Round up: State of the Cities 2018, classic American main street, free legal services, gender-free retail, steakhouse local

Scott Landfried is Operations Manager at Larisa Ortiz Associates

National League of Cities: State of the Cities 2018

Based on content analysis of 160 mayoral speeches between January and April 2018, this report breaks down the top ten major topics and discusses five subtopics of each major topic.

What a steakhouse can teach us about walkable neighborhoods

The concept: restaurants, and the like, built into mixed use residential environments become an extension of the resident's house and guarantees a reliable customer base. It is just another demonstrated point in the walkable/human-scale oriented versus auto-oriented debate.

Quantifying the death of the classic American main street

Main street is struggling under the pressure of chain stores and shifting economic forces. Among helpful tips to counterbalance this trend, the story discusses eight core characteristics of the classic main street.

NYC to offer free legal services to small business owners

Giving mom-and-pop stores some much needed help against the many forces against them with much deeper pockets, NYC Department of Small Business Services is offering up to 40 hours free legal services to small businesses with issues regarding their leases.

NYC retailer offers gender-free experience

Possibly a first - a retailer offers gender non-binary shopping experience. The retail space also includes a juice/coffee bar and community space - an experiential space of sorts.

Food Hall Site Selection

Nur Asri is an Associate at Larisa Ortiz Associates

Earlier this month, Cushman & Wakefield released a report titled, “Food Halls of North America”. Since their first report on the trend in November 2016, food halls have grown exponentially all over the country, and especially in New York (see #5 of our 2018 trends list).

The report lists twenty five different food halls in New York City (we’ve left out Essex Street Market because it’s an institution we’re more familiar with as a public market, more on this in a previous blog) but guess where they’re mostly located? That’s right, Manhattan. 

80% of the city’s food halls are located in Manhattan.

Source: LOA

Drawing a 5-minute walking radius around each of the food halls, I took a closer look at the demographics and worker populations surrounding these food halls to figure out why Manhattan is continuing to draw this attraction.

Source: LOA

When compared with food halls located in Brooklyn and the Bronx, those in Manhattan were situated in neighborhoods with higher population density, higher median household incomes, higher educational attainments, and higher proportions of Millennials aged 25-40. These are unsurprising facts for anyone who lives in the city but if you’re elsewhere looking to attract a food hall operator; these are just some of the criteria your downtown or neighborhood may need to offer.

The psychographic tapestry segments that dominated the food hall neighborhoods in both Manhattan and Brooklyn were ‘Laptops and Lattes’, ‘Trendsetters’, and ‘Metro Renters’ . These groups, as you can imagine, are all made up of high-earning, well-educated young professionals who are socially and environmentally conscious, technologically savvy, and enjoy discovering local art and culture and dining out.

Given that food halls are highly-curated cultural hubs for new and old restaurateurs to test food concepts and set trends, having an educated audience that seeks this type of experience and is hyper aware of the nutritional value of their food would be highly beneficial and complementary to the mission of food halls. These are the same customers that will likely come in to a food hall and Instagram their meal and night out, driving greater marketing and sales.   

Speaking of dining out – I also found that residents living near food halls in Manhattan spend more eating out annually than those in the outer boroughs. The exception lies in DUMBO, Brooklyn where the upcoming Time Out Market is slated to open later this year. Within a 5-minute walk of the soon-to-be-opened food hall, households are spending an average of $6,091 annually on eating out. This is even higher than those residents living near Canal Street Market, American Market by Todd English, and Gotham West Market!

The high density of worker populations is another trait food halls seem to prefer. All the food halls located in Manhattan have between 20,000 to over 100,000 daytime workers within a five minute walking radius. In comparison, the food hall with the greatest day time worker density in an outer borough is Gotham West Market at the Ashland (Brooklyn) with only 16,353 workers within a five minute walk.

Photo: Lou Stejskal  (Flickr)

Meanwhile, in Manhattan, the top three food halls with highest worker population densities are all located in and around Grand Central Station (Urbanspace at 570 Lexington, Urbanspace Vanderbilt, and Great Northern Hall), where there is a strong cluster of banks and financial services offices and over 100,000 daytime workers. Furthermore, most of these workers earn more than $3,333 per month, indicating strong spending potential particularly during lunchtime and after work.

