Retail Leaders Share Strategies for Change

Marcus & Millichap’s annual Retail Trends panel, held during RECon, addresses the opportunities and challenges posed by a sector going through rapid transformation.
From left, Daniel Hurwitz, Mike LaFerle, Eric Termansen and Scott Holmes at Retail Trends. Not pictured: Hessam Nadji.

In this head-spinning time for the retail sector, how can property owners, advisors and retailers be the most effective possible change agents?

That issue was at the heart of Marcus & Millichap’s annual Retail Trends event May 21 in Las Vegas to coincide with RECon. The long-running session at the Renaissance Hotel coincides with the International Council of Shopping Centers’ annual spring convention. In a lively, wide-ranging discussion moderated by Scott Holmes, senior vice president & national director of retail, executives grappled with challenges, identified opportunities and shared strategies for success.

During his introductory presentation to hundreds of real estate professionals, Marcus & Millichap President & CEO Hessam Nadji ticked off a battery of retail-friendly metrics that the economy has racked up since the Great Recession: the third-longest economic expansion in U.S. history; 10 million new jobs, $5.3 trillion growth in GDP and a 3.9 percent unemployment rate. In addition, the recent package of tax cuts boosted corporate investment 9 percent during the first quarter alone. For the first time, consumers are spending more to dine out than they are to buy groceries.

Marcus & Millichap President & CEO Hessam Nadji discussing economic and retail trends during RECon in Las Vegas.

On the other side of the coin, Nadji confirmed that investment in retail real estate has dipped noticeably since 2015, in large part because store closings and retailer bankruptcies have spooked many institutional players. Still, that trend creates an investment opportunity for private investors, he contended.

De-Retailing America

Panelists argued that the string of store closings are a necessary, if painful, corrective. “Basically, we’re de-retailing America from being overbuilt,” Nadji explained. “It’s happening, and it should be happening.” Aiding the de-retailing effort is the limited inventory of new product. Marcus & Millichap’s 2018 retail investment forecast projects a 9.4 percent decline in completions to 54 million square feet. Only five markets—New York City, Dallas/Fort Worth, Houston, Phoenix and Miami—will account for more than one quarter of that new product.

Raider Hill Advisors President & CEO Daniel Hurwitz took Nadji’s point one step further. “We’re not overbuilt, we’re under-demolished,” he quipped, drawing laughter from the audience. What keeps him up at night is primarily “tenants who are unwilling to recognize that they’re bad merchants.” Amazon is easy to scapegoat for store closings, Hurwitz added, but he laid the responsibility on retailers who have failed to meet customers’ needs.

Panelists offered strategies for both addressing problems and making the most of opportunities. Eric Termansen, president of Western Retail Advisors, called for more innovation in suburban power centers. “Too many landlords are still looking at the 2006 power center model,” he explained. Fitness facilities  offer “a fantastic opportunity” for property owners, as do health-care providers, and generate plenty of traffic for their centers, he said.

Like many others attending the International Council of Shopping Centers’ annual spring convention last week, speakers stressed the importance of innovation for both operators and retailers. Mike LaFerle, vice president of real estate and construction for The Home Depot, noted that the giant retailer has introduced self-checkout and wayfinding technology to help shoppers locate items quickly. In a bid to improve last-mile delivery, the company is embarking on a five-year expansion program that will double its distribution space to 110 million square feet. At the program’s conclusion, Home Depot’s distribution facilities will be within 10 miles of 90 percent of the U.S. population, LaFerle added.