ICSC Coverage: Competition Returns to the Retail Market

by Nate Hunter

San Diego — Retail players are looking to differentiate their centers and tenants, says attendees.

San Diego  — Most attendees at last week’s ICSC 2012 Western Division Conference in San Diego agreed that both cautious optimism and capital have returned to the retail market. While this is certainly good news, it also means that competition has re-entered the retail space.

“The market volume is higher than last year,” said Michael Marino, a capital markets panelist and executive vice president and division manager for Wells Fargo Bank in Los Angeles. “Our market share was enormous in 2010 and 2011. Now the pie is bigger, and competition is coming back.”

To stave off this competition, many retail players are looking to differentiate their centers and tenants, according to attendees.

“For a while, people just looked continuously at what that NOI [net operating income] drove,” said Kelley Maher, senior vice president of Madison Marquette and capital markets panelist. “They were interested in taking money out of these centers as opposed to putting it back in.”

Maher adds that for a long time, renovations didn’t get the attention they deserved. “But now, with retailers growing their stores and several shopping opportunities in every market, you have to differentiate yourself and show you’re keeping current with consumers.”

Maher’s advice? Rebrand, reimage and remain relevant. For most shopping center owners, this means creating a more all-inclusive shopping experience that combines entertainment, convenience and a little bit of luxury.

“You want to get people to spend more time at your center,” said James Connelly, a principal at Nadel Architects. “Make your center more comfortable and easier to navigate. Think about how a family operates. Ask yourself, ‘What you would enjoy at this center, what your kids would like to see here.”

Connelly believes even slight upgrades to a center’s lighting, patio, signage and color visibility can create a more positive shopping experience. Focusing on the family and each of its members can also yield high rewards for a center, according to Connelly. This strategy may include adding more changing stations, a carousel and, most importantly, more family-friendly restaurants. Indeed, there are a variety of restaurant concepts vying for those family dollars.

“The most intriguing part of the business right now is definitely restaurants,” said Gregg Sadowsky, senior vice president and senior market officer for Regency Centers. “The burger concept has been out there for a while. Organic and healthy restaurants are definitely a trend. There seems to be a lot of money behind many of these new concepts right now, and smart people don’t throw their money away. They put it into something they can make money on.”

The dilemma that shopping center owners and operators must figure out is which concepts will be a hit with their demographic, thus setting their offering apart from the competition. Sadowsky pointed to Bruxie Gourmet Waffle Sandwiches and the Natural Café as two examples of quick-service restaurants that have done well in California.

“We’re always looking to do deals with new tenants and new restaurants, and these two have great new products and services,” he explained. “They have a lot to offer a center.”

Bruxie currently has three locations in Orange County, with a fourth opening soon in Chino Hills. The Natural Café has 10 outposts throughout the San Fernando Valley and Central California.

“We’re approached fairly often by these types of concepts,” said Dan Sheridan, president of retail properties for the Irvine Co., which operates the Irvine Spectrum Center in Irvine and Fashion Island in nearby Newport Beach, Calif. “We are looking for unique concepts, which means we sometimes look outside the national chains and local area to bring in restaurants that will be the first of their kind in Orange County.”

While every center wants to be the first to house the next big retail trend, Fred White, a director at TIAA-CREF in Newport Beach and a capital markets panelist, cautioned that not every bright, young concept will be a hit with consumers.

“Fly-by-night-type stores concern us,” he said. “Sometimes it’s hard to gauge a concept. That’s why it’s so important to stick to your target strategy. You need to have your demographics in place. For us, we like to understand the neighborhood that’s already been established there.”

Many conference attendees and panelists believe White’s strategy not only applies to shopping center owners, operators and investors, but to the actual retailers as well.

“We’re in the retail business, and I think we’ve gotten away from that sentiment recently,” said Patrick Donahue, chairman and CEO of Donahue Schriber and moderator of “A View From the Top of the Platform” session. “You have to get involved in the retail aspect. If you think it’s just a box and a piece of dirt, you’re making a very big mistake today. You have to know what’s in that box.”

Fellow panelist Daniel Hurwitz, president and CEO of DDR Corp., echoed Donahue’s sentiments, arguing that the onus for success doesn’t rest solely on the retailer’s shoulders.

“Good real estate can’t bail out a bad retailer,” he said. “The size of the box doesn’t matter. What matters is what’s in the box and if the consumer wants it. We don’t do a deal with a retailer, even if its capital strategy is good but we feel its merchandising strategy is flawed.”

— Nellie Day

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