Even within New York City, there are nuances with where food halls are growing. Food halls in the west side of Manhattan– from Chelsea up to Midtown West – appear to be riding on the wave of high population growth rates. Populations around Gotham West Market and Hudson Yards Food Hall, for example, are expected to grow between 14-15% in the next five years (some of the highest rates in the city!). And the same can be said of the growth in food halls in the outer boroughs. Aside from Industry City, all the food halls in the Bronx and Brooklyn are located in neighborhoods with rates of population growth higher than their respective County levels.

So it appears that even if your downtown doesn’t quite have the traits that we’ve seen with the food halls in Manhattan (i.e. high population densities, high worker densities, etc.) but is undergoing a renaissance and seeing an impressive development pipeline of residential homes and offices, then maybe attracting a food hall operator is not completely out of order.

Like attracting all other tenants, however, it is crucial to first consider the types of residents and workers that will be entering these new developments, what their spending patterns are like, and if these align with the traits that food halls are craving.

Are their disposable incomes high?

Are they trend-seeking consumers?

Are they younger, digitally-apt customers that will continue to support and market the food hall?

After all, as we’ve seen, the food hall is not for everyone. And it’s certainly not for every neighborhood.

The Store-for-Hire Model

Source: Instagram (@thisisstory)

Nur Asri is an Associate at Larisa Ortiz Associates

As preferences shift and consumers continue to demand experiences in retail stores, the store-for-hire concept has become an incredibly popular strategy to keep brick-and-mortar stores exciting and refreshing. These stores change products and experiences constantly so that consumers are able to visit often without getting bored of the store and its offerings. But how do these pop-up-esque stores operate and how can you create one in your downtown? Let’s take a closer look at two of New York City’s most innovative stores- for- hire – Bulletin and Story.

With vacancy in downtown environments rising from the impact of e-commerce and rent speculation, get creative and put in-store spaces up for hire. Stores-for-hire can be a great way to regenerate interest in your downtown, especially among local entrepreneurs and makers who are still digitally-native and who can yet afford leasing an entire storefront all by themselves.

Millennials' Impact on Health and Wellness in Retail

Nur Asri is an Associate at Larisa Ortiz Associates

Health and wellness is no longer characterized by illness or disease, but to a more holistic state of being that considers the wellbeing of one’s mind, body, and emotions. According to Jack Ma, Chairman of China’s largest e-commerce company, Alibaba, “…today’s customers want to be healthy and happy, no matter who they are”.  As a result, they are showing an increasing preference for products, brands, and experiences that appear to promote their overall wellbeing.

                                                                                                                      

Wellness has become one of the world’s largest and fastest-growing industries. According to Global Wellness Institute, the global wellness market is estimated to be worth $3.4 trillion, three times the size of the global pharmaceutical industry. The industries measured as part of the global wellness market included fitness and mind-body, healthy eating, nutrition and weight loss, preventative and personalized health, spa, beauty and anti-aging and alternative medicine – many of which we now find downtown and along our commercial corridors.

The wired and self-reliant Millennial is particularly dedicated to health and wellness. The group’s disillusionment with the current state of health care costs has apparently pushed Millennials to behave differently when it comes to taking care of themselves. They are relying on personal networks and wider ranges of products, services, and providers to manage their health and wellness. Many are even tracking their levels of activity and calorie consumption on mobile apps.

Most importantly, they are increasingly willing to spend money and time on ‘preventative health care’ through exercising, eating right, and conscious living. This daily pursuit to wellness and the subsequent lifestyle changes have influenced trends in food and drink, fitness, and fashion, and as a result, the retail tenant mix that we are seeing in our commercial districts.

Here are some key retail categories that are growing with Millennials’ pursuit of health and wellness:

Apparel & Accessories

Millennials are paying more for athletic gear or what is now more commonly known as, athleisure wear. According to research firm Forrester, Millennials and Gen Zers account for 69% of all fitness wearable owners. In fact, these young consumers are wearing athletic outfits for activities other than working out and this trend has grown rapidly with various brand apparel retailers growing their active wear options.

