Greater Greater Washington

Window shopping is becoming window dressing

According to industry experts, retail is rapidly evolving into little more than an amenity to enhance the value of housing and office spaces above.


Photo by NCinDC on Flickr.

The old retail model of traveling to a place simply to acquire goods is dying, thanks in large part to the Internet, they said at a panel on retail during ULI's April 17 Real Estate Trends Conference. Today's successful retail destinations are much more about entertainment experiences than shopping.

Developers want to attract younger and more affluent residents to mixed-use developments, but the kind of retail that these residents crave is very different from the retail that makes lenders want to finance a new building.

On the panel, moderated by Janis Schiff of Holland & Knight, mixed-use developer Grant Ehat of JBG/Rosenfeld talked at length about the decline of enclosed malls. The only mall to open in the US since 2006 is City Creek in Salt Lake City, which is adjacent to the Mormon Tabernacle and is heavily subsidized by the LDS church.

Tysons Corner is the only "super fortress" mall in the DC area that is viable for the long term, Ehat argued. In his view, even Montgomery Mall may not survive for another generation.

50% of the space at top-end retail destinations like Miami's Lincoln Road Mall is food oriented, said Ehat. Architect David Schwarz added that consumers are basically lazy, and that the most successful developments are the ones that contain the greatest number of attractive uses in the most convenient and concentrated places.

The economics of retail is shifting. According to Placemaker Michael Ewing, of Williams Jackson Ewing, retailers now rely on the "clicks and bricks" model, with their physical stores serving as venues for customers to see and learn about products that they later purchase online. Ewing said that people want to feel younger and more affluent than they really are, calling this "the psychology of aspiration."

From the developer's perspective, Ehat reported that he no longer even considers retail as part of the bottom line. Instead, in the context of mixed-use developments, the retail, dining, and entertainment offerings on the ground floor drive the image of the overall project and, hopefully, improves the financial performance of the apartments, condos, or office suites on the upper levels.

A final obstacle to retail developments is the balance between financiers and customers. Lenders still love "national credit tenants" (the big chains), the panelists agreed, but the younger and more affluent are not interested in such stores. Those are the shoppers and residents that developers want to attract, but they have little interest in living near the stores that lenders prefer.

Conversely, the independent retailers and restaurants that most appeal to target markets for new apartments often struggle to secure financing. For developments such as the 6 Walmarts planned for the District, the panelists concluded that this tension will be quite acute.

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David Versel is a Senior Research Associate with the George Mason University Center for Regional Analysis. 

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Very interesting piece, though I fear it's going to irritate the "everything is as it is because that's the way Americans want it and nothing will ever change" crowd.

Anyway, it seems of a piece with other observations on Americans increased affinity for urbanism, decreasing family size, delayed child-rearing, and the loosening of of "car-culture" on the American imagination.

We're slowly becoming Europeanized. :)

by oboe on Apr 25, 2012 1:24 pm • linkreport

I must be old, I far prefer to do my shopping in person, in store. But I agree that I won't if it's inconvenient.

by Ms. D on Apr 25, 2012 1:32 pm • linkreport

I used to be old-schood, but now I'm guilty too. I shopped for a router yesterday at Best Buy and Costco, then went home and ordered online. From neither of those stores.

by Bill Cook on Apr 25, 2012 1:40 pm • linkreport

while I haven't written my own piece on the session yet, I disagree with you quite a bit that what they said is that retail is now glitz for MU projects. What they said is that retail is evolving towards a key focus on the experiential/third place. And Ehat was talking about projects that have a limited amount of retail, such as their project in Twinbrook, not projects that have a significant amount of retail, such as their projects with Walmarts in DC.

by Richard Layman on Apr 25, 2012 1:45 pm • linkreport

@Richard: I wasn't meaning to suggest that retail was just "glitz," but rather that developers don't expect to make any money off of retail space. Ehat's take, as I wrote it down, was that new residents generate buying power to support retail space, which then creates excitement and makes the residential units more desirable and, by extension, allows developers to charge more for them.

