Is retail like we know it dead?

babybaboon's picture
Rank: King Kong | 1,060

Open to any and all. Any markets, any type of retail, any thoughts. TLDR: Where are the value opportunities you still see in today's current market climate and in the coming years?

A few years ago I would have been pretty skeptical getting into the retail business. To be fair, I still am, but not as much depending on the market and type of retail (grocery anchored centers vs. small strip malls). Just want to get thoughts on retail specifically as we see a shift in re-purposing/re-positioning of assets at a quicker pace than before.

Comments (33)

Jun 26, 2019

Nahhh. People are always going to go to grocery stores, people will always shop at places like 6th Avenue for the experience, people will always buy clothes from outlet malls so they can try stuff on in person, etc. It's always been a mighty risky asset class, you just need to understand what you're getting into.

Jun 26, 2019

I'd argue this is the best possible time to jump into retail investing. Never been a fan of retail brokerage due to the ownership type.

Jun 26, 2019

Retail is going more experiential. This is a wonderful time IMO to retail invest.

Jul 17, 2019

I feel one of the biggest issues with investing in retail right now is you have broker BOVs coming back low, clown third party valuation firms like Altus are coming back with over-inflated values, and owners not wanting to take a write-down on book value. This has made transacting difficult since anyone UW these deals are going to be conservative and slashing second gen rents compared to whats currently in-place. Until valuations get more inline, the re-positioning of these assets will occur at a slow pace.

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Jun 26, 2019

A lot of inferior product is going to zero. But the well located, well tenanted stuff should capture all that leftover market share.

Most Helpful
Jun 27, 2019

Small-shop retail is pretty healthy across most rent ranges except at the highest-end where heath ratios have declined due to ridiculous rents. I personally want to get into creative boutique neighborhood center redevelopment in high-growth suburbs with 3/5 mile HH incomes 1.5x+ the MSA median. Shoppers demand inspiring experiences when they visit brick and mortar now which must include thoughtful landscaping, design schemes, and art work. Smart retailers understand this, and are targeting those properties that have a sense of place.

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Jun 27, 2019

As an ecommerce and DNVB focused monkey the biggest opportunity for us has been buying distressed retailers with large piles of data and using that transform the company into an experience heavy DNVB. It helps that DNVBs have good multiples and hype right now which makes them easier to flip to a VC.

One of the best PE firms I've seen transforming retailers is CSC Generation. Take a look at what they've done with Direct Buy and your brain will explode. Brilliant people and the founder is ridiculously bright too.

Since this post is in the real estate sub forum, I think we will keep seeing demand for warehouse space grow and huge retail space vanish and turn into smaller experience focused outlets for DNVBs. Good examples are what bonobos, warby Parker, etc. have done.

Jul 18, 2019

What is DNVB acronym? Never seen this before.

Funniest
Jun 27, 2019

How to DISRUPT and REVITALIZE a RETAIL SPACE:

Step 1) Buy a DISTRESSED old mall
Step 2) Gut it THOROUGHLY
Step 3) Fill it with COCAINE
Step 4) Get high off your own supply, knowing that you have successfully DISRUPTED and REVITALIZED the retail space

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Jun 27, 2019

Buzz words. Literally.

Lol

Jul 3, 2019

I lol'd, +SB

Jul 14, 2019

Lloyd, did step 3 get disrupted when they seized that container ship with $1 bil. Worth of coke the other day?

Jul 17, 2019

Lloyd, what about vibrant? WHAT ABOUT VIBRANT? PEOPLE CRAVE VIBRANT!

Just made sure the coke is organic and sprinkle in some CBD, hello best investment of the 2020's.

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Jul 17, 2019

My THC infused baby oil has been proven to DISRUPT children's mental development and create RETARDATION with BLOCKCHAIN technology

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Jun 27, 2019

.

Jun 27, 2019

Also known as make it instagrammable

Jul 8, 2019
m_1:

Also known as make it instagrammable

This is actaully a huge driving force of a lot of retail places

Jun 28, 2019

A high majority of failing retailers have revenue that is directly tied to in-store sales. The retailers that are thriving are retailers where at least 30% of their income comes from online purchases.