Popular athleisure retailers that are growing in urban markets with higher shares of Millennial customers include Lululemon, Sweaty Betty, Alo and Outdoor Voices – each with its unique brand and community of followers.

                                                              

Alo has built its brand specifically around yoga. Its product offerings are designed for yogis and its stores offer extensive yoga class schedules. Alo has opened three stores in urban neighborhoods in California, where the wellness and yoga movement is particularly strong.

Outdoor Voices, on the other hand, has built its brand as technical apparel for ‘recreation’ – which really is all-encompassing. Anyone participating in a recreational activity, whether it’s dog walking or yoga or a fun group sport, would easily identify with the brand and its products.  The store has opened locations across the country – from Colorado to Texas and New York.

Fitness

Gyms have long been tenants in many of our downtowns and commercial districts, however, in recent years there has been a significant growth in boutique fitness concepts. According to the International Health, Racquet & Sportsclub Association, these types of spaces now account for 42% of the entire health club market and they range from yoga, spinning and boxing studios to grungy crossfit facilities. In particular, the 2016 IHRSA Health Club Consumer Report found that Millennials preferred specialized fitness classes like kickboxing, barre, crossfit, and yoga as opposed to Gen Xers. They love the personalized and community experience that these boutique fitness concepts provide and are willing to pay more than the monthly average of $33 for these classes.

Like the athleisure stores that have grown in numbers, boutique fitness concepts have built strong brands and communities of followers that subscribe to distinct sets of values.

Food and Beverage stores

As part of their shift toward holistic health and wellness, Millennials are also increasingly spending on healthy produce. According to the Organic Trade Association, 52% of organic consumers are Millennials. Furthermore, Millennials eat 52% more vegetables than their older counterparts and about 12% of this age group claimed they are totally vegetarian back in 2011. These shares may even be even larger today.

Grocers and convenient stores that offer organic and locally-sourced produce such as Whole Foods, Trader Joe’s are growing fast in urban markets and in even smaller formats. Whole Foods opened its first 365 small store concept on the east coast in downtown Brooklyn, where the psychographic group known as the ‘Laptops and Lattes’ has grown rapidly in recent years. This group is essentially made up of single, affluent and well-educated Millennials with a median age of 36.9.

Food and drinking places

Even when they’re eating out, Millennials continue to demand responsibly-sourced, health-conscious food and drink options. Research shows that Millennials look for food options that are wholesome and healthy. Organic, freshly-made, and authentic foods are all important labels to Millennials. This has led to a strong growth in quick-service juice and salad bars across many metropolitan cities. Sweetgreen, a fast-casual salad bar that prides its offerings on being locally sourced and customizable, started in DC in 2008 has since grown to 85 locations across 8 states. Again, its locations are mostly in urban neighborhoods with strong Millennial representation.

Beauty and Personal Care Services

The final retail tenant type that has grown in many urban markets as a result of the Millennial shift toward holistic health and wellness is beauty and personal care services. This includes everything from spas and salons to meditation clinics.  From 2007 to 2013, the spa industry grew 58% with a 47% increase in spa locations from 71,762 to 105,591.

The truth is Millennials want the experience of being ‘transformed’. Even department stores like Saks Fifth Avenue are addressing that desire by introducing wellness service centers in their stores such as the Wellery in New York. These wellness centers offer spas and detox treatments, and even meditation clinics that help those who are constantly wired from busy lifestyles to unplug.

Mall-to-Mixed Use Tracker

Nur Asri is an Associate at Larisa Ortiz Associates.

In recent months, we've seen a slew of headlines announcing the redevelopment of dying malls as walkable, mixed-use neighborhoods. These complex undertakings (read our post on the challenges associated with redeveloping malls) are popping up across the country as more commercial developers seek to diversify their portfolios in this turbulent retail climate. Join us as we round up some of the latest mall-to-mixed use projects:

Source: LOA (2018)

There are a number of uses other than 'Retail/ Restaurants/ Entertainment' that have been introduced to dying shopping mall sites. This includes housing, office space and hotels. In fact a majority (35%) of the projects we tracked now feature the full suite of uses - retail, housing, office and hotels. Retail and housing is the second most popular use combination on these former shopping mall sites, comprising 26% of total projects tracked.