Obviously Walmart is a different sort of animal from mixed-use developments with limited retail, but the concern that I have about a Walmart anchored project is whether or not its presence will actually be a turnoff for prospective residents.

by David Versel on Apr 25, 2012 1:56 pm • linkreport

Agreed with Richard. Retail isn't dying. It's changing. It's important that we distinguish between types of retail. Stuff like electronics is very different than food or clothing. People like to see food or try on clothing before they buy it. Electronics, not so much because it's the ultimate commodity. People also like to see homewares and furniture before they buy.

Bill, while you have a good point about electronics, I doubt that you'd do the same for a new suit. Design-oriented products retail (clothing, furniture, homeware, even hardware) is a very different animal than products that are functionally interchangable like electronics. Because design-oriented product purchases are driven by personal taste, they are more compatible with the concept of shopping as an experience rather than a necessity.

Ultimately that's what these changes are about. It wasn't too hard to sell things in a time where we had an expanding supply of credit. Open up a soulless big box store and put stuff on the shelf and all the expanding credit out there would create sales. Now that we've hit peak credit (I don't know if it's permanent or just for the next 10 or so years), customers demand something more than just a soulless big box store with stuff on a shelf. You have to have good customer service and an appealing retail environment to attract customers.

This is exactly how retail operated before WWII and the late 20th century credit boom. In an way, it's back to the future.

I know that my consumer preferences certainly work that way. I just went and bought a book at Kramerbooks in Dupont Circle because I wanted to go there since it's a nice store in a beautiful place. The book cost the same as on Amazon but I wanted to have some whiskey at Bourbon in Adams Morgan along the way. Not the same as at Amazon. I also always do my clothes and furniture shopping in person so I can try on/try out the product. Also, design-oriented products like clothes and furniture usually look/feel different on your body than they do on a web page.

by Cavan on Apr 25, 2012 2:03 pm • linkreport

@DV

I suspect thats about the state of the RE market, as much as changes in retail. In a market where everyone looking to buy or rent in a hirise wants a building with a Harris Teeter, say, it makes sense that Harris Teeter can bargain for minimal rents. Even though nobody downloads their groceries, and few order them online. OTOH in a market with few mixed use developments bidding for the most desirable "amenity" retail, those retailers are going to have to pay rent that makes the developer whole.

As for the desirability of a Walmart, I guess that will depend on the demographics of the mixed use. given the shortage of new TOD housing in this region, the market for that is mostly affluent people for whom a Walmart may be a disamenity. If and when we reach the point that new mixed use is more affordable to middle class residents, that might not be the case

by AWalkerInTheCity on Apr 25, 2012 2:06 pm • linkreport

We're slowly becoming Europeanized. :)

Not so sure this is a new phenomenon.

Americans have been living like this for a century in New York City, Boston, Philadelphia, San Francisco, Chicago, Miami and many other urban city centers.

I think it's just that DC is finally catching up and becoming an actual "city" where people live, not just a place where people work and then go to the suburbs to go home.

You can see it in the way the neighborhoods have grown and become even more specific and the city has changed to accomodate urban dwellers.

The post-WWII "suburb" boom is finally almost fully over.

by LuvDusty on Apr 25, 2012 2:09 pm • linkreport

Exactly how not buying stuff at retail European?

Maybe we should be at Carrefour instead?

I fully agree that lenders want contracts that only a few national retail chains might be able to pay for -- and that isn't what people want.

You can measure economic health by how much money gets turned over per square foot. I'm sure restaurants and bars do OK on that front -- but the lack of retail is going to hurt badly. You can't turn everything into a condo.

by charlie on Apr 25, 2012 2:30 pm • linkreport

David,

City Creek Center barely counts as a mall opening, but rather a redevelopment and combination of the existing ZCMI Center and Crossroads Mall; the former of which had already been owned by a commercial arm of the LDS Church and the latter of which was later acquired.

