Waiting for Rates to Thaw, Debate Over Locked-Up Goods, New Leadership

Waiting for Rates to Thaw, Debate Over Locked-Up Goods, New Leadership




The mood at the ICSC New York conference held this week at the Jacob K. Javits Convention Center in New York was upbeat but still a bit guarded. Brokers touted how tight retail space is, with CBRE tracking the national retail vacancy rate at 4.8%, according to Laura Barr, Americas retail leader for the brokerage. CoStar data put U.S. retail vacancy at an even tighter 4.1%.

But there is still uncertainty about how consumer spending will hold up in 2024, an election year, and how still-high inflation will affect spending.

“The mood is, unsurprisingly, tentatively optimistic,” Naveen Jaggi, JLL’s president of retail advisory services, told CoStar News. “I think everybody in the retail business is inherently optimistic. But it’s undeniable that between high interest rates, a war in the Middle East, and inflation cooling but not cooled, that creates a little bit of anxiety in the retailers’ eyes. And so I give a lot of credit to our investor-owner-developer clients for being really creative to keep the retailers in place. But right now, I think we’re just waiting for kind of what I would call an interest-rate thaw. When we have an interest rate thaw, so much opens up. I think that’s going to happen next spring, next summer. And it’s going to get really busy.”

Lower interest rates and more available capital will mean more properties can be sold and acquired, and retail landlords can invest to develop and redevelop shopping venues, according to several conference attendees.

Organized retail crime has been a top-level concern for the industry this year, and there was a panel Wednesday on the topic. Stephanie Cegielski, ICSC vice president of research, asked Gary Smith, discount retailer Target’s senior director of assets protection if locking up goods was a deterrent to customers trying to buy items. ICSC has done surveys that found that it wasn’t a deterrent and that shoppers were willing to wait until an item was fetched by a store employee, according to Cegielski.

Gary Smith, Target’s senior director of assets protection, discusses locking up merchandise. (Linda Moss/CoStar)

But Smith conceded that such lockups had put a crimp on sales but were necessary in some cases and that Target and others aren’t “arbitrarily” taking such measures.

“So Target’s” locked up merchandise, Smith said, “I mean, if you’ve been in a Target lately, probably in New York City, you’ve seen it. But, it’s a last resort. That’s not our first option because no matter what anyone would tell you, that will negatively impact sales. I mean, any rational human isn’t going to sit there and wait for toothpaste.”

But it is sometimes necessary because of what Smith described as “replenishing the theft” when “someone’s coming in and taking [merchandise] is not a good business model.”

So retailers such as Target have to follow the data and weigh the risks involved in profitable categories and limiting access to them, according to Smith.

In some cases, sales of locked-up items “will increase because you had no sales [before] because [an item] was basically just getting wiped out,” he said.

From a data and analytic standpoint, retailers have to weigh if losing a subset of their sales by putting items under lock-and-key will be offset by making a larger profit because they are no longer ordering an item from a supplier, “taking it through my distribution center, taking it off the back of a truck, walking it to the side counter just for Joe Blow to come back in and steal it again,” Smith said.

Target looks to make sure it has “the right labor model to support responding at a reasonable time frame” to retrieve locked-up goods, Smith said.

During the conference, ICSC announced that Jim Taylor, president and CEO of Brixmor Property Group, a real estate investment trust, had been elected to serve as the trade group’s chairman. Angele Robinson-Gaylord, senior vice president of store development for Starbucks, will serve as vice chairman for the 2024 term.

ICSC CEO Tom McGee, left, interviews Jim Taylor, president and CEO of Brixmor Property Group, the trade group’s new chairman. Angele Robinson-Gaylord, senior vice president of store development for Starbucks, is ICSC’s new vice chairman. (Linda Moss/CoStar)

Taylor was appointed CEO and president of New York-based Brixmor in 2016 and brings extensive experience in retail and commercial real estate stemming from a more than 25-year career in the industry. Before being named ICSC’s chairman, Taylor served as the organization’s vice chairman for the 2023 term. He previously served as executive vice president, chief financial officer and Treasurer for Federal Realty Investment Trust, and, prior to Federal, was head of real estate investment banking for Eastdil Wells Fargo.

Before joining Starbucks, Robinson-Gaylord led store development teams at Rite Aid and Ikea and formerly worked in the U.S. restaurant development division of McDonald’s. Robinson-Gaylord continues to support education and professional development programs for talented minority professionals in commercial real estate. She serves on the boards of the ICSC Foundation, Project REAP and Success Academy.

Tom McGee, ICSC president and CEO, interviewed Taylor and Robinson-Gaylord during a session at the conference on Wednesday.

On Tuesday, ICSC plans to release what it described as a landmark study on how physical stores can directly increase a retailer’s brand awareness, digital engagement and revenue.

“Halo Effect III: Quantifying the Impact of Omnichannel” will be the third and most comprehensive study that ICSC has done on the topic of brick-and-mortar stores in relation to online sales, Cegielski said during a conference session.

ICSC offered a sneak peak of results from its new study on how a physical store presence can directly increase a retailer’s revenue. (Linda Moss/CoStar)

Several years ago, online retailers such as Warby Parker and UNTUCKit didn’t have stores or were just opening brick-and-mortar locations, according to Cegielski.

“Now it seems like they’re everywhere and they are because they understood that to acquire those consumers is an expensive proposition,” she said. “If you’re only online, it is hard to market to them, it’s hard to do targeted ads, it’s expensive to do. But if you have a store, you’ve got an automatic billboard.”

At one time, there was the perception that if a company closed stores in a market, its online sales in that area would increase. But that didn’t happen with Radio Shack, for example, whose e-commerce sales dropped in such markets, Cegielski said.

“So what we realized is it really was out of sight, out of mind,” she said.

In its new study, ICSC looked at over $800 billion in credit card and debit card transactions involving 69 retailers.

“We did this over 2,100 retail locations in all 50 states and Washington, D.C., and across seven retail categories,” Cegielski said. “And those categories include things like department stores, big-box specialty stores, cosmetics. … It was a wide variety of stores to give you a sense that it didn’t matter what type of good you were selling.”

She offered a few snippets from the report.

“So if you look at an established retailer, we found that the online basket size jumps from $94 to $104 after a store is opened in that trade area,” she said. “For an emerging retailer, it jumps from $111 to $120 in that trade area. So you know not only are they spending in-store but the basket size actually grows once there is a store in that trade area.”


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