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Brick & Mortar Stores Can Prosper in this Environment. Here's How:

Robert Greenstone Chairman, Greenstone Realty Corp

To some, this might be a restatement of what you already know. To others, I hope it's informative without being hyperbolic. Here are some observations about where we are, and what should be done - and where I think retail is heading. After all, I do this 7-days-a-week, 355+ days a year... and very successfully.

Let's say you're either (1) a landlord with retail vacancies, (2) a retailer (any size will do) or (3) you're a commercial real estate broker specializing in retail leasing or (4) you're a hired gun whose job it is to find and negotiate cash-positive stores. Regardless of your role, having a realistic picture of where we are today - and even more importantly, the foresight to see where the retail business is headed is certainly more difficult and invaluable than at any time in our lifetime.

For all it's good, technology has wrecked havoc on an otherwise reliable business model. Given all the things we read, it's up to us "professionals" to separate fact from fiction and be better informed. Opinions are for casual observers. The fact is...

"Location, Location, Location" was the wrong catch phrase. It should have been "Convenience, Convenience, Convenience."

Isn't convenience what powers online sales growth? People get a positive visceral reaction when they receive a gift in the mail from Zappos, Pottery Barn or Whateveryouwant.com. It turns out that consumers are sufficiently lazy and willing to forego the instant gratification of walking out with a shopping bag in their hands - and would rather sit on their butts and click away. Not exclusively, but enough to do serious damage to the status quo.

There is hope, but we just don't know where sea level is anymore. Is this a high or low tide?

A great location always corresponded to the brand's positioning, delivering more of a targeted customer who had a strong propensity to shop at a store frequently. Today the "value correlation" between rent and sales is out of whack. The economy is in good shape, but this is a paradigm shift that will be painful for retailers and many employees. Automation + e-commerce have the combined effect of hurting low-wage employees. It also can wipe out real estate value. Driverless cars are next. Where did the toll both collectors go? Buggy whips anyone?

Regardless of one's leasing strategy the writing was on the wall once the iPhone made downloading songs incredibly easy. The simple act of downloading songs was the real introduction to shopping online. This ubiquitous device made it more CONVENIENT than browsing through records stores, or cluttering up one's home with piles of CD's. It was even more CONVENIENT than using a computer. Downloading songs became the tutorial for what was to become with the first retail segment to feel the destructive effect of e-commerce... that being the record store. Gone! Good-bye! Ciao! It was only a matter of time before new platforms were created to turn virtually all merchandise (and most services) into COMMODITIES. You already know this.

The results are pretty obvious: thousands of stores have closed (and will continue to). With it, bankruptcies, layoffs, investments written down, and malls and retail corridors suffering all while the investment in e-commerce skyrockets. In truth, some developers share the blame. Large mall developers/landlords used to hold a gun to the heads of tenants demanding their allegiance otherwise they were played with. In the meanwhile, America became over-stored. That ship has sailed.

As retailers try to adapt to e-commerce, it's important to note that trying to imitate others' success online doesn't always beget success. It's my contention that there's way too much emphasis (read, "money") being directed to creating online retail platforms - particularly in ways that don't build brand loyalty. Everyone is doing it; and if everyone is doing it, you do too... right? But didn't your mother say, "Just because Johnny jumps of a bridge, it doesn't mean you have to jump off a bridge!"

I know... I know... just because I lease stores doesn't mean the answer for all retailers can be found in opening new stores. That's like asking a surgeon what the solution to a headache is, and his or her reply is automatically, "operate." But we all need to have a check on reality. I say this because this is what we know:

Data shows that 52% of all online sales GROWTH has gone to one site. AMAZON. Given the fact that there are hundreds of thousands - if not millions of online retailers hoping to grab online sales, the remaining 48% of all online sales growth will be divided. The big boys, like Walmart and Target will have the clout to fight for market share. So will the brands selling direct-to-consumers. But (1) without brand name recognition, (2) without your customers seeing and touching what you sell, (3) without the personal service... the investment in e-commerce will only dilute retailers of their time, manpower and money they would otherwise put into their stores to compete and prosper. Capturing data on consumer trends works, but stores can capture data: quantitative AND qualitative data! Eventually, all this running towards e-commerce will be a waste of time for a great many companies because not everyone will win market share. 

So, there remains a strong rationale for opening stores, albeit more surgical. Startups with limited funds see having a web presence (combined with social media) as a way to cheap it out. However there's a one-in-a-million chance that will establish a true consumer brand against the likes of Amazon without real live stores.