I note also that it is more accurate to say that the City Creek Center is adjacent to Temple Square, which includes the LDS Temple, the Tabernacle, the North and South Visitors' Center, etc.

by Craig on Apr 25, 2012 2:35 pm • linkreport

1. I only mentioned WM because they are in projects of a significant size, in excess of 100K of retail space. There is no way that JBG doesn't intend to make money of it. Twinbrook Square is an entirely different animal.

The point is about the size of the project, and my general problem with these kinds of sessions, in that they focus on projects and not commercial districts overall.

2. It happens I was by City Creek a couple weeks before it opened, and yes, it is a project of the LDS, which makes it incomparable, although I thought Ehat's point about it having the same retail as everywhere else was interesting. They spent a lot of money. I've never seen a "prettier" and such tall ceiling-ed parking garage for example.

3. Which is why Ewing's point about Grand Central Station was so interesting, that they increased by 50% the gross rents (to $18MM) through their "reset" of retail there. (He didn't talk about the criticism MTA has rec'd for providing incentives to retailers like Apple to locate there.)

4. Anyway, I was talking about that session with a planner-colleague who's thesis was on public space issues, and he summarized it succinctly and accurately as "retail is shifting to the third place" (Oldenburg's thesis and I would combine it with Pine and Gilmore's _Experience Economy_).

That's what I thought was the most significant taking from the event, as Cavan said, retail isn't dying, it's changing. Similarly, I've talked about commercial districts repositioning as eating districts, which again jibed with comments of the panel, especially the point that retailers, whenever they can, are adding food.

Note that in Savannah, I noticed a bunch of retail stores adding coffee bars (French Market, a small used book store, Sylvester & Co. Modern General Store). That's an example. And something I don't think I've seen here yet--although we tend to not have as big, majestic spaces that need to be used up and lend themselves to such uses.

by Richard Layman on Apr 25, 2012 2:49 pm • linkreport

@charlie:

Exactly how not buying stuff at retail European?

See Richard L's point about "third spaces". The poverty of community was pretty apparent in many suburban areas around the country 10 or 15 years ago where a Starbucks would open and immediately it became the center of arts and culture for it's region. We'll still buy things; we'll just be doing it in a mega-mall less and less. And when we need that 50 gallon drum of Cheese Balls, Amazon will deliver them.

by oboe on Apr 25, 2012 2:54 pm • linkreport

Richard, your comment about stores adding amenities like coffee bars within their retail space lines up with my comment about retail going back to the future as a third place. The historic flagship department stores in New York City all have restaurant and coffee bars. This idea is nothing new. It's back to the future with retail.

I personally welcome it. I'll take shopping at a well decorated department store, an intimate hardware store, or a grocery store in a vibrant urban place over any kind of sterile big box store behind acres of surface parking. I like shopping where there is good customer service. It's easy to shop with friends in such a place. It's also easy to run into people who you know. (I've run into my county councilmember at the grocery store in downtown Silver Spring.)

Retail always was a third place until walkable urban places went out of fashion in the late 1950's. Now that the unique conditions of the second half of the 20th century are fading out, we're returning to that historical norm. I welcome it and the market is there.

by Cavan on Apr 25, 2012 4:25 pm • linkreport

Cavan -- good points about the nature of the experience changing as the car overtook walking.

They weren't great, but I miss the old department store restaurants at their signature properties, like at Hudsons in Detroit and Marshall Fields in Chicago. I went to the one that was at Woodies before it closed too.

by Richard Layman on Apr 25, 2012 4:31 pm • linkreport

I'm still confused, especially after reading the comments, on what the takeaway from this is and trying to grasp how much of this is general and what if any is context specific?

Should we expect less expensive retail space in new mixed use projects?

Does it matter that the rents are lower if big commercial property owners and leasing firms won't lease to start ups without financing or track records?

An issue we have struggled with in Upper NW is how do we get good and interesting retail in new projects and the argument that we will not is a hard one to counter based on our experiences.

