Understanding Airport Retail

Nur is an Associate for Larisa Ortiz Associates

Dubai Airport Duty Free Shops.
Photo: Simon Chapman

The holiday season is upon us and many of us are taking trips home to spend time with family or vacationing on a beach somewhere. We join the millions of airline passengers around the world passing through airports and spending money on souvenirs, last-minute toiletries, and even food and drink while waiting for departure. The number of passengers flying has risen every year since 2009. According to the U.S. Department of Transportation, U.S.-based airlines carried a record 823 million passengers last year, up from 798 million in 2015. 

If you’ve only traveled to a handful of airports in the US and have only ever seen a Hudson News stand or Applebee’s restaurant, you’re likely wondering, “What’s so great about airport retail?” Well, on the whole, airport retail is doing much better than main street retail. Around the world, airport retail sales rose 4 percent in 2016 and is expected to reach $90 billion by 2023, according to Credence Research. In the US and Canada alone, airport retail is expected to rise to $10 billion by 2020 from $4.2 billion in 2015.

When we take a closer look at specific retail categories, some stores in airports appear to be experiencing better sales than their main street counterparts. The most obvious examples are of course the newsstands/ book stores, electronics/ gadgets, and specialty gifts/ souvenirs stores. These are all last-minute goods that travelers have often forgotten to pack or are looking for as gifts for loved ones back home, and have virtually no other option except to purchase right before boarding a flight at the airport.

High-end Harrods Department Store at London Heathrow
International Airport. Photo: Henry Burrows

Another retail category that is also doing very well in airports in recent years is ‘Clothing and Accessories’ – particularly that of luxury brands. Last year, clothing and accessories accounted for more than 50 percent of revenue share in the global airport retail market. The luxury lines of clothing and accessories, in particular, are meeting the preference and style of a large share of affluent travelers who are willing to spend more with their high disposable incomes. Today, luxury retail is booming in ‘hub airports’ that have a large number of connecting international flights. Terminal 3 at Singapore’s Changi Airport, for example, features a wide range of upscale boutiques and brands such as Bottega Venetta, Burberry, and Gucci. 

With such a large share of the retail market, it’s important that cities and governments (typical owners of airports) take time to understand airport retail and its various customers in order to enhance the experience of retail in these unique microclimates.

The Three Main Types of Airport Retail Customers

First, and most importantly, there’s the traveler. Travelers, as you might have already guessed from personal experience, are looking for a wide range of goods – from the unwieldy ‘replacement item’ to the seasonal and trendy souvenir or gift.

To make things even more complex for airport retailers, even within this customer segment of travelers, there are various subsets of travelers – the business traveler, the vacation traveler, the domestic traveler, and the international traveler – with wide-ranging needs, price points and consumer preferences.

The most lucrative consumer market, however, appears to be the growing group of travelers with high incomes, travelling for business and travelling internationally. These consumers are seeking exclusivity in products and are not heavily affected by price points.

Regardless of type of traveler, one thing remains constant – they all have limited time to browse and they are also captive foot traffic from post-security point on. Often, travelers dwell between 60 to 90 minutes in the airport from check-in to boarding and, according to a DKMA report, passengers who spend more than 60 minutes at the airport are +33% more likely to buy F&B, +27% more likely to buy retail and +13% more likely to buy duty free than passengers who spend fewer than 60 minutes at the airport. It is therefore important that airport retailers are strategic about merchandising and store layouts to maximize customer attention.

The second airport retail customer is the airline crew or airport staff. Growing up with both parents in aviation meant that I was always getting stuff purchased at airports – my mother would sometimes buy take-out dinner after work from the restaurant in the airport or get groceries from the convenience store at the airport – this was all regular to me. But think about the thousands of employees who come in and out of airports daily for work and need affordable and convenient meals throughout the day and last minute grocery!

Finally, the family member picking up and dropping off travelers make up the final key group of airport retail customers. These customers are looking for balloons and flowers to greet their loved ones or a final meal with friends before sending them off. Many airports in the US don’t offer more than a Starbucks and diner in the departure level and almost no retail at arrival level. This is a large chunk of airport customers whose needs are being ignored.

Best Practice: Asia-Pacific

In Asia- Pacific, the picture is different. Airports are already being designed with shopping as a key use for travelers, airport/airline staff, and for the general public. After all, retail accounts for approximately 30 percent of non-aviation revenues made by airports so why not maximize the benefits?

Today, Asia Pacific is leading the growth for airport retail, according to Bain & Company. In the region, it is common to see large international airports there with edutainment options, family-friendly restaurants, and even convenience/grocery stores for the families and friends waiting in departure or arrival halls. It is no wonder that it is the largest regional airport retail market accounting for 41 percent of revenue share in the 2015 global airport retail market.

The Slide at Terminal 3 Singapore Changi International Airport.
Photo: LittleDayOut.Com

In Singapore, Changi International Airport features two full-service Fairprice grocery stores and ‘Family Zones’ equipped with children’s playgrounds and giant slides. These amenities are used year round not just by families in transit to another destination but also families waiting on loved ones to return on a flight. With over 400 retail and service outlets and 140 food and dining options across approximately 979,515 square feet, the whole gamut of airport retail customers are easily able to find goods and services for any time of the day and year.

