10 takeaways from the icsc research connections conference€¦ · the icsc also highlighted its...

1 DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

OCTOBER20,2016

10 Takeaways from the ICSC Research Connections Conference

TheFungGlobalRetail&TechnologyteamattendedtheICSCResearchConnectionsconference inAustin,Texas,onOctober17–18.Theannualeventdrawsmore than200 retail real estate professionals and, this year, Deborah Weinswig, ManagingDirectorofFungGlobalRetail&Technology,hostedaretailstartuppitchcompetitionattheconferenceinpartnershipwithTexas-basedretailacceleratorRevTech.

KeyTakeawaysfromtheevent:

1) Green StreetAdvisors expects theUSmall sector to see a flat growth trajectoryover thenext three to fiveyears; the firmprojects that3%growth in the sectorwill be offset by 200–300 basis points of negative impact from online channels.ThecurrentbifurcationofmallassetsintheUSisexpectedtointensify.

2) TheICSCpredicts3.3%year-over-yearsalesgrowthatphysicalstoresthisholidayseason and says that digital channels are showing an increasing influence onholiday shopping. According to a recent survey by the ICSC, 39% of holidayshoppersplantouseclick-and-collectservicesthisyear,upfrom32%in2015,and85%willresearchproductsonlinebeforemakingpurchasesinstores.

3) The US economy is currently in an expansion phase, and is strong enough toencourageretailrealestateactivitywithoutriskofoverheating,asbusinessesstillhold a cautiously optimistic view of the economy, according to Andrew Nelson,ChiefEconomistatColliersInternational.


OCTOBER20,2016

The Fung Global Retail & Technology team attended the International Council ofShoppingCenters(ICSC)ResearchConnectionsconferenceinAustin,Texas,onOctober17–18. The annual event highlights the latest industry research insights and drawsapproximately200retailrealestateprofessionals.

Atthisyear’sconference,DeborahWeinswig,ManagingDirectorofFungGlobalRetail&Technology, hosted “Texas New Techies: A Retail Startup Pitch Competition” inpartnershipwithTexas-based retailacceleratorRevTech.Eight retailand techstartupspresentednewbusinessmodelsandtechnologies,whichincludedanIoT-basedenergymanagementsystem,a low-cost foot-traffic sensor,anon-demanddeliverysolution,amobile offer platform and a cutting-edge in-store display solution thatwill shape thefutureofretail.

TexasNewTechies:ARetailStartupPitchCompetitionGlass-Media,aone-stopsolutionforstorefrontdigitalsignage,waschosenbythejudgesas thewinnerof the competition.DorTechnologies,whichhas createdanaffordable,easy-to-install foot-traffic counter, received the most votes from the audience. Bothstartups won complimentary exhibition space at the innovation lounge at the ICSCRECon2017conference.

Below,welookathowtheeightcompaniesthatparticipatedinthepitchcompetitionfitinto our Four-Quadrant Disruptors Framework.Weinswig debuted this newmodel ofthinking at the Shoptalk conference in May. The framework identifies four areas ofopportunity for startups that serve the retail industry: new retailmodels, all channel,experientialretailandcustomerengagement.

Figure1.TheFour-QuadrantDisruptorsFramework

Source:FungGlobalRetail&Technology


OCTOBER20,2016

1) NewRetailModels:HowWilltheConsumerShopintheFuture?

WecategorizestartupcompetitorPickupundernewretailmodelsbecausethecompanydisruptshowconsumersshopforfurnitureandappliances.Pickupprovideson-demanddelivery service for large items such as sofas and mattresses. Consumers can usePickup’smobile app orwebsite to request instant delivery for these large items. Thecompany is staffed by a team of “Good Guy Drivers,” who include trusted off-dutyfirefighters,militarypersonnel,veteransandfirstresponders.

2) AllChannel:TheConsumerCanShopWhereverandWhenever

KouponMedia allowsbrandsand retailers todrive salesby targeting consumerswithoffers when they are in-store and ready to buy. The company is the leading mobilecoupon platform in the retail industry.With a reach of over 40,000 retail stores andmillions of consumers, and patented offer delivery and security technology, Kouponreachesmoreconsumersmoreoftenthananyothermobileofferplatform.

3) ExperientialRetail:MaketheStoreanAwesomePlace

Weincludedthestartupsthatimprovethegeneralstoreenvironmentinthiscategory,whether they focus on the experience of the consumer, the store associate or themanager.EyeQ,Glass-MediaandShelfbucksallprovidesolutionsthatallowconsumersto interactwith storedisplaysor shelves. EnTouchControlsandTheatrohavecreatedsolutionstomakeday-to-daystoreoperationmoreefficient.