Although there remain some independent/funky/locally owned stores on Wisconsin Avenue they are mostly in older buildings - I think I can count on one hand the number of retailers in the core of Friendship Heights that I would in any way consider local.

In the Chevy Chase Pavilion a couple of the unique retailers were just booted to make way for H & M so our most recent experience runs counter to what this piece suggests.

Even in emerging corridors of DC like 14th, U Street and H Street NE it still seems that most of the interesting non chain retail is located in older buildings that presumably have lower rents than the newer buildings. Bethesda seems to be the same way - old Bethesda still has some interesting retail but Bethesda Row is largely chain dominated.

But what is frustrating is that the locally owned places (like Pete's) thrive when they can open and they are attracting locals who can walk while the big chains like Cheesecake Factory attract lots of folks in cars while being shunned by those in the neighborhood.

So is there an actual path to interesting locally owned and serving retail in new mixed use projects or not?

by TomQ on Apr 25, 2012 4:36 pm • linkreport

TomQ -- 1. distinguish between "retail" and restaurants. E.g., your example of H St., well, there isn't much retail actually.

2. Most developers aren't like JBG or Mr. Ewing. Getting companies to deal with noncredit tenants is still very difficult.

anyway, for take-away, I'd suggest reading the various stuff I've written about over the years on retail, and my upcoming blog entry, I guess I'll do it tomorrow, on the same session.

not that I didn't write similar things already, wrt "Popularize." http://urbanplacesandspaces.blogspot.com/2012/04/retail-what-you-want-vs-what-you-can.html

DC is a special case because rents typically are at least 50% higher than they are in comparable transitioning commercial districts in other cities. This makes retail, as opposed to restaurants, much harder to pull off.

And even though I am a pro-independent business person, I can see why the Chevy Chase Pavilion would do everything that they can to accommodate H&M as it is a major anchor/draw, especially for younger demographics, and strengthens apparel, and shopping frequency.

You need a mix. Although yes, usually the nonchains have lost out. They still will, by and large, but it's changing.

by Richard Layman on Apr 25, 2012 4:50 pm • linkreport

The talk about "third place" is funny given all the concern that "third places" like book stores are disappearing. Lifestyle centers often are designed to be more "third place"-like although weather undermines this role, while malls have gone through decades of losing these amenities Malls became over saturated over a generation ago and went from serving a variety of needs to heavily emphasizing moderately upscale clothing. they became monocultures and easily died, esp. if demographics couldn't support the newly typical mall stores or new malls cannibalized old ones, etc. I suspect that the mix of retail businesses, as well as the number and density may change over time, but many niches do not. The niche once held by variety stores like Woolworth was taken over by dollar stores, discount stores, ToysRUs, big box party and craft retailers, etc. Evolution is a constant. Department stores could not maintain the range of goods and services that survived in the heyday of downtown departments tores, so that other than Macy's herald Square and a few other places, they mostly are glorified clothing stores, with or without home furnishings. Other businesses (including restaurants) have taken over their other functions.

Shifting to restaurants for retail districts and =developments will easily hit a point of saturation and the high mortality among restaurants and the turnover every few years of fads guarantee this can only so far, esp. in a climate where disposable income is not growing.

The internet is no longer growing by leaps and bounds as a retail source and I would guess that the relationship between brick and mortar and the web is more interactive than the simplistic one discussed here. There are examples of items that are needed immediately (much of the stuff in a hardware store) or that are impractical to buy solely on line (furniture, anything with fabric). I was an early adopter of online shopping--I even used Amazon's predecessor, an online book store in Cleveland that predated the browser era. Yet, I still find myself going into stores. For every category threatened by the internet such as books or music (the latter itself transformed by technology), there are others that seem quite robust like hardware stores, furniture stores, etc. Businesses built on novelty or premium service or quality seem destined to remain brick and mortar. In foreign countries, many kinds of stores live on---a mall department store in Asia resembles an old downtown store in the US for its range of goods and most have a supermarket.

by Rich on Apr 25, 2012 6:01 pm • linkreport

@Rich:

The talk about "third place" is funny given all the concern that "third places"...are disappearing.