Hong Kong traditional street fare at the airport. Photo: Joe Allen

In Hong Kong, traditional Chinese and Hong Kong style coffee shop eateries are located across both terminals for both travelers to sample traditional cuisine on the way to their next destination and locals to enjoy a quick and affordable meal. Amongst their entertainment options, travelers and the general public can count on an aviation discovery center, IMAX Theater and simulation golf facility to pass their time at the airport.  

Challenges of Airport Retail

Getting airport retail to reap full benefits from its captive audience, however, requires a lot of upfront investment. Airport regulations requires that a lot of retail inventory may be subject to checks. There are also often no truck bays for easy delivery access, especially in older airports, which means retailers spend more time and money transporting their goods to the store. Not to mention the higher staff salaries that go into operating stores that must remain open at least between 7am and midnight. Alan Gluck, chairman of Airport Economic and Concession Consultants, reports that airport retailers have annual operating hours that are twice that of a similar storeoutside of an airport.

Tenant improvement costs are also often high as retailers are required to scrap all interior fit-outs at the end of each lease term, leaving new retailers with a new canvas to completely design and build from scratch.

Support Airport Retail

Airports play an important role in economic development. In a 2012 CityLab article, Richard Florida called out two studies that found associations between airport passengers and both metro population and employment growth, while controlling for other factors that would be expected to shape growth. In a study by economist Jan Brueckner, a 10 percent increase in passengers in a metro area was found to generate a one percent increase in regional employment. It is therefore incredibly important to boost the sources of revenues for airports in order to ensure their sustained performance and retail, as it turns out, is the leading or second biggest source of revenue for most airports.

Airport Express Train at Hong Kong International Airport.
Photo: Fabio Achilli

Firstly, the airports in the U.S. need to start competing with those in other regions like Europe and Asia-Pacific in terms of tenant mix, merchandising and price points. Travelers have wide-ranging needs and preferences, and airport retail needs to be able to cater to these various groups. In addition, the needs of the general public and staff working for airlines and the airport itself also need to be accounted for. In Singapore, the Changi International Airport sees its affordable food courts and eateries packed to the brim daily at lunchtime with employees working for various airlines or even families with children after school. This also likely due to the strong public transit connections between the airport and residential neighborhoods and downtown Singapore. Most residents across the country are able to get to Changi International Airport in less than an hour by public transit (cab, bus, mass rapid trains), and likewise in Hong Kong.

Secondly, like its counterparts on Main Street, airport retail also needs to up its omni-channel game in order to remain relevant and competitive amongst the traveler market. Many airports in Asia-Pacific are working on mobile apps with maps that help travelers navigate the building once they get there so that they can save time on browsing stores to visit and meals to purchase. Airport retailers are also allowing travelers to use their store apps to order food or items online before having them delivered directly to boarding gates, or partnering with airlines to enable click-and-collect service via inflight e-tail.

The airport is a truly complex micro-climate of retail that many cities and governments need to be more active in understanding. There is a large untapped potential in raising revenue for airports through retail and as owners of airports, municipalities are well poised to help bolster the retail environment for travelers, airline workforce, and the general public.

The Social Media Story

Nur Asri is an associate at Larisa Ortiz Associates

According to retail strategist and consultant, Steve Dennis, “The most disruptive force in retail is not e-commerce but the fact that most customer journeys start in a digital channel.”

This past weekend I started my own journey to finding a perfect, new cardigan for the season online. It started at 9am on Saturday morning when I turned my phone on, checked my emails and opened the daily mail from Madewell – a women’s apparel retailer I’ve grown to trust and love. The email featured a beautiful cardigan for the Fall (just what I was looking for) and after a click, I was led directly to the product page on Madewell’s main site. After 5-10 minutes scrolling through images, checking sizes and comparing products available on the site, I wasn’t quite sold yet on the cardigan so I switched channels and browsed my Instagram feed instead. Lo and behold, one of my targeted ads turned out to be that very cardigan I had been browsing from Madewell. This time, it was being worn by a ‘regular person’ in a beautiful setting – it looked just like any other content on my Instagram feed, I barely even noticed it was an ad until I accidentally single-tapped the photo to reveal tags of the product name and price. The next day, I ventured into Manhattan to purchase said cardigan at the nearest store in SoHo. This omnichannel retail journey of mine wasn’t the first, and probably won’t be the last. In fact, according to a November 2013 survey of US digital shoppers by consulting firm Accenture, I’m not alone. 78% of respondents to the survey reported “webrooming,” or researching online before heading to a store to make a purchase.

Source: Accenture, 2013

Researching online, as demonstrated in my experience, often includes perusing social media posts by various brands and retailers. Today, roughly 2% of all e-commerce traffic in the United States now comes from social networks and continues to grow. Many of us younger consumers who are tapped into various social media channels are hence driving the rapidly growing social media influencer marketing strategy amongst retailers who want to capture as much attention as possible online. In a single year, brands are spending over $1 billion on marketing via Instagram influencers alone (Mediakix, 2017).

