Download and share the latest CBC White Paper Retail Sector is Evolving with quotes from 3 CBC professionals and Fred Schmidt.

1. RETAIL SECTOR IS
EVOLVING
TIPS FROM RETAIL EXPERTS
“Retailers have to adapt, downsize and
move to competitive business conditions”
STORY
HIGHLIGHTS
Why would stores like Walmart try to find space directly in the heart of
major cities? Why would Cabela’s move into a mall? How is the Internet
constantly changing the retail landscape?
Triple net lease investments are
in high demand.
The fact is that the retail sector in commercial real estate is evolving,
and there are several factors driving that evolution in both the sales
and leasing areas.
The “big box” chains desire to
be in urban markets.
LEASING
Malls seek to fill space with
“non-traditional” tenants.
Three trends drive the current leasing market, and each is examined in
detail below.
Smart retailers achieve success
by combining traditional stores
with e-commerce.
MAXIMUM EFFICIENCIES IN SMALL SPACES
Change in Retail Rental Rates
One of the main trends in leased retail space in 2013 is companies
seeking smaller spaces so they can remain nimble and keep capital
available in order to respond to a rapidly changing market. Depending
on the industry, of course, it’s an “adapt, downsize and move” response
to increasingly competitive business conditions, according
to Rich Robins, Vice President - Retail Specialist Coldwell
Banker Commercial NRT, Salt Lake City, Utah.
RATES
$19.25
$19.15
$19.05
$18.95
2009
2010
2011
2012
2013*
Another driver for smaller leased retail space is the
continued necessity for big box chains like Walmart to
penetrate areas where space is limited and/or at a premium.
They’re pursuing a multichannel strategy to stock products
bought at their bricks-and-mortar stores as well as quickly
deliver online-ordered products.
YEAR
Source: Reis
THE DIRT ON LAND SALES: Tips from Land Experts
1
1

2. RETAIL SECTOR IS EVOLVING: Tips from Retail Experts
“ ig box stores
B
want to capture
‘move-back-in’
trends in urban
markets.
There are at least two factors prompting this strategy. One, there is a lack
of growth and opportunity in their traditional customer base in suburban
markets. Two, the big box stores want to capture business from “moveback-in” trends. That is, they see affluent young (and boomer) professionals
moving back into urban areas due to the fundamental transformation of city
economies from industry to services. This is also due to the professionals’
need for the diversity only an urban environment can provide. In essence, the
big box firms are going where the money is.
In terms of the urban environment, Walmart and Target are downsizing their
stores from 100,000+ SF to 10,000 to 40,000 SF, depending on the location.
More specifically, Walmart’s “Neighborhood Market” stores have an average
size of 38,000 while its smallest concept -”Walmart Express” - has store sizes
averaging around 15,000 feet.
Proof of the commitment to this “downsizing” strategy lies in the statement
from Walmart President and CEO Bill Simons. He said the giant retailer plans
to open more than 500 of the smaller stores within the next 18 months. That’s
up from the current 290.1
The company continues to test and refine its Neighborhood Market and
Walmart Express stores. As might be expected, a typical Neighborhood
Market offers a smaller range of items than the larger stores with a focus
on groceries and pharmacies. A typical Walmart Express gives customers
convenient access for stock-up and fill-in shopping trips. A key part of
Walmart’s strategy is to stay flexible as much as possible and customize the
Neighborhood and Express stores to local needs and competition.
Further evidence of desire to exploit the “move-back-in” trend is shown
in Target Corporation’s pursuit of a similar strategy to that of Walmart’s.
Walgreen and CVS Caremark are also focusing more on urban environments.
NON-TRADITIONAL TENANTS FILL VOID IN SPACE
Recently, there have some “big-name” retailers (Fashion Bug, Blockbuster,
Food Lion, Sears) that have closed many stores, especially in malls. In turn,
the affected malls are looking to “non-traditional” firms to fill this space.
These “non-traditionals” include companies like outdoor recreation firms
(BassPro and Cabela’s), furniture stores, boutiques, specialty foods, wine bars
and restaurants, etc.
Historically, these businesses have owned their buildings, for the most part.
The great benefit of a mall presence is that these facilities can give them
freeway exposure, thus making it easier for customers to find their stores.
2