A problem that has plagued most on-line retailers is returns, people are 2-3 times more likely to return a product bought online. Brick and mortar location provide a location to drop returned merch off without paying fedex $10-$20 bucks for an item that likely costs $50-100

Jun 28, 2019

Some form of retail will probably continue to exist for as long as humans (or their robot servants) need to buy stuff immediately due to need or impulse. There's a lot of pain in retail sector right now, but there are some retail stocks out there with little or no debt and that can probably persist even in this post-Amazon world.

Jun 28, 2019

Retail is definitely not dead. It's just shifting.
The retailers that were resistant to change I.e. Sears, JC Penny, Macy's, Toys, R Us, etc were/are the ones sucking wind. Boutique personalized experience is where it's at. Like previously stated, people want an experience when they go out shopping. Independent restaurants are doing well (large chains like Chili's, IHOP , Outback, etc not so well).
Younger generations are paying more for quality and well-being ...ex. Paying 12 dollars for a craft blended kale and fruit smoothie vs a McDonalds shake.
Service businesses like salons, dry cleaners, nail places, etc are doing ok, as they are somewhat resistant to ecommerce.

Jun 29, 2019

Overpriced retail is dead. Boring retail is dead. Retail that doesn't differentiate itself from online shopping in any way is dead.

The corner store that sells staples like milk, bread etc that you need NOW is fine. The lower priced retailers, they're doing great. The trendy lower price retailers are doing even better.

There's four tranches of B&M retailers that are going to become dominant:
1. Specialty stores. Example: Amazon will never carry the full spectrum of imported meats that a boutique deli will
2. Mainstream low price. Target, Walmart, Costco, Zara, they're only going to increase market share.
3. Experiential Retail. All the smart kids want to play in this space but everyone should realize the concepts here can be extended to the other two groups.
4. Anything convenience. Bodegas always make buttloads of money. Liquor stores and 99 cent stores generally make a killing. Can you buy this stuff elsewhere? Yeah. Do you want it RIGHT NOW?....yeah, so you need these stores. I suppose they can apply experiential retail innovations here but they generally don't have to

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Jul 3, 2019
UFOinsider:

Overpriced retail is dead. Boring retail is dead. Retail that doesn't differentiate itself from online shopping in any way is dead.

Hear, hear! And true of more than retail...

UFOinsider:

Experiential Retail. All the smart kids want to play in this space but everyone should realize the concepts here can be extended to the other two groups.

I always wonder about these stores. Lots of expensive pop-ups in Manhattan, but while the Instagram crowd visits them in droves (specifically thinking of the Google pop-up store on lower Fifth Ave last year and the flagships in Midtown), do they ever actually move product? Maybe revenue is a second- or third-order effect weeks later?

I know they're there to build brand awareness, but has anyone ever been privvy to a retail's plan to monetize flagships?

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Jul 5, 2019
Edifice:
UFOinsider:

Overpriced retail is dead. Boring retail is dead. Retail that doesn't differentiate itself from online shopping in any way is dead.

Hear, hear! And true of more than retail...

UFOinsider:

Experiential Retail. All the smart kids want to play in this space but everyone should realize the concepts here can be extended to the other two groups.

I always wonder about these stores. Lots of expensive pop-ups in Manhattan, but while the Instagram crowd visits them in droves (specifically thinking of the Google pop-up store on lower Fifth Ave last year and the flagships in Midtown), do they ever actually move product? Maybe revenue is a second- or third-order effect weeks later?

I know they're there to build brand awareness, but has anyone ever been privvy to a retail's plan to monetize flagships?

I've always seen flagship stores as a marketing tool, especially ones in midtown. Rent is $100K/month, there's no way to ever recapture that. It designed to be a marketing focal point, with photo and video ops "live in our midtown concept store" targeted at everyone who isn't there.