The history of influencer marketing can be traced back to a 1940 study entitled “The People’s Choice” by Lazarsfeld & Katz. Although the study analyzed political communication, it found that the majority of people are influenced by secondhand information and by opinion leaders. Fast-forward to 2017, people are increasingly being influenced by ‘regular people’ who have gained celebrity status or built a brand and following on social media channels such as Facebook, Twitter, Instagram and Snapchat. These people are more popularly known as social media influencers.

An influencer is: “A third party who significantly shapes the customer’s purchasing decision” (Brown & Hayes, 2008) and “has a greater than average reach or impact in a relevant marketplace” (Word of Mouth Marketing Association Handbook).” From cardigan to vacation destinations, consumers are turning to influencers and their product reviews and endorsements before committing to making a purchase online or in-store.

These influencers often have credibility in a specific subject area – hiking gear, street fashion, interior design, photography – and have built a brand and following around their personalities, interests and skill sets. Their unique and trusted voices enable them to engage large, targeted audiences – the sweet marketing spot for retailers grappling to adapt to the digital age. Engaging social media influencers, however, doesn’t necessarily result in sales activity. Twitter, for example, only drove 12% of social and email generated e-commerce revenue in the fourth quarter of 2014 and only 30% of Pinterest users made online purchases after browsing Pinterest content. However, this may change as social media channels continue to introduce new call-to-action features and direct-response imperatives like “Shop Now” buttons for products and “Sign Up” buttons for services.

Social media influencers, however, have proven to be most successful at building brand awareness and trust. In fact, 92% of consumers trust an influencer more than an advertisement or traditional celebrity endorsement, according to Musefind, a social media marketing company, and 49% of consumers looked for purchase guidance from social media influencers last year. Many consumers place their trust in these influencers specifically because they are not tied directly to retailers or brands.

Source: Musefind, 2016

Of course, social media influence works differently on consumers by retail category. Some purchasing journeys are more highly influenced by the digital than others and can be more critical at different points within a single journey.

Source: Deloitte, 2015

In a 2015 study by Deloitte, consumers shopping for baby and toddler, electronics, and furniture and home furnishings products turned out to be most heavily influenced by social media during their shopping journey, while grocery customers were least influenced by digital overall. Critical interaction points started from the beginning of a consumer’s journey, during the ‘finding inspiration’ and ‘researching products’ phases, till midpoint when consumers are ready to select products for purchase.

Source: Deloitte, 2015

For the apparel retail category, the critical point for digital interaction appeared to be in the beginning of the consumer’s journey. With such a wide selection of products, over 15 percent of apparel shoppers are unaware of the product until they see a brand or retailer’s digital advertisement or communication that makes them want to buy the item, compared to an average of only nine percent across other categories. (Remember that Madewell email notifying me of the new Fall season cardigan and also the targeted Madewell Instagram ad?)

In a famous example, Lord & Taylor, designer clothing department store, proved the power of social media influencer marketing by getting 50 influencers to put on the same dress, photograph themselves in the dress, and then post the photos on social media. Within three days, Lord & Taylor sold out of the dress but more importantly, the retailer built awareness around the brand’s new collection, which resulted in a halo effect on other products in the same line.

Regardless of the varying magnitudes of impact that social media influencers have on consumers, they continue to be a strong marketing force for brands and retailers. Retailers should seek new ways to influence the influencers through their marketing campaigns or build partnerships and creative collaborations with these influencers, in order to achieve greater brand authenticity and trust amongst consumers. 

How is resale adapting in the age of e-commerce?

Source: S Jones

Dan McCombie is a Research Associate at Larisa Ortiz Associates

In my recent experience I keep observing a recurring theme: industrial neighborhoods with concentrations of second-hand furniture and antiques merchants. Another recurring theme is that these neighborhoods are changing from being predominantly industrial to mixed-use neighborhoods and people are concerned that this will eventually displace these merchants. Is there a way they might they be retained?

I’ve learned that antiques are one of those retail categories very amenable to creating niche districts. As observed in these neighborhoods, when they congregate in the same place it can have a powerful magnet effect. In my opinion, therein lies the opportunity to both retain the unique character of the neighborhood while also cultivating a successful shopping district. But that argument may be hard to make if those merchants are struggling to remain competitive. This prompted me to ask some questions. Are they actually competitive? More broadly, are resale merchants subject to the same competitive pressures as traditional retailers in the face of e-commerce giants like Amazon? If so, what are some recommendations that might be made? In my investigations of these questions I uncovered what I consider some best practices in the second-hand apparel industry that may (potentially) be applied to these antiques merchants.

Why look at second-hand apparel?