3. RETAIL SECTOR IS EVOLVING: Tips from Retail Experts
This creates the potential for a larger customer base and greater sales. Plus,
they get great locations with low overhead. Add in the bonus of “wandering”
mall customers, and it’s a perfect fit.
In short, mall operators have found it necessary to get creative and seek
new tenants in order to maintain and increase profitability while fending off
incursions from online selling.
NEW WAY OF MERCHANDISING
“ etail is a tough
R
balancing act.”
For retailers these days, it’s a tough balancing act. Many of them have to
downsize their spaces to cut costs, but, at the same time, maintain the proper
sales volume. If they downsize too drastically, they limit sales and decrease
profitability.
A decline in independent retailers has been created due to the continued
squeeze on their bottom lines. Because the big box stores and other large
chains are taking a big bite out of the “mom and pop” market, the most
successful retailers are the ones combining e-commerce with an in-store
presence. They’ve realized that a stand-alone format is no longer viable
because shoppers are now armed with apps that allow them to discover
quickly what’s on sale, what coupons are available, and what new products
can be bought. Savvy retailers know that customers who can touch the
merchandise in a store are likely to buy more online. This means they need
to seek smaller spaces while shifting a heavier emphasis to marketing and
promotion.
MARKETING
N O N -T R A D I T I O N A L LY
Social media presence,
including blogs and videos
Text Messaging
Barcode Scanning
Location-based Social
Networking
Mobile Apps imitating
Shopping Experience
Separate Mobile Apps
for Discounts
In terms of the impact of the Internet on leasing, shoppers are better
informed than ever, which creates pressure on retail margins. Today’s
customers are demanding two things from retailers - convenience and ease
of use. This has caused businesses to increasingly to turn to non-traditional
marketing methods like:
• Increased social media presence, including blogs and
YouTube videos.
• Text messaging, highlighting deals and promotional
codes.
• Barcode scanning by customer smart phones.
• Location-based social networking
• Mobile Apps imitating shopping experience.
• Separate Mobile Apps for discounts (Target Cartwheel)
Retailers have focused heavily on social networking sites because they
can control their own destiny and retain the ability to “react quickly to any
issues that may occur and more readily reward loyal customers.”
3

4. RETAIL SECTOR IS EVOLVING: Tips from Retail Experts
EXPANSION AND CONTRACTION
In 2013 and beyond, these Retail categories offer potential in terms of sales
and leasing because of expansion.
• Apparel (off-price)
• Automotive service
• Dollar stores
• Health and fitness (including spa concepts)
• Niche grocery/small grocery — ranging from discount to luxury and
ethnic to organic. Also, according to Dave Labush in the northeast, the
pharmacy chains (Walgreen, CVS, etc.) are blurring traditional trade lines
by expanding grocery sections, thus taking a bite out of the business of
independent retailers.
• Restaurants (fast food/fast casual lead the way)
• Pet supplies
• Pharmacy
• Sporting goods
“ id-price point
M
stores will see
limited growth
while luxury and
discount retailers
will continue to
expand”
The trend is toward contraction in the following retail categories:2
• Bookstores
• Do-it-yourself home stores
• Large grocery stores— especially unionized smaller or regional chains
• Office supplies (going more e-commerce)
• Shipping/postal stores
• Stationary/gift shops
• Some casual dining concepts — the old and stale lose out to new and
fresh
• Video stores
Stagnant middle class growth is causing the increasing bifurcation in the
retail market. Mid-price point stores will see limited growth while luxury and
discount retailers will continue to expand
In summary, downsizing and the desire to penetrate different market
environments, and the need to adjust to e-commerce are driving
the retail lease market in many U.S. areas. On the upside overall, for
the first time in five years, asking rents have risen across all property
types in the U.S. Growth was strongest in the western markets such
as Dallas, Denver, Phoenix, and San Diego. However, that growth
was slow and isn’t likely to increase greatly in the foreseeable future.
Nationwide, net retail absorption dropped 17 million SF from the year before.
4