When we look at the geographic distribution of these projects, the state of California comes up as a clear leader in these mall transformations. 29% percent of the projects we tracked are located up and down the coast from San Diego to the Bay Area. The State of Virginia also fares well with a 20% share of tracked projects located between Tyson's Corner and Richmond, however, it is the Mid-Atlantic region as whole that leads this redevelopment trend with 40% of projects located in VA, PA, MD, NJ and NY.

Source: LOA (2018)

The traditional American mall will no doubt continue to reinvent itself as consumer preferences and lifestyles change so keep your eyes peeled for similar projects in your own city! Comment below if your town is seeing a new mall-to-mixed use conversion. Here's a full list of mall-to-mixed use projects we tracked:

Source: LOA (2018)

Here's what to expect in 2018 and beyond! Our recap of the top nine retail trends poised to change downtown business districts for good

If 2018 is anything like 2017, expect major changes when it comes to downtown retail. While no one has a crystal ball, our work in nearly two dozen communities nationwide has led us to a few trends that we expect to see alot more of in 2018...

#1. Embrace social media, or else

The number one story, of course, is the rapid change in how the American consumer is purchasing and consuming information that leads to purchases. According to the consulting firm Accenture, 78% of people “webroom,” or research online before heading to a store to make a purchase. This online research often includes perusing customer review sites such as Yelp or Tripadvisor and Instagram posts by various brands, retailers and ‘influencers’.

However the purchasing journeys in some retail categories are more highly influenced by digital marketing than others. Social media channels such as Instagram, Facebook, and Pinterest continue to introduce new call-to-action features like “Shop Now” buttons for products and “Sign Up” buttons for services. Social media will not only become an important marketing tool but also sales platform for retailers.

While retailers need to build partnerships and creative collaborations with social media ‘influencers’ to achieve greater brand authenticity and trust among consumers, commercial district managers on the other hand need to implement district-wide social media strategies on behalf of the downtown as a whole. Social media accounts owned and managed by BIDs, merchants associations, or chambers of commerce should also aim to highlight various activities taking place downtown in order to further drive visitation to the area.

One of the more recent social media tools that is being adopted by downtowns across the country is a Snapchat geofilter. Snapchat geofilters are special graphic overlays (or digital stickers) for photos taken on the Snapchat app. Downtown Snapchat filters typically feature a downtown logo or graphics of downtown landmarks, and only appear on the Snapchat app when a visitor opens it whilst they are downtown. Snapchat charges $5 per 20,000 square feet of ‘Geofence’ (i.e. geographic area determined as the downtown). Times Square Alliance in New York City, for example, has its own Snapchat filter that has been widely used by local residents and workers, as well as visitors.

                                                     

#2. It's all about the "experience"

Consumers are starting to spend less on products and more on experiences and service-based retail. A Holiday Shopping Habits 2016 Survey by the Rubicon Project found that experience-related purchases were the top spending category for consumers in the 2016 holiday season.

Service-based or experiential retail involves in-person interactions and thus are best transacted at physical locations versus online. Many traditional retailers in various categories are quickly adapting their existing store formats to offer personalized services and hands-on, memorable activities and we expect to see some more of this across retail categories. 

Downtown organizations can support retailers’ efforts by supporting experiential activities in downtown public space, while also advocating for and marketing in-store events and activities through newsletters and social media. Downtown Morganton, NC, for example, has a robust and widely-subscribed weekly newsletter “D4U” that is populated with activities organized by individual stores downtown.

#3. Next stop for micro-manufacturing? Downtown. 

As cities continue to face rising retail vacancy rates, more ground floor spaces are left underutilized in core downtown areas. Pop-up retail concepts may be a temporary solution but micro manufacturing might just be the longer-term downtown use that can replace these empty storefronts.

Micro-manufacturing, or small-scale manufacturing, is characterized by artisan goods produced in small quantities using small hand tools or light machinery so cities need not worry so much about nuisance such as noise and noxious by-products. Since many of these micro manufacturers don’t require large floor plates to carry out production, they are extremely viable tenants for the many small- to mid-sized vacant storefronts that plague our main streets, provided zoning is made flexible enough to support these uses without having to apply for variances.