Photo credit: Jon Fravel

Because an antiquing excursion and a trip to the thrift store share similar qualities.  Both are high-touch and experiential in their basest senses. They’re high-touch because the customer is able to literally reach out and touch the raw products, free of packaging, feeling the texture of the fabric or the grain of the wood. They’re experiential because of the excitement associated with the hunt, so to speak. You and the other customers are engaged in a tragedy-of-the-commons scenario such that if you buy this particular Tiffany-style accent lamp or this vintage levis denim jacket, I cannot. Nor can the sales associate put in an order for another to be shipped to the store (read: you win, I lose). Maybe the allure is also in the speculation—the possibility that any of these items is worth well over the price on the label. Maybe that Tiffany-style lamp is actually a veritable original. Then the shopping experience is elevated into an exercise of your consumer savviness and treasure-hunting prowess.   

This might prompt us to surmise that brick and mortar thrift stores and antique merchants are immune to the encroachment of e-commerce in our rapidly changing retail landscape. Sure, margins can be low. But Amazon doesn’t have the capacity or willingness to sort through mountains of consigned garments and so they don't pose any real threat to the thrift store business model. 

Then why change?

Because even though Amazon isn't selling used apparel, other e-commerce disruptors have figured out that the hunt for pre-owned treasures is easily reproduced in the digital marketplace. In a Forbes article by Richard Kestenbaum, he details how Millenial spending patterns are partially responsible for unprecedented growth in resale. Traditional brick-and-mortar thrift stores are growing by 8% per year while the online resale market is growing by 35% per year, 17 times faster than the overall market for apparel. In his explanation, he points specifically to the growing popularity of internet clothing consignment stores like thredUP, a company that describes itself as “the world’s largest online marketplace to buy and sell women’s and kids’ secondhand clothes,” thereby tapping into an $18BN apparel resale industry that is expected to grow to $33BN by 2021.

In a report on their website, thredUP claims the “fun factor” of the resale market explains their success against pervasive “retail boredom.” Shoppers can sit on their couch with their dog, drink wine, and scroll through similar offerings that they would find at off-price retailers like Marshalls, TJMaxx, and Nordstrom Rack for a fraction of the price. Millennial shoppers are also highly motivated by the eco-conscious associations of buying resale, assuming second-hand is more sustainable for the environment. It also means discretionary income is not as significant a limitation as some might think. But thredUP states that Millennials are not the only target demographic. A significant share of shoppers come from the 65+ age cohort, suggesting that a recession-era mindset drives them towards value-oriented spending too.

How can brick-and-mortars compete?

One strategy we’ve mentioned in the past is adopting an omni-channel retail strategy that utilizes the best of both the physical and digital worlds. But how does a merchant make sure their constantly changing inventory is seamlessly represented on the website when sales are also happening at the counter? How do they leverage their websites in a way that actually yields more trips to the store? To answer this I point to several different strategies being employed by apparel thrift stores here in Brooklyn.

Beacon's Closet in Williamsburg, BK
Source: Jennifer Yin

1. Beacon’s Closet has 4 different locations across Brooklyn and Manhattan. Each store has a sizable and constantly changing inventory, meaning maintaining an online directory of products is challenging. However, a visit to their website evidences an online marketplace with a carefully curated selection. The listing is not comprehensive, but what is offered is beautifully staged with multiple photographs of the product and informative descriptions. They even give each individual product its own unique nickname in an effort to cultivate a sense of rare exclusivity. Items are also marketed through their Instagram account, contextualizing them in a way the staged photographs do not.     

2. Maeven is a boutique thrift store started in 2012 by Amy Yee, who had spent the 12 years prior buying and selling vintage clothes on eBay and Etsy. This eventually became profitable enough for her to open up a studio-space in Brooklyn in order to “provide a better shopping experience for her customers.” Maeven resembles that class of click-and-mortars like Warby Parker and Bonobos who have managed to leverage physical locations out of digital success. In spite of this, Amy continues to employ a combination of channels that include her studio space, pop-ups, her website, and the initial online marketplaces that brought her success in a multi-pronged approach to customer engagement  

3. Buffalo Exchange is a company with 49 stores across 20 states. I’ve visited locations in both DC and New York, and noticed large constantly-changing physical inventories in each of them. This seems to explain why they haven’t created an option to order their clothes via their website. But something they have implemented is the ability to sell your clothes to them by mail, requesting a mailbag online and having it sent directly to your home. You can then fill the bag at your leisure and return it to them when you’re ready. They then give you the choice of receiving a paper check, PayPal payout, or in-store credit. By making the selling process more seamless, the store is able to create more opportunities to encourage customer visitation.

What does this have to do with antiques?

Admittedly, I still don’t know whether or not brick-and-mortar antiques are losing substantial market share to e-commerce disruptors in the same manner as the apparel industry. My main point here is that resale is inherently high-touch and experiential, yet e-commerce companies are figuring out new ways to emulate these qualities through their websites and apps. Brick-and-mortar antique retailers would do well to take note of how this is being done and act in kind. If not for fear of losing market share at the macro level, then to take advantage of these lessons to be better positioned at the micro. To summarize, here is what actions are being taken by second-hand apparel retailers which I believe can be replied to others in the business of resale:

1. Establish an on-line marketplace for your products if one doesn’t already exist. If maintaining accurate inventories is challenging, prioritize your offerings and highlight what’s special about what you’ve selected. If you’re a consigner, explore ways it can aid in the appraisal and selling process in order to encourage more in-store visitation and robust inventories. 