As someone who grew up in the Washington suburbs in the 70s and 80s, I find this pretty off-base. The most alienating thing about the suburbs of 20-30 years ago is that--unless you were getting drunk--the "third place" was the parking lot of the 7-11, and the golf course at night. So much better now.

by oboe on Apr 25, 2012 8:04 pm • linkreport

Thanks manhattan,im actually want to be a fashion journalist-i love the windows in herald square however-the windows here dont have anything-the most ive seen in one mannequin with a brand poster behind it.Emerald lux E-Cigarette

by Elisa Rawleya on Apr 26, 2012 2:47 am • linkreport

Shouldn't a distinction be made between good and bad retail? Think about the successful stores or restaurants in your neighborhood. If they're good, they're jam packed, super successful. We need better retailers, is all. The days of mediocre stores being able to get by might be gone, yes. But there is no lack of opportunity to fill retail holes. Are consumers lazy or retailers? And again, the rent has a liiitle something to do with it.

by Jazzy on Apr 26, 2012 6:48 am • linkreport

Jazzy -- were it so simple.

1. People are much more focused on price, so they aren't going to buy convenience goods (food, hardware, pharmacy) locally if the price isn't right, unless they have no other options.

2. So now you need much larger "retail trade areas" to support "neighborhood commercial districts."

3. Most of the "retail" in neighborhood commercial districts not serving as regional centers is hyper discretionary, selling stuff that people don't really need (used goods, gifts, etc.), and to do that successfully again, they have to draw on much larger retail trade areas of multiple neighborhoods and communities (e.g., the shops in Old Takoma can't get buy just selling beads, gifts, and Turkish earthenware to Takoma residents, because most of them already have all of those items that they could possibly need).

4. This is complicated by the fact that the US, per capita, has 3x to 4x the commercial space devoted to retail as the next largest nation. Anyway, now that economic circumstances have changed somewhat, stores/chains are going out of business, and surviving stores are rightsizing (getting smaller) their spaces to be more economically productive and to reduce costs, further reducing demand for space.

5. That being said, for some reasons, a lot of retailers in this region are not very good. Although part of it is that I don't shop much here, so you don't want to generalize too much, but my experience is that retailers in other places tend to be better at what they do, more creative. E.g., stores in Downtown Frederick, Carytown in Richmond, Hampden in Baltimore, even Lancaster, PA (e.g., there is a bakery there called La Dolce Vita that I think is better than any independent and most chains in the Washington _region_ not just the city, e.g., Hellers).

Part of the problem is that after the riots in 1968, most of the independent retailer base in the city was destroyed and if there were supporting organizations equivalent to the Retail Merchants Association of Richmond (VA, but now covering the entire state), they closed too.

So there is a big loss of knowledge. Business cooperatives (like for the hardware stores, Ace, True Value, etc.) are one way to rebuild the base.

Buying groups (regional companies banding together, pooling their orders, to get lower prices) are declining as certain categories (appliances, men's clothing, etc.) "chain up" (e.g., in this region no more Erols, Luskins, or Bray & Scarff--around but much smaller, no more Ginns or Jacobs-Gardner office supplies, no more Raleighs or Britches men's clothing stores, etc.).

5. The reason that rents matter is that the margin of profit is so narrow that if rents are significantly higher than what they should be (4 to 10% for retailers), the business skates along barely profitable, if profitable at all, and much more likely to fail.

http://urbanplacesandspaces.blogspot.com/2009/09/commercial-retail-rents-2.html

by Richard Layman on Apr 26, 2012 7:11 am • linkreport

I have to agree with Jazzy on this one. If a store is good, it will be patronized and vice versa. What all these analysis fail to mention is that human nature hasn't changed for thousands of years and won't for thousands more (assuming we don't blow it). In general, people like being around people, which is why mixed use developments are on the rise. Yes the internet has made things more convenient, but it hasn't replaced the need for connectedness. Wasn't it just a few years ago that people where predicting the demise of brick and mortar stores? Didn't they predict the demise of cities during the 1960's?

