Led by retailers, open-air centers and mixed-use environments today are focused on customer experience. What is experience? And, more importantly, how are developers creating them for customers?
By Randall Shearin
Experience is the word of the day in retail, and it is something that shoppers have come to expect in all types of centers. Experiential retail environments began showing up in town centers and mixed-use developments a few years ago, but with the rise of online shopping, omni-channel retailers have gotten into the act, programming events and amenities into their stores. This has extended down the spectrum of retail, so that even grocery stores and community centers are now creating experiences and places for shoppers to enhance — and increase — their visits.
Change in Retail
Many omni-channel retailers are leading the way with experiential retail, inspiring their online shoppers to attend in-store events. Developers are also increasing their focus on event planning and programming the public spaces in their centers. In some ways, this is not new to retailers. Urban department stores of yesteryear had draws like window dressings, restaurants and pipe organs that attracted visitors on a regular basis. Those features created an emotional attachment for many shoppers of the Baby Boom and Great generations. Today, Generation X and Millennials carry no such attachment, but many remember the grand days of the suburban mall, where events drew shoppers on a weekly basis. Today, the execution of events at centers have been brought to a new level, where retailers and center management collaborate and often co-market.
“Tenants are working to change their operations by trying to create a level of experience for the customer inside the store,” says Ralph Conti, principal of RaCo Real Estate Advisors, a development consultancy. “It is a differentiator. You see this clearly in the movie theater business with luxury and reserve seating. You also see levels of experience with retailers like Lululemon, Nike and Bass Pro Shops. There are a lot of experiential opportunities in these stores. To match that, the common areas have to be very engaging with the consumer.”
According to Glenn Brill, managing director of FTI Consulting, “The retail business is clearly being disrupted. From an analyst’s perspective, unless you have the Number 1 or Number 2 mall in your market, you have a serious problem. You have to start thinking about how to reposition your asset vis-à-vis retail and mixed-use.”
With the consolidation occurring among retailers, many centers see tenants as the determining factor of their success. The fallout among retailers has created a large divide among Class A centers and those not considered top centers. Being the leader in the market is a much more long-term proposition for center owners now than in the past. As a result, retail center owners are willing to help in marketing efforts, and create events of their own, to assist retailers with their success while creating traffic — and sales — for their properties.
“Retail itself has changed. You have gone from multiple competitors in any given category to one or two,” says Doug Jerum, partner withFerrara Jerum International, a retail real estate consultancy based in Rochester, New York. “The leader in any given category is usually leaps and bounds ahead of the next guy. The competition between developments and the opportunity to do more than one new development in a given trade area is very limited. If you don’t get the top retailer, then there is not another retailer to get. Sink or swim for the developer is much more defined. You don’t often have a second player to go to.”
Many developers encourage shoppers to socialize and attend public events by creating places for social activity. Moreover, many are creating so-called “third places,” where visitors to the center can just spend time. These can include everything from sidewalk café seating to soft seating areas to children’s play areas, fountains and social gathering spaces. Retailers, as well, are more than ever drawing visitors to their stores with programmed events, live demonstrations, celebrity visits, book signings and even more regular events like classes.
“Retailers are seeking to give their customer an experience,” says Mark Toro, partner with Atlanta-based North American Properties. “We, as their landlord, are taking it upon ourselves to create the experience at the property level — to bring people to the property and keep them there. This is the flip of what developers did in the 1980s and ’90s, when we created convenient retail environments with quick in-and-out shopping experiences. Today, we are creating public spaces where people are eager to convene, then activate those places with events and promotions.”
Toro points to retailers like Lululemon, with its in-store yoga practices; Whole Foods Market with chef-driven events; Apple with its genius bar; Orvis with in-store fly casting lessons; and REI with in-store educational classes.
North American Properties opened its Avalon project north of Atlanta in October 2014 at approximately 98 percent leased. The project has been heralded for bringing a new experience to the city’s northern suburbs, attracting local celebrity chefs and prominent national retailers to an established market. But beyond the retail, local residents are praising the property for giving them a common place to spend time and events to attend.
“It is incumbent upon us, as retail landlords, to help retailers — who are challenged by e-commerce and other macro forces — to get people out from behind their keyboards and give them a reason to visit a bricks-and-mortar store,” says Toro.
Shoppers accustomed to mixed-use and newer lifestyle retail centers are not likely visit a center without the promise of an experience, and they definitely won’t return without one.