EyeQ enables brands and retailers to win at the shelf by providing shoppers withpersonalized digital experiences. It provides shops with a customer engagementhardwareand software solution in the formof touchscreen consoles fittedwithdata-gathering e-commerce software. Customers browse for items on the console, whichthencollectsdatavia itscamera,andviacustomerinteractionwiththeplatformitself,tocreaterecommendationsforthecustomer.

Glass-Media transforms storefront glass into vivid, touch-enabled displays that drivethreetimesmorepassersbytoengagewithretailbrands.Itssolutionenablesbrandstochangestorefrontcommunicationremotely, inrealtimeandacrossmultiple locations,toengagecustomersinpromotions,newproducts,daypartsandspecialevents.Glass-Mediaisadigitalpoint-of-presencesolutionthatiscloudconnected,managedremotelyandinfusedwithrobustdataanalyticalcapabilities.

Shelfbucksoffersadigitalin-storetoolandplatformthatenablesuserstointeractwithproducts on retail shelves via their smartphones. Shelfbucks enables consumerpackaged-good companies and retailers to measure, manage and improve theeffectivenessofin-storeproductmerchandisingprogramsbytrackingtheentirelifecycleof merchandising displays and delivering comprehensive and actionable insights thatimproveprogramperformance.

EnTouch Controls created an enterprise-wide energy management system thatoptimizes energy consumption, ensures patron comfort and detects hiddenmaintenance issues. EnTouch One building controls platform is an award-winningsolution including HVAC, lighting control, refrigeration and energy monitoring. Itleverages cutting-edge wireless and cellular technologies to expedite installation andensure the security of the industry with a mix of sophisticated features and simpleinstallation.

Theatro is pioneering the first voice-controlled, enterprise wearable for brick-and-mortar retail, hospitality and manufacturing. The company’s Wi-Fi-based wearableweighs only 1.5 oz. and revolutionizes in-store communication and hourly worker


OCTOBER20,2016

22%

78%

2016F

productivitybyconnectingemployeestooneanotherandtotheretailer’s informationsystems.

4) CustomerEngagement:HowDoYouConverttheConsumer?

We included Dor Technologies in the customer engagement quadrant because thecompany created an affordable solution that enables stores to track foot traffic.Visibility into in-storetrafficallowsretailers tobetterconvertshopperswhentheyarein-store. The company created the first affordable, easy-to-install and intuitive foottrafficsensor.Theserviceworksonthestoremanager’smobilephoneordesktop,andprovides information on foot traffic, conversion and marketing effectiveness in thehistorical, present and future contexts. The solution provides actionable insights thatallowretailerstomakedecisionstooptimizestaffingandimprovemarketingspending.

KeyTakeawaysfromICSCResearchConnectionsAfterthestartuppitchcompetition,weattendedanumberofpanelsanddiscussionsattheconference.Below,weprovide10keytakeawaysfromtheconferenceasawhole.

1) OverallMallSectorGrowthintheUSIsExpectedtoBeFlat

CedrikLachance,DirectorofUSREITResearchatGreenStreetAdvisors,predictedthatthemall sector in the USwill see a flat growth trajectory in themidterm. The firm’spredictionisbasedona3%growthprojectionthatwillbeoffsetby200–300basispointsof negative impact from online channels over the next three to five years. Onlinechannelsareexpectedtoreducesalesgrowthinthemallsectorby200basispointsthisyear,andby100–150basispointsperyearoverthenext10years.

Lachancefurthernotedthatabout10%oftotalmallsalesderivefromstripmalls,andthat17%–18%ofmall-basedsalesarebeingcannibalizedbye-commerce.

Figure2.E-Commerce’sShareofMall-OrientedSales,2007vs.2016F

Source:USCensusBureau/ColliersInternational

9%

91%

E-Commerce In-store

2007


OCTOBER20,2016


2) BifurcationofMallAssetsWillIntensifyintheUS

Tom Salanty, Managing Director at JLL, predicts that the current bifurcation of mallassets in theUSwill intensify. “Thegoodonesaregetterbetterandthebadonesaregettingworse,”hesaid.“Themallsaregoinginonedirectionortheother.”

Andrew Nelson, Chief Economist at Colliers International, echoed this point of view,saying that top-quality malls are seeing 20% year-over-year rent increases and thatbottom-performingmallsareexperiencingsharprentdeclines.

This bifurcation is more pronounced in public companies, as some REITs hold top-performingmallsintheirportfoliowhileothersfocusondistressedassets,addedGreenStreet’sLachance.Thetop150mallsintheUSarebecomingdestinationcentersintheirtradeareas,displacingtraditionalhighstreets,hesaid

3) TheICSCPredicts3.3%SalesGrowthatPhysicalStoresThisHolidaySeason

At the conference, the ICSC presented its forecast for the holiday 2016 retail season.Theorganizationexpects3.3%year-over-year growth in retail sales atphysical stores,up froma2.2% increase in2015.According toa recent surveyconductedby the ICSCresearchteam,holidayshoppersexpecttospendanaverageof$683.90thisyear.Whilethe majority of sales (91%) are still expected to take place at physical stores, digitalchannels are increasingly influencing holiday shopping: 39% of holiday shopperssurveyedsaidtheyplantouseclick-and-collectoptionsthisyear,upfrom32%in2015,and85%willresearchproductsonlinebeforemakingpurchasesinstores.