Gerat article in Atlantic cities to illustrate how with a little push back against the status quo, we can make our cities truly people friendly without buying into the seuth sayers of doom.

http://www.theatlanticcities.com/commute/2012/04/why-streets-copenhagen-and-amsterdam-look-so-different-ours/1849/

by Thayer-D on Apr 26, 2012 8:04 am • linkreport

@Thayer-D ; I saw that as well.

And to counter Oboe's point, hanging out and ordering gallons (?) of cheese-its from amazon isn't European at all.

Actaully, let me think. 50% youth unemployment, the credit situation is so dicey that only a few national chains qualify, people don't have any spare money to to impusle buys, and we're obessivly pricing out everything over the internet and ordered warehouse-scale. Yep, positively European -- and not in a good way.

by charlie on Apr 26, 2012 8:48 am • linkreport

In all this discussion I keep thinking about the City Center project now under construction in downtown DC. With office, condos, apartments and hotel all sitting atop almost 300,000 square feet of retail, this has the potential to illustrate this shift in retail very clearly. Although I don't think any retail tenants have been confirmed, it seems clear from the overall tone of the project that to repeat the David Schwarz quote (above) that it will have "attractive uses in the most convenient and concentrated places". I am also interested to see if its open spaces (semi-public) can become a true "third place" currently lacking in DC, or if they will be overly controlled by the owners.

by ZZinDC on Apr 26, 2012 9:03 am • linkreport

ZZinDC -- I don't remember the exact specifics but the CityCenter development agreement specifically requires that most of the retail be sourced from companies with 5 or fewer locations. I can't remember if that was US or worldwide. The guy leading the retail leasing for that project is Mr. Ewing of the above-mentioned panel. He worked for Rouse, including the development of Faneuil Hall at the outset, so he knows how to do it.

The general point, and this is why I'd disagree with Jazzy and Thayer-D, is that this can work in some places, but not most places, and single cool stores in a commercial district tend to fail over time unless they can significantly draw consumers from out of the immediate retail trade area. E.g., Brookland is a bad place for home stores, because the current residents have all the couches and chairs they could possibly need.

by Richard Layman on Apr 26, 2012 10:06 am • linkreport

I'm a hybrid old/new school shopper. I'd rather do my research online by reading reviews and watching videos of the product in action and then go to the store to purchase it. Yes, having it delivered is convenient for those without a car, but if I settle on a product, I'd rather be able to have it in my hand either the same day or the next day without having to pay for express shipping.

by adelphi_sky on Apr 26, 2012 10:26 am • linkreport

American Malls have been in decline for a long time. Big box have been killing them off for a while. The US's lax planning controls have meant the US has more retail space per head than anywhere else. That has meant low rent for retailers and low prices for consumers. On one hand this the cost differential between internet and bricks is not so high, but on the other hand that you do have a lot of space that is vulnerable to even small shifts in trends.

The UK sector has different pressures. Planning controls are tighter but there are still quite a few retail parks. The trend in the UK is for the national fashion chains to trade up to 5,000, 10,000, 20,000 sq ft units where they can stock ever larger ranges but from fewer locations. The result is that larger towns are going from strength to ever more elaborate intown malls, while suburban town centres and small towns decline into charity shops and discount centres, unless they happen to be in extremely wealthy areas.

Time was a national chain in the UK would need 200 location to cover 85% of the population, but now 70 units will cover the same number these days. This combined with the growth in internet sales have undermined several sectors and the last few years has seen a host of chains collapse.

The solution seems to be controlled shrinkage of poor performing retail streets into residential.

It won't take much to recycle excess retail space in the US. All it requires is some flexibility in zoning, I can see new low rise apart blocks ending up lining some of these suburban arterials.

by Rational Plan on Apr 26, 2012 8:03 pm • linkreport

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