GLRE Summit Report: Omnichannel Retailers Poised to Outperform Peers

Industry stalwarts discussed the need to rethink retail investment at EisnerAmper and iGlobal Forum's Global Leaders in Real Estate Summit, dispelling myths about the rapidly changing sector.

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Sandeep Mathrani

Recently, industry executives convened at the 2017 Global Leaders in Real Estate Summit in New York City, a conference held in partnership with iGlobal Forum. At the event, top brass from GGP Inc., Olshan Properties and Staples Inc. conferred about retail growth opportunities and the sector’s accelerated transformation.

Beyond the headlines

Echoing a popular belief, GGP CEO Sandeep Mathrani opened the discussion by asserting that retail is overbuilt and under-demolished, and suggesting that more retailers will continue closing stores to rationalize their real estate footprints. Opposing the narrative that says retail is dead, the panelists concurred that not all retailers—only those with under-performing properties in weak locations—are suffering.

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Jason Ellis

Although e-commerce is claiming a larger share of retail sales, “there’s not this Doomsday, wherein everything gets delivered by Amazon,” Jason Ellis, senior company counsel of Staples, said. On the contrary, retailers that engage customers at both points of sale—online and in the store—will continue to grow.

Mathrani shared this point of view, adding that the greatest source of GGP’s tenants are e-commerce providers that are looking to open brick-and-mortar stores, in line with the growing omnichannel wave.

The best retail real estate is doing very well,” Mathrani maintained. “If you look at our portoflio over the trailing 12 months, you’ll see that earnings and sales productivity continue to go up.” According to Mathrani, his firm has already inked 9.6 million square feet in retail leases this year. 

It’s a fallacy to think that stores are actually getting smaller,” he noted. He has observed the opposite, citing Foot Locker and Tesla as examples. More often, retail tenants are taking larger spaces, he explained, in order to display more products and offer a more immersive shopping experience, including the option of online ordering with in-store pickup. 

Growth strategies

We’re seeing astronomical growth with buying online and picking up in store,” said Ellis. “We’re trying to spur that because it costs us less not to ship the order.” And because Staples often offers lower prices for items retrieved in store, the company has found a successful strategy to reduce costs and attract customers to its physical locations.

Andrea Olshan
Andrea Olshan

Like Ellis, Andrea Olshan has uncovered another way to increase foot traffic. At some of her firm’s mall properties, Olshan leases space to Happy Returns, a startup that partners with e-commerce sites to offer free returns at their branded kiosks. “Companies like these get people into the mall, which is a great service for landlords and owners,” she said.

Olshan also stressed developing a keen understanding of what she referred to as micro-markets. “You can’t just look at demographics, you need to look at the quality of competition at the micro level,” she said. “Milwaukee, Wisc., and Dayton, Ohio, used to be three-store markets, and I think that has changed. The dynamics of competition are more complex.”

There are ways to move toward a correction in the bricks-and-mortar retail space. For one, Olshan urged, planning boards and municipalities need to talk about the public financing that was issued in the late 1990s and early 2000s, because those bonds were responsible for much of the overbuilding that has occurred.

In addition to the number of locations, the quality of the real estate remains a prominent factor in long-term performance. “There’s a big difference between Class A and Class B/C retail properties,” Mathrani said. “Generally, if you have high-quality assets, then you’re going to be a winner in this sector.