When in Rome: Our Take on the ICSC OAC (Open Air Summit)
We know from our high school history lessons that large scale public shopping centers have been around since the days of the Roman Empire, if not before. The fabled open air markets of cities like Istanbul and Damascus still exist today and are often the backdrop of our favorite action movies and TV shows (anyone see Skyfall?) As we heard at this month’s ICSC OAC conference in Miami, the industry is seeing a return to days long ago with an uptick in interest in open air centers, including in urban areas across the United States. ICSC’s OAC conference brings together high level executives in the retail industry to discuss the key trends, challenges and opportunities facing the Open Air Shopping Center community, and this year’s event did not disappoint. Here’s what we learned:
Experience Makes Perfect
The notion of “If you build it, they will come” has taken on a different twist for developers and investors looking to build a portfolio of successful projects. E-commerce is changing the retail landscape offering consumers the option of purchasing nearly anything they need or want from their smart phones. This is challenging developers/landlords and retailers rethink the critical question: what will get people to visit our property and stores?
The answer? Creating a retail environment with customer friendly amenities, and a multitude of experiences. The owners of open air centers are focusing on forming a destination with memorable spaces and places. Many of these open air projects not only open up to the community, but they often serve as their civic hubs and gathering places. A terrific example of this is a ground-up, mixed-use development that we are working on for a client in the Florida market, which will offer approximately 600,0000 square feet of a mix of shopping, dining and entertainment venues; 500,000-1,000,000 square feet of prime, Class A office space; approximately 1,000 planned residential units; and even twin hotel towers anchoring its main street retail.
Discount and Value to the Front of the Line
We know from industry data that millennials would rather use their disposable income for experiences rather than owning things. These younger consumers also prefer buying discount or off-price products. Outlet centers, most in open air format and including experiential offerings such as restaurants, food halls, family entertainment centers, grocery stores, cinemas and other attractions are enjoying growing popularity. As we reported after ICSC’s 2017 Mid-Atlantic Conference and DealMaking earlier this year, discount and value retailers have been building on a hot streak. The consensus we’ve heard on discount retailers is that they have been able to undercut department store competitors on price without sacrificing much by way of style or quality. As a result, consumers still cannot get enough.
Mixed Views on the Economy
In general, the tenor at ICSC OAC was that while open air centers remain a favored asset for investors, we are still seeing cautious optimism among retailers. Retailers are being more conservative about new deals, perhaps a result of uncertainties on evolving tax law changes and the new presidential administration. The brokers we spoke to are generally more positive. Conversely, retail developers seem more gloomy on the markets (for example, many are being priced out of major urban locations such as New York City). We think that the billions of dollars in CBMS debt coming due in the next few years will continue to put pressure on regional malls (Class B/C) and some major retailers as well.
Innovation at Work
Despite various views on the economic climate, everyone we spoke with agreed that landlords and retailers need to find creative ways to partner together to make the store and center experience more customer friendly. Also, taking the much-discussed convergence of brick and mortar and online even further, we were fascinated by one conversation we were a part of where a major retailer, which started as a catalogue company many years ago, is using the massive amount of customer data they have accumulated based on their catalog business and more recently their ecommerce business to their advantage. By knowing where their customers are located, they are able to use that information to identify ideal locations for their brick and mortar stores. With 30 or so stores now across the U.S., this retailer shared that e-commerce sales typically decrease a little when a store is opened, but that over time the e-commerce sales actually increase without impact on store sales because the stores are helping them to find new customers in areas where they know their products are in demand. The synergy between this retailers’ stores and e-commerce business is working for them, and we think, is evident of a growing trend we will continue to see play out.