2. Consider other ways your website can further engage your clientele. Utilize social media platforms like Instagram to contextualize your products in ways your website does not. Create a blog discussing interesting trends and rare finds while providing personable anecdotes. Paint a picture for the customer whenever possible that showcases your unique brand to them.

3. Recognize changing trends in consumer demand. Are your customers motivated by eco-conscious spending options? Are they bargain-seeking? Or are they simply in it for that chance to find something rare and exclusive? Have you taken the time to look around your neighborhood? Who lives there? Who is patronizing businesses near yours? Use these clues to inform your approach and the way you present your offerings. There could be untapped demand you haven’t seen yet.

This investigation started because I wanted to think about how a cluster of antique stores might remain in their neighborhood despite development pressures that could feasibly displace them. What it turned into was a larger question of whether resale merchants are threatened by the growth of e-commerce. If that feels at all deceptive, I apologize for that. I mean only to emphasize that in exploring what constitutes a robust shopping district, we should leave no stone unturned in our investigations. Having done that, we can create more effective recommendations for future growth.  

Speaking Schedule Announcements: Fall 2017

It's shaping up to be a busy speaking season for Larisa Ortiz Associates. Here are some places you can find us in the Fall:

IDA Pre-Conference Workshop: The Future of Physical Retail in the Age of Online

LOA Principal, Larisa Ortiz, will be presenting at this ICSC sponsored pre-conference IDA workshop with  Michael Berne, MJB Consulting and Tony Hernandez, Director & Eaton Chair in Retailing, Centre for the Study of Commercial Activity (CSCA).

This timely session will not only get into the nuances of what is in fact happening in the industry, but also introduce various strategies and interventions that district managers might consider in an effort to help mitigate possible impacts and take advantage of the latent opportunities during the current period of transition. Participants will have an opportunity to share specific challenges they face and receive real-time feedback from peers and instructors.

Sept 13, 2017, 8:30-11 am, Delta Hotels Winnipeg
Conference program + registration.

International Economic Development Council (IEDC) Panel: Optimizing Tenant Mix for Downtown Business Districts

Larisa Ortiz, LOA Principal, will be speaking on a panel with Winnipeg West End BIZ's, Joseph Kornelsen, and Build Toronto's Director of Development, Salima Rawji - moderated by ICSC's Director of Community Relations, Cynthia Stewart. 

They will be discussing how to optimize tenant mix for downtown business districts with practical and actionable steps to better understand how to develop a retail attraction strategy, how to engage retail real estate industry professionals and how to customize a retail attraction strategy to fit the unique challenges associated with different traditional downtown retail environments.

Sept 19, 2017, 4-5 pm, Sheraton Centre Toronto Hotel 
Conference program + registration.

International Making Cities Livable Conference: Making Space for Democracy

LOA Associate, Nur Asri, will be presenting at the 54th International Making Cities Livable Conference in Santa Fe, New Mexico during the conference October 2-6. She will be presenting her paper entitled “Making Space for Democracy,” which introduces a new evaluation tool for assessing public spaces based on political and philosophical tenets of democracy. Nur conducted this research as part of her graduate thesis in City and Regional Planning at Pratt Institute. The study aimed to uncover the state of democracy of Singapore’s public spaces – particularly in relation to migrant workers who have become isolated to parts of the island-state. 

Presentation details + conference registration.

Beauty Store Survival in the E-Commerce Age

The beauty store is proving that, for some retail categories, shopping in-store remains very much a social experience. Around the country, beauty stores are transitioning into places that inform, educate, and entertain, according to founders of Bluemercury, a leading luxury beauty retailer.

Beauty stores are also quickly responding to the changing habits of their consumers who crave convenience and rapid service. Bluemercury, for example, is often located in an urban and dense location, probably next to a Starbucks, so that the busy mom or working professional can easily grab coffee and then grab lipstick in one seamless trip.

Today, overall spending on makeup and beauty supply is being boosted by an influx of new brands and products creating more dollars to go around amongst retailers. In fact, spending on beauty and personal care is growing more quickly globally compared to spending on apparel and footwear, according to market research firm Euromonitor International. This may be attributable to the fact that the beauty industry also has the added benefit of not being a seasonal industry, which keeps prices relatively consistent throughout the year. Although shades of make-up change by season, products remain the same and things like facial wash and shampoo remain the same throughout the year. This is antithetical to the season-dependent clothing and accessories category.

The $80-billion-a-year U.S. beauty industry has been growing 4% annually since 2010—much faster than other areas of retail – and Hispanic and African-American women are making up a large share of this market.

How are beauty retailers reinventing to survive this e-commerce era?