“To one degree or another, every project looks to have some variety of experiential uses,” says Jerum. “A lot of this is driven not just by what the consumer is looking for but also what municipalities are willing to approve today. Developers have found that municipalities often require projects to have more than just retail; they must also have public amenities and space.”
With many centers today, developers are creating environments that appeal to shoppers’ emotions; places where they want to spend time.
“In mixed-use environments, the need for experience is even greater,” says Conti. “If you have residential, you have people living at these environments 24/7. They have an expectation of an experience when they choose to reside at that atmosphere. If you have a hospitality use, those guests also have an expectation for an experience.”
Not Just A Commodity
One of the more startling changes over the last 20 years has been the emerging importance of food as an anchor. From grocery stores to farmer’s markets to coffee shops to sit down and fast casual restaurants, some element of food is necessary for a successful retail environment today.
“Food is driven by economics,” says Jerum. “Food is the leading driver of revenue; it is still one of the classes of tenants who are willing to pay a rent that will help an owner balance out some of the difficult economic deals that anchors or high-profile tenants demand.”
Grocery stores have reinvented themselves over the last 10 years. Many mainline grocery store chains, challenged by high-end operators, have added elements to their neighborhood stores to increase the shopper’s interest beyond cupboard staples, meats and produce.
“The grocery business is evolving,” says Conti. “You are not just going in and buying groceries, then walking out the door. There are cafés, prepared food stations, sushi stations and other uses within the store. These are designed to keep the customer coming there and staying longer.”
Restaurants have also become a major player with retail developments, often serving as an anchor. At Avalon, North American Properties’ new project, the company chose to bring in local restaurateurs over national chains to bring operators they would find in more urban areas of Atlanta to a new market. While that was a gamble, Toro reports that has paid off; the restaurants have been incredibly successful, with many finding a new audience. In the case of Avalon, the operators created mostly new restaurant concepts, which have increased the draw from other parts of the city to the project.
Events And Public Spaces = Experience
In the 2000s, as retail environments moved decidedly to a more open-air format, many developers and architects designed public spaces as part of a project’s design. While perhaps originally meant for aesthetics, these public spaces have become a valuable asset to developers, as customers adopted the spaces as community centers, children’s play areas and park-like areas meant for spending time. Today, public squares and community gathering areas have gained value with retailers, too.
“Having a tenant in front of the main square is like having a retailer at center court in the mall; tenants want to be along those public spaces,” says Yaromir Steiner, CEO of Steiner + Associates, a leading developer of mixed-use environments. “The square attracts people. Kids can play in the fountain; adults can go to the farmer’s market or listen to concerts. It builds traffic.”
Realizing the value, owners have begun to program events in public spaces to draw traffic. Those events have gone from yearly occurrences to regular programming. Some developers have heavily invested in marketing and events staffs to program public spaces and common areas, similar to what regional malls did in the 1960s and ’70s to create traffic and establish the mall as the center of retail commerce in a given trade area.
“Owners are becoming more creative about the type of programming that they are bringing in,” says Brill. “They are trying very hard to connect to the values of their communities. That’s a smart thing for people to do. They want people to identify with the retail environment as they would a civic space. It is not just a space to shop, but a place to socialize and interact with the community.”
Many retail developments have revived events as a way to draw customers. North American Properties, owner of Avalon and Atlantic Station, has a full-time events staff to program its properties. Similarly, Phoenix-based Vestar hosts hundreds of events across its portfolio each year. Steiner’s Easton Town Center in Columbus has revived Christmas as a season, programming many events as part of the holiday shopping season.
“The public space allows us incredible abilities to create experiences for our customers,” says Steiner. “You cannot beat a parade with inflated balloons, which we do at Christmastime for the tree lighting. You can’t do that if you don’t have a large, open space. The same goes for farmer’s markets, concerts, art festivals and other civic-minded events.”
“An event can be tailored to bring a target audience onto a property,” says Toro. At Atlantic Station in Midtown Atlanta, North American Properties hosts the Beer, Bourbon and BBQ Festival and the Shaky Knees Festival to bring Millennial and Generation X shoppers. The company targets affluent fashion shoppers at the center by hosting the BB&T Atlanta Open tennis tournament. Each Tuesday morning, the center hosts a mother’s morning out that brings many young families. In warmer seasons, movies are shown on Thursdays, while every Friday, the project hosts live events. In the winter, Atlantic Station’s public space transforms into an ice skating rink that is open every day. The center also hosts events like the Atlanta Jewish Film Festival at the project’s theater during the winter.