A lot of the "concept" and "experiential" stuff is totally overthinking it. If you're selling a cool baseball cap on the street for $5 you're going to sell out. I think what people have to realize is that these types of stores almost always originate in an enriched environment that doesn't really match up with the rest of the market (as in, some board room decision or some NYC trend hub, but certainly not bumfunk Alabama). True innovation on a mass scale is pretty rare at this point, it's just a refinement competition (as in, Zara does essentially what every other retailer does...just far better).

To be really frank, a lot of the "experiential" stuff is too gimicky to be applied in a way that will scale. Should become better over time though, but still is a small part of overall market.

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Jun 30, 2019

The issue with retail is that you have a lot of vanilla people making decisions.

The more value you put into placemaking, the greater the return on investment. The retail (tenant) doesn't need to be experiential, but the property does.

Unfortunately, investors care more about costs rather than design because "the spreadsheet said so". It seems excel junkies/investors don't appreciate aesthetics as much as the consumers they want to appeal to.

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Jul 5, 2019
commercialrainmaker:

Unfortunately, investors care more about costs rather than design because "the spreadsheet said so". It seems excel junkies/investors don't appreciate aesthetics as much as the consumers they want to appeal to.

Indeed, this could be said of most industries. It's never the most brilliant design, or the most long term profitable idea....it's always the middle of the road, profitable-now thing that gets preference. Probably why most new ideas originate in either wetworks environments or small business, because they're more prone to take outsize risks or have more decision making freedom. Nothing edgy eeeever comes out of a C-level thought pattern.

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Jul 13, 2019

Very well put; I agree with all of this.

Jul 3, 2019

In my humble noob opinion, no it is not dead. In mixed use buildings, having the right retail tenants is essential for drawing in quality residential tenants. Pretty much if the retail space sucks, it will be challenging to maintain occupancy in the residential space.

So it is in the owner of the building's interest to draw in quality retail tenants.

And as everyone said, people still have those " I NEED IT NOW" moments, which online cannot provide for.

Jul 5, 2019

Overall I don't think it is dead but it is certainly depending on the market and type of retail.

For example, suburban shopping centers with your JCrews, Forever21s, Banana Republics, GNCs, etc., are on the verge of death. Small suburban downtown is also dead. I live in a "downtown" of a suburb and stores are going out left and right with some being vacant for years now. Unless it's a quality restaurant there's no chance of survival. I think your urban mixed use with your new luxury mixed use development is where it at and those will continue to thrive.

I'm actually still a big fan of malls and like the direction many are going with the "experimental" tenants and also a big fan of food halls. I think Westfield Malls has leased out a bunch of their space to them. They are also planning a couple of mixed uses developments around their malls which I think is interesting.

Jul 5, 2019

I am going to talk about Europe cause that's the market I know but I feel like it's kind of similar in America. Malls and retail parks are free falling, cap rates are going to crazy highs because the old "american way of life" which consisted in buying everything from the mall is falling appart with deliveries. But the thing that will always stay, are the shops in the prime center of cities, in ideal locations, kinda like flagship stores. But then the rise of delivery also creates opportunities in logistics, I feel like many people in retail should start expanding their skill set to logistics if they don't want to be stuck fighting for flagship deals.

Jul 17, 2019

Large shopping centers and shopping malls in suburban areas seem to be trending downward or finding the need to reinvent themselves. I live outside a major city in what is defined as a suburban area with high income earning relative to other cities in the metro area but there are large shopping centers which have lost large tenants that were once filled by Babies'r'us, OSH, Sports Authority, and Sears to name a few. Not only that but other retailers that filled smaller spaces like J. Crew and Gymboree struggle financially.

However, small shopping centers that provide more irreplaceable services like restaurants, cafes, clinics, and other services, at least ones that have not yet been replaced with e-commerce type services still remain strong. Smaller spaces to fill make it easier to find tenants more easily, i.e. Trader Joe's continually growing from what I've seen. Strong customer base, but small footprint. Both of those seem to lead to a profitable retail chain.

Jul 17, 2019
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