In addition to filling vacant ground floor retail spaces, micro manufacturing can increase supply of locally-made goods and services (thereby increasing a city’s ‘Shop Local’ brand), increase sales tax revenues, and provide inclusive and well-paid employment for downtown residents. Therefore, cities and downtown district managers need to show strong support for micro manufacturers by matching them with available ground floor space, providing legal and financial support to acquire such spaces (including maneuvering zoning variances etc.), and collectively marketing the locally-made products.

The Made in Baltimore Campaign was funded by a grant by the US Economic Development Administration and has led to the creation of a seal that is given to all members to use on products, packaging and promotional materials, and also led to the creation of events celebrating the culture of manufacturing in Baltimore, MD.

#4. Retailers will need to embrace omni-channel selling

Omni-channel selling is the marriage of the brick-and-mortar storefront with digital channels that include mobile apps, online marketplaces, and a bevy of other tech-assisted resources.

The story of omni-channel retail parallels the meteoric rise of e-commerce that we’ve seen over the last decade.  In that sense, the concept itself is not new. But the degree of sophistication and the improved efficiency in creating that seamless shopping experience have continued to evolve such that it remains at the forefront of any current conversation regarding best practices. The term can feel rather ubiquitous and carry broad application. Indeed, for brick-and-mortars early on, omni-channel selling was as simple as creating a consumer-facing website or electing to also sell your wares via an online marketplace like Ebay or Etsy. However, today we see omni-channel refer to the monitoring of customer internet searches and tracking of purchasing habits to assist in curating a more targeted physical inventory, determining optimal site selection for a store, or spurring the exploration of new innovative store formats that carry no inventory at all, instead functioning solely as high-touch showrooms where shoppers purchase online for later pickup.  

This is important to understand because it demonstrates that this notion of the “retail apocalypse” is a misnomer, in the sense that national retail sales have continued to grow year over year. But e-commerce sales continue to capture a stronger share, up to 9.1% for Q3 of 2017 according to the US Census.[1] More purchases are being made in different channels from where the customer experience started—meaning that whereas the customer may have visited a brick-and-mortar first, they may elect to make the final purchase online later (or vice versa). Omni-channel represents what the customer most often wants, and (increasingly) what yields the best overall financial results.[2] Therein lies the lesson for district managers, as they field questions from concerned retail tenants pointing to the threat of Amazon to their bottom line. As Macy’s and Toys-R-Us shutter stores, Warby Parker and Bonobos are opening more up precisely because they’ve learned the sum of the physical and digital is greater than the parts.    

#5. Are we seeing the beginning or the end of the food hall? 

Food halls are spaces that attempt to marry the traditional food court with the public market. They are heavily-curated culinary spaces that are typically located in urban, mixed-use areas and can be opportunities to offer tenants trying to break into the culinary scene an affordable alternative with smaller, less expensive spaces and flexible leases.

In 2015 there were 70 food halls in the US across 1.9 million sf compared to to over 130 food halls last year across 3.1 million sf. Needless to say, the food hall scene has grown rapidly and New York City alone accounts for more than 25.4% of the total number of US food hall projects. The factors that led to this rise in food halls were the rise in restaurant rents of major cities and the emergence of the ‘foodie’ culture. As long as both factors persist, food halls might continue to proliferate across the country and downtown organizations will need to work strategically with property owners to locate destinations in core retail areas in order to draw even more visitors to the area. Depending on local demand and interest in food entrepreneurship, food halls downtown may vary in size from 10,000 sf – 50,000 sf. Downtown food halls can also be catalytic projects that transform and revitalize historic buildings that have fallen into disrepair. The Pizitz Food Hall in Birmingham, Alabama is the most recent example of this. 

On the other hand, New York City and other major metropolitan areas that have already seen their fair share of food halls, might stand to hit saturation point in 2018. The ‘foodie’ looking for authenticity and unique food offerings will start to notice that Gotham West Market, UrbanSpace Vanderbilt, and Dekalb Market Food Hall all have the same sleek, industrial interior and concrete floors, with more or less the same mix of food offerings – burgers, tacos, Asian noodles, donuts and ice cream. So much for authentic culinary experiences!