In the early 2000s, when public outdoor spaces first appeared at open-air centers, many in the industry scratched their heads with the idea of using perfectly leaseable space as public space. However, many developers have now proven that space to be as valuable as an anchor tenant, if not more so.
“Public places are cost effective,” says Steiner. “When you count the number of dollars you spent to attract a department store or anchor, a public space is an anchor you can have without deploying the dollars a traditional retail anchor would require. While a retailer may not be giving us $2 more per square foot because we have green space, the way we see it is that there is more value by the community in the center, and the value the community places on your center is directly related to your sales.”
At its core, experience is how a retail environment makes a shopper feel while they visit a particular place. While not every center has room to accommodate “third spaces,” today’s open air shopping center owners and retailers are making their environments as enriched as possible for consumers. From grocery-anchored centers to power and lifestyle centers to mixed-use environments, centers are finding that shoppers want to feel welcome, comfortable, engaged and enriched when they visit a center.
Tampa, Florida-based RMC Property Group has a portfolio of about 7.5 million square feet of open-air centers, predominantly grocery-anchored. With RMC’s portfolio, Chief Financial Officer and Chief Real Estate Officer Bobby Eggleston is seeing a push toward a new type of tenant that seeks to adds to the appeal of the center for the communities they serve.
“We are seeing a number of tenants that are more lifestyle driven make the move to neighborhood centers,” says Eggleston. “We are getting a lot more inquiries from children’s bounce house users, coffee shop/reading room retailers and other lifestyle-focused tenants. These tenants draw people who will spend several hours per visit. That’s pushing a remerchandising of some centers, where a lifestyle component is emerging.”
Eggleston says that even with grocery-anchored centers, the need for consumers to have an experience is growing. Simple touches, like adding free WiFi, will keep consumers in a place longer.
“Higher end grocery stores, especially, are great at creating a sense of place,” he says. “As you walk through the store, there is a lot of sampling happening; some have bars and coffee shops inside, and outdoor seating areas for customers. They are creating a place to spend time. Add WiFi to that, and you have created a place for people to extend their stay even longer.”
Attractive design has always been key to making a retail environment appeal to a target market, but today shoppers must identify with the center and make a connection to it to become a loyal visitor. Architects and designers want to create places for developers that entice through their features. Developers, in turn, are programming with tenants and events for the long-term appeal.
“The customer of a shopping center is really the tenant,” says Brill. “What centers offer the retailers is the consumer. Centers have to create an experience that is going to bring people to that specific property; that is the name of the game today.”
“Retail developers today are certainly thinking much more about design,” adds Roy Higgs, principal of Roy Higgs International, a leading mixed-use architecture firm. “Before, design got in the way. Developers knew what they wanted, and many were constrained by the major anchors. Today, everyone wants to create a better place.”
Design also goes beyond the physical appearance and extends into the brand, which carries through in events and amenities at a center.
“It becomes about how we make you feel when you visit the property,” says Toro, whose company used the Ritz-Carlton Leadership Center to train its customer service staff. “It is a very high touch, personalized environment, which extends to lighting and amenities, like valet and concierge.”
Steiner adds, “We want to build an emotional connection with our customers.”
With competition fierce, developers realize that this connection will be one of the factors in attracting today’s hot retailers to a project.
For more than a decade, architects have been designing creative projects overseas that push the boundaries of entertainment and retail. Many of the ideas they’ve used internationally are now being incorporated into U.S. projects.
“We used to encourage international clients to come to the U.S. to look at developments; now we are encouraging our U.S. clients to go overseas to look at developments,” says Higgs. “That was unheard of four or five years ago. Now, they are going and they are being wowed.”
Retailers have also involved themselves in the design and branding of a property, and want to ensure that the environments they inhabit will be reflective of their own branding and principles.
“Retailers are much more concerned now about the experience that people have as opposed to how cheap the goods are or convenient the location is,” says David Floyd, principal of Site Solutions, a landscape architecture firm specializing in retail and mixed-use. The company was recently called on to work on Avalon to create an energetic urban feeling that also creates a sense of relaxation. At Avalon, Site Solutions wanted to project the image to visitors that they were at home. To do so, it developed a series of outdoor “rooms” and gave each of those spaces a name and personality.
“People want to feel that they are in a unique space,” says Kevin McCarthy, a principal at Site Solutions. “They want to people watch and they want to feel that energy. The right [atmosphere] makes visitors feel that there is always something going on or something to do.”
Brill adds, “I think developers are seeking to create new formats and hybrids. You don’t want a center to have a single utility if the idea is for visitors to come there seven days a week.” SCB