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New genre of retailers offer experience over shopping

2019 Forecast Issue: Retail

Consumer spending is shifting from acquiring goods to taking part in an activity, and the trend in 2019 is to create businesses that offer an experience that attracts and keeps customers engaged, according to Levin Management President Matt Harding.

Consumer spending is shifting from acquiring goods to taking part in an activity, and the trend in 2019 is to create businesses that offer an experience that attracts and keeps customers engaged, according to Levin Management President Matt Harding.

Tenants entering shopping centers and retail properties in 2019 will be focused on convincing customers to come in and hang out, he explained.

“That’s restaurants, gyms and tenants like Dave and Buster’s, and also some of these more experience-based things [like] hatchet throwing to trampoline parks,” he said. “We’re also working with existing tenants to renovate their stores or gyms…in just a way to get people into centers.”

Experience-based retail outlets like trampoline parks and rock climbing gyms will continue to move from “secondary locations” like industrial parks to prominent locations with ample space and high ceilings formerly occupied by big box tenants, Harding said.

“There aren’t many pure retailers in that size range anymore,” Harding said. For the new recreation-focused tenants, he said, their customers are people who come in and out of that property all the time and say, “It’s time for my son’s birthday party, let’s go to the trampoline place next to Kohl’s.’”

Samir Guzman, executive director of leasing and marketing for Elizabeth-based retail real estate outfit Paramount Assets, projects that the restaurant category will continue to move into urban areas, particularly in the fast casual sector. Guzman makes his projections based on recent inquiries and deals Paramount has in progress.

He said traditional fast food chains are going back to downtown urban areas, specifically neighborhoods they abandoned in the past. “They’re tackling those markets again with smaller footprints and a different business model that doesn’t require a drive thru.”

Also on the rise, he said, are inquiries from banks, which took a hit during and after the recession.

Mike Lombardi, first vice president of investments at Saddle Brook-based Marcus and Millchap, called service-oriented businesses that fill a need, “Amazon proof.” Investors are looking for a safe place to put their money with a high probability of a long return.

“A ShopRite-anchored center with a pizza place, a deli, and a barber shop – those tenants are Amazon proof,” he said. “Your local suburban strip center with a dry cleaner, a deli, and a nail salon.  Amazon can’t touch that. There’s a high probability those shops are in place 20 years from now, and in my world, a lot of investors are trying to find deals like that. We’ll continue to see increased demand on properties like that in 2019,” Lombardi said.

Rise of the discount retailer

The biggest brick-and-mortar victims of online shopping are in fashion, developers said.

However, discounters are an exception to the rule. Harding, Guzman and Colliers Executive Managing Director of Retail Services Nancy Erickson all noted that stores under TJX Companies, Inc.—T.J. Maxx, Marshalls, Home Goods—along with discounters like Ross and even Lidl are growing their retail footprint in the state.

Retailers looking to stay in brick-and-mortar spaces will creatively intertwine their physical outfits with their online presence, said Harding, citing the value of incidental sales.

“Macy’s has [done well] expanding their ‘order online pick up in store’ [program], so when someone comes into the store to pick up their item they’re going to see something else and pick up something new,” Harding said. “At Nordstrom you can reserve something online, then go in and try it on. It’s great for the customer and it’s great for the retailer because they don’t have to ship and process multiple things that might get returned.”

Retailers who’ve made it this far, according to Cushman & Wakefield Executive Director Brian Whitmer, pretty much have their omni-channel business structure figured out and will continue thriving in 2019.

“They have a good web presence, they have a good terrestrial presence, and know how to put their stores together,” Whitmer said. “The combo of that bodes well because they’re grabbing everyone at every angle. What Amazon can’t compete with is the customer service you get in their stores and the experience they create.”

Shipping cost is a factor pushing digital native brands to open physical retail space.

“[Internet retail] isn’t necessarily an inexpensive business structure and that’s evidenced from pure online retailers that have made a lot of sales but haven’t really put themselves in the black in terms of profit,” Harding said.

Erickson noted human interaction as the main selling point for the sectors of retail that are growing.

“New Jersey’s retail market continues a slow and steady transition back to physical store locations without relying solely on on-line purchases,” Erickson said. “Internet shoppers are actually starting to miss the personal interaction with a store employee and receiving that specialized customer service experience and attention.”

And as digital native stores find their right brick-and-mortar space, and brick-and-mortar retailers that can’t integrate online businesses falter, a new retail market—recreational cannabis, pending legislation—might emerge to fill real estate gaps.

“The recreational cannabis industry is an emerging market in New Jersey and these potential retailers are offering higher rent in return for the risk associated with this type of specialized tenant,” Erickson said.

Gabrielle Saulsbery
Albany, N.Y. native Gabrielle Saulsbery is a staff writer for NJBIZ and the newest thing in New Jersey. You can contact her at gsaulsbery@njbiz.com.

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