Leverage social media

Fortunately, beauty consumers are also discovering new make-up looks online as they do with clothing and accessories. Many beauty retailers are getting a boost from the rise of the selfie as consumers are referring to looks they see on Instagram, Snapchat or Pinterest as inspiration for product purchases. According to Shelley Haus, vice president of brand marketing at Ulta Beauty, “Social media is shaping consumer behavior… Scrolling through Instagram, the pictures and videos bring things to life in a way that’s super absorbable.”

Sephora has even sponsored Snapchat filters that create instant makeovers to the subject in the photo. This makes the product relatable and appealing to users. Sephora also targets its Snapchat filters at specific locations within proximity of a store so that in can help capture foot traffic. Customers who may not realize they’re near a Sephora store then become aware when they turn the geofilter on.

Maintain brand exclusivity

In an age where everyone assumes they can buy almost anything on Amazon, it seems almost impossible for retailers to keep up with online Amazon sales. Ulta Beauty and Sephora, however, have managed to keep the e-commerce giant Amazon at bay by maintaining brand exclusivity. Many higher-end makeup companies distributing their products through Ulta or Sephora have little product overlap with Amazon ensuring that customers must often make purchases off of the Amazon site, according to the analytics firm L2.

This cooperation/ partnership with higher end brands is also being strengthened across all channels through combined ‘prestige brand boutiques’ whose sales rose 7% last year, according to NPD Group.

Provide satisfying in-store experience

Most importantly, beauty stores are continuing to expand beauty and makeover services provided so that customers continue to shop in-store. First and foremost, beauty stores are providing places to play with special vanity lighting and make up testing stations. This is especially important to customers who are buying a product for the first time and wish to test and sample products. Makeup shades, for example, may appear differently on screen than on the face.

More and more, beauty stores are also providing a wider range of services including full-service salons and in-store brow bars. This allows customers to learn the latest makeup application techniques that may be harder to do/ more time consuming to do online. Ulta, for example, does not charge for makeup consultations while Sephora holds free make-up classes throughout the year.

Here's more on the top three beauty stores expanding throughout the country, read on and find out what they have to offer and what they're looking for!

1.    Ulta

Description: All-inclusive stores carry over 20,000 products from over 500 brands – everything from mass-market brands to high-end cosmetics, all in a format that lets customers try before they buy

In-store services: Beauty services include nails, waxing, blowouts (Ulta launched Drybar in 400 of its stores in 2016) and salon services include facial, hair, make-up

Ulta also maintains loyalty through a successful shopper-rewards program, Ultamate. It is one of the nation’s biggest loyalty programs, with 20.6 million members—and members account for an astounding 80% of its sales.

Growth: Same-store sales rose 14.3 % for the latest period while digital sales grew 71 % in the first quarter of 2017, to $104.3 million from $61 million. Strong online sales are largely incremental to its brick-and-mortar business, with 8.6% of loyalty members now shopping across all channels

E-commerce strategies: Paid search, display advertising, paid social

Current Locations: Ulta is widely- known as the ‘strip mall secret’. Ulta’s preferred neighbors were retailers like T.J. Maxx and Target—because of the middle-class shoppers they attract. In NYC, Ulta Beauty can also be found in regional shopping centers such as Rego Center and The Shops at Atlas Park. However, its fourth store is due to open in the more urban setting of Upper East Side as it changes its co-tenancy strategy toward Trader Joe’s and Whole Foods.

Customers: Millennials, Gen X and particularly, Latinos. Customer dwell time is estimated to be at least 15 minutes per visit.

Expansion Plans: Looking to expand from 1,400 to 1,700 locations across the US, or 100 per year.

Site Requirements: 12,000 SF (10% taken up by salon stations)

2.    Sephora

In-store services: Other than the typical beauty and salon services, Sephora stores also boast high tech features like iPad stations that offer beauty classes and virtual makeup try-ons

Omni-channel game: Launched the ability for customers to purchase Sephora online and pick up their order at a J.C. Penney store the same day, planning to introduce a new online feature that will enable customers to book a makeover with a Sephora beauty consultant.

Customers: Urban,  high-end

Site Requirements: 1,500 -2,600 SF (or up to 5,000SF)

Expansion Plans: Sephora inside J.C. Penney began in 2006 and after this expansion the company's makeup, fragrances, skin and haircare brands will be available in almost 650 J.C. Penney stores in 2017.

3.    Bluemercury

Description: Upscale, neighborhood alternative to department store beauty stands. Its focus lies in offering products with natural ingredients.

In-store service: Spa services include skincare treatments, esthetic treatments, and body care treatments. Bluemercury is also known to invest heavily in knowledgeable service staff. Employees develop expert product knowledge and are offered benefits for longer-term employment.