5. RETAIL SECTOR IS EVOLVING: Tips from Retail Experts
SALES
“There’s a very
large unfilled
buyer demand
for bricks and
mortar,”
Sales of retail space depend greatly on location. According to T.C. Macker,
Executive Vice President with Coldwell Banker Commercial WESTMAC in Los
Angeles, the drivers behind considerable buyer demand include:
• Historically low interest rates and costs
• Low inventory of available properties
• Firm cap rates
• Investors seeking an alternative to skittish financial markets; they’re
looking for safer, sounder investments and see West Coast properties as
a great opportunity for their money
This has created a situation where “sales are on fire” in areas like Los Angeles.
In fact, Mr. Macker said, “there’s a very large unfilled buyer demand for bricks
and mortar, and that this demand is not just limited to retail. Triple net lease
investments are in high demand as well.”
Retail investment sales are also increasing in a big way in markets like
Atlanta, Dallas, Denver, and Minneapolis. In the northeast (New Jersey),
however, retail inventory is low, according to Dave Labush of David Labush
of Coldwell Banker Commercial NRT in Westfield, NJ. Mr. Labush has seen “a
decline in independent retailers due to the squeeze on the bottom line by
larger retail firms.”
Nationwide, demand for space has increased at a better rate than expected
after the lingering impact of the “Great Recession” created a glut of space.
This means the market is trending toward a balance of supply and demand.
However, lack of new construction means that speculative retail is the most
difficult kind of property to get financing for. This, of course, is a positive for
existing properties and their landlords, creating higher rents and occupancies
in prime locations and centers.
In summary, low inventory, cheap debt, firm cap rates and investor demand
are driving sales of retail properties on the West Coast (in particular) and
nationwide (in general).
5

6. RETAIL SECTOR IS EVOLVING: Tips from Retail Experts
FRED SCHMIDT
T.C. MACKER
RICH ROBINS
DAVID LABUSH
Fred Schmidt is President and COO of Coldwell Banker Commercial Affiliates.
He is a veteran commercial real estate professional with more than 30 years
of experience in the industry. He is a member of CoreNet Global, the leading
professional association for the corporate real estate industry as well as IAMC
and ICSC.
T.C. Macker is an Executive Vice President with Coldwell Banker Commercial
WESTMAC, specializing in investment sales and leasing. During his 16-year
tenure in the commercial real estate industry, Mr. Macker is recognized as
one of the premiere real estate advisors to private and institutional clients.
Mr. Macker was ranked #4 out of approximately 2,800 agents Worldwide for
2012. tcmacker1@cbcworldwide.com
For the past 42 years, Rich Robins has been involved in the leasing,
development, and management of all types of shopping centers, office
buildings, and properties throughout the West. Rich acquired his Certified
Shopping Center Manager (CSM) designation from the ICSC in 1975. Robins’
expansive background and real estate involvement has enabled him to work
with many national and regional tenants. rrobins@cbcworldwide.com
David Labush is a Sales Associate with Coldwell Banker Commercial NRT that
is a highly successful veteran of the commercial real estate field. His belief
is that “real estate, first and foremost, is about service.” He’s a licensed real
estate agent and a member of the National Association of Realtors, New
Jersey Association of Realtors, and the Garden State Multiple Listing Service
Greater Union County Association of Realtors. dlabush@cbcworldwide.com
The Coldwell Banker Commercial® organization is a worldwide leader in the
commercial real estate industry, with a collaborative network of independently
owned and operated affiliates. The Coldwell Banker Commercial organization
comprises over 200 companies and more than 3,000 professionals throughout
the United States as well as internationally.
To find out more, go to www.cbcworldwide.com or phone 800-222-2162.
1
Source: http://www.thestreet.com/story/12034290/1/wal-mart-plans-500-us-neighborhood-market-stores.html
2
Source: U.S. National Retail Report 2013, ChainLinks Retail Advisors
© 2013 Coldwell Banker Real Estate LLC, dba Coldwell Banker Commercial Affiliates. All Rights Reserved. Coldwell Banker Commercial Affiliates fully supports the principles of the Equal Opportunity Act.
Each Office is Independently Owned and Operated. Coldwell Banker Commercial and the Coldwell Banker Commercial Logo are registered service marks owned by Coldwell Banker Real Estate LLC.
6