#6. Pop-up brokers will make it easier to fill vacant retail spaces

Pop-up brokers are firms that specialize in temporarily filling vacant retail spaces, functioning as the liaison between prospective tenants and landlords, often offering a menu of additional services to aid in the transaction and roll-out. These services can include assistance with brand activation and marketing for the tenant, provision of liability insurance for the landlord, and on-site security during special events. These agreements are typically accomplished through short-term licensing deals which make it easier for the landlord and tenant to do business while keeping terms flexible enough they won’t prevent the landlord from bringing in a long-term tenant should the opportunity present itself.[3]   

Pop-up tenants themselves come in many different forms. They might be an e-commerce retailer looking to transition into a brick-and-mortar concept in order to explore omni-channel strategies, the scrappy young start-up looking to test their product in the market, or even a well-established company looking for a short term venue for an experiential marketing campaign.

The overall allure of pop-up brokers has been their role as a stop-gap measure to address softening in the market for retail real estate. Whether spaces remain vacant due to online competition or high rents, pop-up brokers effectively capitalize the asset in the interim. For commercial district stewards, this helps avoid issues with “missing teeth” that disrupt the continuity of active street level building frontages—something critical for ensuring that customers shop longer, and cross-shop between stores. For that reason, these brokers may be valuable allies, at least within larger urban markets where they appear to predominate presently. But it’s not unreasonable to theorize that these brokers may have a larger role to play in the future as we continue to see an emphasis on more experiential retail concepts, shrinking retail floor plates, growth in co-retailing, and the overall churn of the market. 

#7. Small is beautiful. Shrinking retail footprints mean more opportunities for downtown

Increasingly retailers like Target and Walmart have been experimenting with smaller building footprints and a narrower selection of products on their shelves. This may not be a bad thing. Many have pointed out that the American market is overbuilt with more than 25 square feet of retail space compared to 2.5 square feet in Europe.[4]

But for other retailers, it’s important to understand the tendency to shrink should be tempered with the additional understanding that brick-and-mortars are necessary to maintain exposure with customers. Steve Dennis, contributing writer at Forbes, is quick to assert that shrinking is not an “automatic gateway to better performance.”[5]  Storefronts are still the place where experiential moments occur. While books, music, and some select apparel may be more conducive to a predominantly on-line sales format, other high-touch categories are going to still need stores to act as showrooms, demo spaces, and advertising opportunities (i.e. billboarding).

The point here is that closing a store is distinctly different from shrinking a store in that the former signals retreat while the latter can serve as a strategy to explore experiential retail, omni-channel selling strategies, and access to growing urban markets. Done correctly, it can convey such advantages as a reduction in the number returns, lower staff turnover, reduced shrinkage, and (of course) lower rents. Pioneers like Target and Nordstrom are testing the waters at present, and it is likely that as they uncover best practices they will prompt emulation from their peers in the years to come.

#8. Expect an aging population to alter downtown investment priorities
As the Baby Boomers age, expect a heightened emphasis on making sure that downtown retailers - and the downtown environment as a whole - meets their needs. This demographic may be slowing down their spending, but they continue to be the most familiar and comfortable with in-store shopping and their sheer size in numbers means that boomer spending will drive retailer decision making for quite some time. Expect downtown managers to be more mindful of the physical environment, advocating for improvements that make downtown more comfortable for an aging demographic. More care will also be taken with the maintenance of sidewalks to keep surfaces even and easy to walk on, as well as larger, more visible signs that are easier to spot and read. This group will continue to spend on leisure-related categories, home improvement and staples, but will start pulling back their spending on apparel, footwear, home furnishing and casual dining.

#9. Goodbye to downtown parking minimums (we hope)

Though by no means a wide scale movement yet, we have been seeing more and more cities embracing changes in their parking requirements, notably the removal of minimum parking requirements. Cities from Buffalo, NY to Hartford, CT to Santa Monica, CA are among the latest cities to bid farewell to parking minimums.  This means that new development is not required to include any parking (though developers in some communities may elect to include parking if they so choose).  The problem with parking requirements is that they are often ill conceived efforts to supply more parking than is necessary – and often undermine the very density and quality pedestrian environment necessary to support viable transit alternatives that make car ownership less appealing. Parking minimums create a self-reinforcing loop, resulting in places where car ownership is required for a comfortable existence. 