Current Locations: Dense urban areas, customers live within 5-mile radius/ 15 minute drive in the case of suburbs, co-location with take-out and fast-casual eateries and cafés

Customers: Broad array of customers – “50 percent of customers are coming for a solution to a problem or a product with a specific attribute.” However, product prices vary from mid to high and may appeal more to younger professional woman. Customer is also looking for a more relaxed environment than Ulta or Sephora

Site Requirements: 2,500 SF

Expansion Plans: Currently has 140 stores in the U.S., with 3 new stores opening every week – looking to expand up to 24 more bluemercury stores in 2016 and 18 bluemercury shops within Macy’s stores

The Future of Retail Panel – LOA Takeaways

This morning I had the pleasure to attend a panel of retail and real estate experts organized by the Commercial Observer here in New York City on the future of retail.  Panelists included Gene Spiegelman, Vice Chairman of Retail Services for Cushman and Wakefield, Isaac Chera, Principal of Crown Acquisitions, Susan Fine, Principal of Oases RE and Ryan Engel, Director of Business Development and Real Estate for Peloton. Below are our main takeaways:

How much is e-commerce affecting retail?

• E-commerce has continued to capture a growing share to total retail sales (it has expanded from less than 5% in 2009 to over 10% last year).
• The continuous growth of e-commerce has affected real demand for retail space. Thus, as retail rents were rising in past few years, demand for retail space was decreasing due in part to increasing online sales. Supply and demand for space are not following the typical curve due to new technological disruptions on how people shop.
• Retailers that are in trouble now were already in trouble before; e-commerce is just accelerating that process (e.g. Macys, Sears)
• In this context, an increasing number of retailers are seeing retail space (bricks and mortar) as a showroom and marketing platform where customers can try and interact with the products and brand and then order online.  Strong concepts like Apple Store, Bonobos, Warby Parker and Peloton illustrate the trend.
• Also, in this current retail landscape we tend to see the number of service businesses go up (personal care, food and dining) and leases for retail businesses tend to get shorter

Will retail rents go down?

• There is a lot of space in the market now and since demand for space is not following the typical supply and demand curve, rents will likely go down in a few areas; in NYC this will happen in SoHo, the Meatpacking District and some sections of Madison Avenue. Overall, according to panelists, rents will remain flat for a few years.
• Despite higher vacancy rates panelists are “cautiously optimist”.  According to them, the online trend is not sustainable: “there’s only so much UPS and delivery traffic the City can accommodate”… “Stores are still the best way to distribute to the customer”.

What’s next for retailers? What are the next trends?

• Despite growing of e-commerce, a number of existing retailers are quickly adapting and many interesting retail concepts emerging (as mentioned above, Apple, Bonobos, Warby Parker and Peloton).
• Panelists expect to see more online companies (large and small) opening bricks and mortar locations, especially in short term leases, pop-ups, etc.
• The stores that are (and will continue to) succeed have a strong focus on providing not only strong products, but an incredible service. For example, Starbucks has over 700 stores in Manhattan alone and their service accounts for a large portion of that success.
• Retail experience will be increasingly curated to each individual customer. For example, the new Amazon bookstores resemble a traditional bookstore, but uses online data to suggest additional books based on customers shopping and browsing histories.
• Big data is the next ‘thing’; increasingly retailers are using it to connect to consumers and personalize offerings. Panelists observed the retail industry is doing a better job at capturing and using big data than real estate: “there’s so much data out there and we haven’t figured out how to put it together yet”.

Macy's stores are closing. Now what?! Eight strategies for downtown practitioners facing new retail realities

Macy's recent announcement that it will close approximately 100 stores over the next few years came on the heels of announcements that Sears and K Mart will close 150 more stores (they closed 78 stores last year). Other stores like Kohl's posted disappointing holiday results. These general merchandise anchors have struggled in recent years to remain profitable, and the closures are intended to focus their resources on more profitable stores. So what do these trends mean for Main Street? We think the news offers challenges and opportunities for downtown business districts. Here are a few ways we think our downtown communities will be affected in the coming years...

More competitive leasing environment. With more and more SF on the market, malls in lackluster markets will struggle to lease space, and in some cases they will be competing for retailers who might also be considering a downtown retail space. This means that you have to be more aggressive in your leasing efforts, and get better at communicating the value add of a downtown location. You should ask yourself a few questions. Are your downtown vacancies easily found on on-line listing services? If not, are you working actively with your property owners to ensure their properties are listed and available for easy viewing? Do you maintain demographic and market data for retailers who are considering your market? There are a myriad of ways - some that require more investment than others - to ensure your district's vacancies are on a retailers radar. But either way, supporting retail leasing efforts will take some concerted effort and investment. On that note, don't forget to downtown our book, "Improving Tenant Mix: A Guide for Commercial District Practitioners" for free from ICSC's website for ways to take a more hands on approach to your district's leasing efforts. 

Omni-channel retailing will become more and more the norm as mainstream retailers invest in their on-line presence. Main Street retailers will need to find a way to follow suit. Yet asking small retailers to carve out resources for a robust on-line presence is a lot to ask many of them. As a result, communities and BIDs may have to step up their efforts to educate businesses on the strategies the tools they have available to them to ensure survival. Many businesses, particularly those that make their own products, may not be aware that they can sell on platforms like Amazon, Zappo's or Rue La La. We recently met a business owner who gave us the skinny on her on-line selling strategy, telling us she had abandoned Amazon because their requirements were "too much of a pain", but that she has had a great experience with Zappo's. This kind of intelligence will be useful to share with your local business community. And for those interested in selling directly to customers through an on-line platform, there are more and more options for them out there. (Read our recent post "On-Line Selling - An Option for Smaller Businesses" for more info.)