Even as Amazon opens stores in select locations, the revenue they expect to generate from this will hardly register on their financial statements. So why are they doing it? Because it represents a very important opportunity to: (1) have more points of contact with their customers (like I just said) and (2) be the online brand that wears the "white hat" (as opposed to the Walmart can’t seem to shake the reputation as the killer of small businesses and the employer who pays minimum wage).

So What is the Long Term Solution for Retailers?

Retailers (and wholesalers too) must do everything in their power to carry unique merchandise NOT found online.

JUST LOOK AT HOW MOVIES GET RELEASED. Even though movies eventually get released for free on TV, there's a pipeline where access is restricted - and the movie-going experience starts in an IMAX auditorium, and then a big screen auditorium, and then it's released for purchase, and then on demand streaming, and them offered by a premium cable channel, and finally to the consumer. This illustrates how to work towards profitability.

Even off-price merchants need to differentiate between what is in their stores and what is available on their website in order to stay relevant. As an example, brands with outlet stores manufacture vastly different product lines in order to capture a price-sensitive customer without denigrating their flagship brand. Closeouts are relegated to outlet centers.

The solution is to offer different merchandise and services in stores. Get customers in the stores. Up-sell them. Convert them. Love them. Have them love you!

As a long term strategy, these two channels of distribution should have very little overlap. Similar positioning but different merchandise!

We All Know the Problem, But Whats the Quicker Solution?

Retail real estate has to be fashioned like a media buy. It's a numbers game. In some cases the answer may be taking a short-term lease to test a location. In some cases, companies need to lop off under-performing stores. But in all cases, much to landlords' and real estate brokers' chagrin, the short-term answer is more realistic rents. Sorry landlords. I gotta call it like it is.

What we do all day, every day, is WORK TO CREATE PROFITABILITY. A location is either a money-making opportunity or it's not. Even the most cost-conscience retailers (is there any other kind?) have very little ability to lower wages, utility costs, insurance or the cost of goods. However, rent is another thing.

We are seeing way too many vacancies everywhere not to grasp the reality of the situation. The truth is big and small retailers need the cooperation of big and small landlords to stay cash-positive. They need landlord’s to be flexible, and landlord’s need retailers to look at their stores in new and compelling ways. Retailers must also embrace the fact that e-commerce is not the panacea ... because it’s simply not. Retailers like Zara, who have a constant flow of new merchandise all the time, keeps customers coming back and back and back. Retailers need to be original and stay original. Apple is still reinventing themselves.

Stores must generate an emotional response that inculcates customers on every level. In anything other than outlet stores racks of merchandise will not sell themselves. And when outlet stores start creating a better, more robust, more unique environment, they'll be seen as geniuses. A four-star chef and a radish is a vastly different thing than a radish at Applebee's.

Making it too easy for consumers to get "every thing" all the time devalues a brand and the entire investment. Case in point: some songs on iTunes can only be downloaded when the entire album is purchased.


Today, most of the leasing activity is in the food sector because people need to eat every day. Even in the food arena, it's essential for restaurateurs and grocers to:

  • Develop a unique and constantly-evolving brand;
  • Craft a unique in-store experience;
  • Back it all with truly unique merchandise;
  • Make the business model workable and don't let success get to your head.

What Makes a Great Retailer?

The same thing that makes a great landlord or a great broker or a great anything. It’s the people. It's GRIT, HONESTY and CREATIVITY. People make all the decisions. Some right. Some wrong. The commonality is that the best retailers are relentless in pushing their vision, turning an idea into a reality and surrounding themselves with the best possible people. You wouldn’t want to get into a lifeboat with an inexperienced crew at the helm. As Jim Collins wrote in his best-selling book, Good To Great, “It’s who’s on the bus!”

Specifically, as it Relates to Retail Real Estate...

The workhorse location will win over the show-horse location. One is cash-positive, the other is fluff - however there is one big exception. As more and more stores become showrooms for sampling and ordering merchandise, flagship locations will retain the most value. But to be a flagship location, it truly needs to standout. Secondary or in-fill locations can't be flagship stores.

What makes a workhorse location? That’s for another discussion. I guess you'll need to call me to discuss this.

Please let me know what you think.

Best regards,

Robert Greenstone

Reprinted from https://www.linkedin.com/pulse/brick-mortar-stores-can-prosper-again-robert-greenstone

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