When parking minimums have been removed, the impact on downtowns has been shown to be tremendous.  The change in policy often releases a pent up demand for development of housing product that would not have otherwise been built. And where there is housing, there is retail. In Los Angeles, where an adaptive reuse overlay in downtown stripped the parking requirement from older buildings. It unleashed a flood of development that resulted in the adaptive reuse of historic buildings for housing, which in turn has led to growing demand for retail that is being met by businesses new and old. 

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[1] https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

[2] https://www.forbes.com/sites/stevendennis/2017/06/02/shrinking-to-prosperity-can-retailers-get-small-to-stay-relevant/#19328ab81cf9

[3] https://therealdeal.com/issues_articles/are-pop-up-shops-becoming-a-permanent-fixture/

[4] https://www.forbes.com/sites/robinlewis/2015/03/17/retail-in-2015-a-reality-check/#71ba59ed27ef

[5] https://www.forbes.com/sites/stevendennis/2017/08/03/honey-i-shrunk-the-store-and-my-profits/#21bded864ff4

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.

Technology in Retail

Nur Asri is an associate at Larisa Ortiz Associates.

As we continue to move forward in this digital age, consumers are expecting simpler and seamless processes at home, at work, and at the retail store. As a result, retailers are making significant investments in technology in- stores to meet these consumer demands for a connected and convenient shopping experience. Here are some ways that retailers and brands are using technology to enhance consumer experience but also personalize marketing, improve logistics and customer service in brick-and-mortar stores.

1. Data Integration: Understanding consumer preferences, personalized marketing

Connecting data from smart appliances, mobile phones and other portable devices to digital systems helps businesses understand how customers actually use products and services, and which ones are preferred. To take advantage of this data and metrics, retailers can begin using devices to facilitate a more seamless retail experience in the store, and at home, to integrate products and services.

Retailers can use “customer genomes” to create highly personalized offers, promotions and experiences.

Source: Let's Talk Payments.Com

Macy’s and Apple are using in-store beacons to provide personalized offers directly to customers via mobile devices. House of Fraser, another department store in the UK, inserted beacons into mannequins for a proximity marketing campaign. When shoppers download an app and browse in- store, they receive information about the clothes on display. In other bigger retail stores, in-store shopper tracking systems have been installed to pinpoint a customer’s location. Retailers can then send targeted messages to customers (via smartphones) about nearby items.

Hugo Boss Heat Sensor in Regent Street store.
Source: Bloomberg

In London UK, Hugo Boss uses heat sensors to track customer traffic in its clothing stores, which helps store managers organize priority merchandise in high-traffic areas.

Monsoon Accessorize uses multichannel data sources from in-store and online customers to deliver unique personalized offers via emailed receipts. Similarly, UK department store John Lewis is partnering with an omnichannel personalization company to customize product recommendations for each individual shopper.

Walmart Media Exchange is using data collected from store sales, social-media platforms and third parties to supplement data from its Savings Catcher loyalty program. From the data, Walmart plans to create customer segments, and eventually individual customer profiles, to make better offers, as well as to improve targeted marketing.

2. Building brand/ product awareness: Educating consumers on what’s available on offer, sharing products through social media

Photo: Fashion Network.Com

Sephora has installed display screens showing latest trends, make-up tutorials, and new Made in Sephora exclusive offerings updated by theme each month. The screen greets customers as they enter the store, much like a mall directory screen. In addition, Sephora also has Beauty Boards. These are physical social media platforms to like a look, tag products used and share with the Sephora beauty community. Finally, Sephora’s snapchat geofilters feature highlighted products in-store and are designed to engage everyone within a mile of a store.

3. Product Testing: Allowing consumers to test products digitally or via augmented reality

Again, at Sephora, the Beauty Hub is a virtual look book which provides a catalog of beauty inspiration while the Virtual Artist service enables customers to test looks on an iPad or connected mirror. Developed with Pantone, the Color Profile application helps choose the right foundation shade with almost scientific precision. Recommendations are then made from all the complexion products available at in-store.  