A retail website powered by Shopify, one of a number
of  on-line platforms that makes on-line selling
accessible to small businesses.

Programming and creative usage of public space (i.e "place based strategies") will increase. Commercial districts, like malls, are increasingly trying to offer distinctive experiences that cannot be found so easily on-line. Cooking demos, craft classes, exercise classes, etc. will all become more critical to engaging with customers. In downtown, that means activating and programming public space in a way that will drive downtown visitation. Consider the Meatpacking District's free outdoor yoga program. They teamed up with a local store to offer programs on the street during the summer. This is a great way to highlight a local business while also bringing activity to open spaces. These activities also reinforce a well thought out strategic position for this market based on the segment of the businesses that are there - a place where young, active people congregate. We love it.

The Meatpacking District BID in NYC
sponsors "Downward Dog Yoga Days" in the Summer
in partnership with a local business. 

Food will continue to drive leasing in many downtown environments. When food is in the mix, shoppers increase their dwell time, which increases the amount of money they are likely to spend in the district. A panel on Urban Retailing at last year's ICSC Recon emphasized this trend. Restoration Hardware Executive David Stanchak was on hand to discuss RH's recently opened new store in Downtown Chicago that includes a food operation - The RH Chicago Three Arts Club Cafe. According to Stanchak, "for every dollar we do on food-and-beverage sales, we're generating $2 on increased gallery sales."  The good news is that downtown environments already do food quite well, but will need to begin to find better synergies between food and shopping. In some communities, the hours that retailers are open do not necessarily overlap with the hours that restaurants are open, which diminishes opportunities for cross-patronage. Correcting this misalignment, perhaps through a well-promoted once a month late night effort could help address this issue. That said, care should be taken not to overtax small business owners who often have limited staff capacity to do this on a regular basis. Promoting the event sufficiently, and to the right customer audience, is key to ensuring the success of late night shopping strategies.

The 3 Arts Club Cafe, a food concept within
Restoration Hardware's new downtown Chicago location.

Food kiosks, food trucks, and seasonal food offerings will also continue to grow. Some communities might not be able to support a full time bricks-and-mortar food retailer, but can instead focus on developing a temporary set of offerings that may be associated with an event. We are working in a community in Long Island right now that has a small municipal beach. Last year they started a very successful food truck and movie night. It probably shouldn't come as a surprise that they sold many, many more beach passes over previous years - adding to the town coffers while also building community. These investments clearly also pay dividends.

Downtown Raleigh BID puts on the Food Truck Rodeo
over a weekend in the early Spring with more than 50 food trucks. 

Leasing to specialty businesses will rise. The downtown environment has an element of authenticity and interest that makes is a great place for some of these more interesting retail concepts. In some cases, lower rents and a lower hurdle to entry make downtown storefronts an enticing alternative to malls. Consider Muse Paintbar in Providence, RI, a business that bills itself as "the premier art and wine experience". Located on Main Street in a historic building, Muse Paintbar offers a wide array of classes for adults and families too.

Property owners and merchants will request higher transparency around BID spending. In the mall world, payments by retailers to cover common area maintenance (CAM) are critical to ensuring shared spaces are well maintained. The International Council of Shopping Centers recently posited that 2017 will see a more "widespread effort by retail tenants...to rein in or set limits on CAM costs." We believe that the same economic forces driving retailers to second guess CAM charges are not limited to businesses that lease storefronts in malls. As many of you know, in a downtown environment, the equivalent of CAM charges are BID assessments, which in a similar manner to CAM charges are obligatory contributions by property owners and/or merchants that support the enhanced maintenance of shared public spaces and help to advance long term district improvements. While getting a BID off the ground may become more challenging as businesses and property owners double down on keeping costs down, we do believe that existing BIDs will have to make sure their members understand the value they are getting for their investment. This means getting much better at bench-marking impact with measurement tools like pedestrian counts. And while BID members may balk at increasing BID budgets, doing away with these additional charges is not an option either. As one analyst indicated, it "costs money to create experience". And given how important experience is going to be to shoppers in the future, downtown's with BIDs are going to be better positioned to weather competition from on-line retailers than those that don't have the resources to program and maintain the downtown environment. 

Retailers, especially at the high end, are open to thinking outside of the box and customizing their stores to unique urban spaces. According to Richard Johnson, a senior real estate specialist who spoke at Recon in May, urban locations are appealing despite the higher costs, "“There is always a lot more cost, and we do more work for urban locations,” he said. “You want to give your best face to your best clients, and urban does that. The goal is to create something unique that has our customers coming back time and time again.” 

Overall, we think downtown is well positioned to compete in the coming years. As people look for authentic experiences, the kind of things that simply cannot be done on-line, we are confident that many downtown's can and will rise to the challenge.