Marie Claire’s pop-up store in NYC SoHo, called “The Next Big Thing Concept Shop”  has dressing rooms with interactive mirrors from Oak Labs that recommend accessories for outfits being worn. Similarly, Clarins beauty stores now feature Sensor Mirror Pro virtual skincare mirrors developed by MemoMi to educate consumers about their skin types so they are able to select the most suitable skincare products.

Photo: Connected-store.Com

Finally, fashion retailer Uniqlo has also piloted a “Magic Mirror” technology from Sharp that allows customers to virtually change the colors of clothing they’re trying on while standing in front of the mirror.

Photo: Ikea

Even when consumers aren’t physically in stores, they are now able to test products thanks to advanced technology. Ikea will soon enable shoppers to virtually test drive merchandise before making a purchase via an augmented reality app called Ikea Place. The app will allow customers to virtually place any Ikea furniture in any space and share the images with friends. The app will automatically scale furniture with 98% accuracy. This enables customers to experience how light and shadows will render on furniture within the space, and is intended to make buying decisions easier and inspire customers ahead of purchasing products. Other furniture retailers such as Wayfair and Ashley Furniture are similarly preparing to launch such initiatives with their products and brand.

Ashley Furniture will take technology a step further and feature in-store virtual reality tech bars that will combine a guided iPad-based space configuration experience with VR headset visualization, allowing shoppers to design and visualize their own homes.

4. Payment Processing: Easy and seamless payment methods

With a smartphone in every pocket and imaging technologies now available for scanning products, faster alternative checkout methods will continue to grow across the retail industry, predicts Tony Rodriguez, CTO of digital identification solutions provider Digimarc.

Self-service checkouts have gotten more sophisticated in grocery stores and moved into other retail sub-segments, such as home improvement, fashion and electronics stores. Tesco, a grocery store in the UK for example, is testing a high-speed checkout solution that automatically scans products placed on conveyor belts. The system can process up to three customers at a time.

Apple Pay at Whole Foods. Photo: Eric Risberg

Integrated mobile apps and “contactless” mobile payments now also enable visitors to make seamless cashless transactions, supported by MasterCard and Apple Pay, from anywhere within the store, including via fitting room mirrors. The Sephora store at Newbury Street, Boston, for example, has no cash registers because staff associates can process payments digitally, on their phones from anywhere on the floor of the store.

Since Apple’s launch of its Apple Pay solution, retailers including Staples and Whole Foods have announced plans to accept Apple Pay at their retail locations, adding to an impressive list of other major brands such as Bank of America, Disney and McDonald’s.

5. Customer service: Efficient appointment bookings, improve staff efficiency, deliveries

Many stores now enable customers to use an integrated mobile app to book one-on-one appointments with fashion stylists, and sign up for a variety of in-store events and activities. Neiman Marcus, for example, has already piloted this at their pop-up store in SoHo.

To free up store employees’ time, Lowe’s has also begun rolling out customer-helping robots into the aisles of 11 stores in the San Francisco Bay Area. Lowe’s Innovation Labs unit worked with Silicon Valley start-up Fellow Robots on the LoweBot. The robots allow store associates to devote their attention to customers that need more thoughtful advice and personalized service. Likewise, Safeway grocery store helps customers locate stock and obtain product information through its Just for U service app. The app also goes a step further by helping shoppers create and sort their shopping list by store aisles.

Wearables, or ‘smart glasses and other connected devices intended to be worn on the body’, are another productivity booster. Tesco distribution center workers wear armbands that track the goods they are gathering. The band also assigns tasks to the wearer, forecasts task completion time, and quantifies precise movements among the facility’s shelving and loading bays.

The advancement of such technology amongst retailers will serve to deliver a seamless shopping experience for customers. However, even with all of these gadgets, customers still walk into brick-and-mortar stores to get the personable experience of getting expert advice from a staff person who’s tried and tested products for themselves. From 2015 report on Navigating the New Digital Divide, Deloitte noted that “one in three customers still prefer to consult store associates for assistance when selecting and validating products.” Retailers must therefore adapt and learn to balance both the human experience and technological convenience in stores to attract consumers in the digital age.