TheICSCalsohighlighteditslong-termoutlookforomni-channelretail.Theorganizationcitedtheincreasingrateofonlinesalesgrowthforretailersthathavebothanonlineandphysicalpresence,andnotedthatpureplaysaregrowingatadeceleratedrate.


OCTOBER20,2016


4) RetailersOptimizeStoreFootprintsbyClosingandDownsizingStores

Andrew Nelson of Colliers commented on the shrinking presence of traditionalshopping-centeranchors,suchasdepartmentstores,andtheriseofboutiquesatmalls.Overall, retailers are shifting toward smaller formats with less store inventory andtowardmoreexperientialofferings,hesaid.

Other panelists offered examples of their companies’ store strategies. Dave Miller,SeniorDirectorofMarketPlanningandResearchatWalgreens,reiteratedhiscompany’splantoclose200storeseachyearoverathree-yearperiod.Milleraddedthat,inmostcases,otherWalgreens storesareable to capturemore than50%of the sales fromanearbyclosingstore.CurtNewsome,ManagerofRealEstateResearchandStrategyatREI, shared his company’s experience of using big data analytics to optimize storefootprints. REI layered residents’ commuting patterns and weekend activities overresidential address information from the US Census Bureau. By analyzing wherepotential customers are during the day, the companyhas been able to capturemoresalesinagivenretailarea,hesaid.

Figure3.RetailSales,2Q09–Present

*Totalretailsaleslessauto-related,online,foodandfoodservices,departmentstores,andbuildingmaterialsSource:USCensusBureau/ColliersInternational

(5)%

12%

24%

27%

37%

-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Grocery

Restaurants

CoreRetail*

Bounque

DepartmentStores

(5)%(10)%


OCTOBER20,2016

5) ShoppingMallsNeedNewProductivityMetricsintheOmni-ChannelAge

KellyWhitman,VicePresidentof InvestmentResearchatPGIMRealEstate,expressedconcernsabouttherelevanceoftraditionalmetrics inmeasuringstoreperformance intheomni-channelage.“It ishardtounderstandwhat isconsideredagoodstore,”shesaid.Someomni-channelsales,suchasclick-and-collectandin-storeonlineorders,arenotaccountedforintraditionalsales-per-square-footmetrics.Insomeinstances,same-store sales could stay flat, while the store could have helped generate sales in otherways. “Retailers are less concerned with showrooming now, as long as stores stillfacilitatesalesregardlessofchannels,”saidWhitman.

Whitmanalsosuggestedsomealternativewaystoevaluatestoreperformance,suchasbyanalyzingstoretrafficandpeerstoreperformance.

6) MillennialsAreaCoreCustomerGroupforMallOperators

Millennials(i.e.,thoseages16–35)arebecomingthecorecustomerbaseformanymalloperators.Thisagegroup isgrowing insizeandspendingpoweras itsmembersenterandmoveupwithinthelaborforceandformhouseholds.Atthesametime,thesizeofthetraditionalprimespendergroup(roughly,thoseages36–54)atmallsisshrinkinginthe US, according to Suzanne Mulvee, Director of Research & Real Estate Strategist,CoStarGroup.

Meredith Darnall, Senior Vice President, Strategy and Analytics, at General GrowthProperties (GGP), mentioned that millennials represent $67 billion, or 18% of totalspending,inGGP’stradeareas,andthatthisfigureisexpectedtogrowto25%overthenext few years. “They spend asmuch ormore than their generational counterparts,”saidDarnall.

Darnall also discussed the characteristics of millennials that mall operators need toconsider: theyaregettingmarried later,movingtocitiesand focusingonexperiences.The trend of delaying marriage means that there are fewer young shoppers atdepartmentstores,wheremarriedcouplesprefertoshop;migrationtocitiesresultsinbetterperformanceofurbanshoppingcenters;andthefocusonexperiencesdemandsthatmorespaceandvarietybeallocatedtofoodandbeverageareasatmalls.

Figure4.RegionalMallVisitationbyGeneration/PropensitytoShopatLeastOnceEveryThreeMonths

100=averageshopperSource:GeneralGrowthProperties

116107

9283

0

20

40

60

80

100

120

140

Millennials GenXers BabyBoomers Silents


OCTOBER20,2016


7) AustinIsExperiencingaRenaissanceDuetoRecentMigrationofMillennials

Austin isoneof the youngest, largest and fastest-growing cities in theUS,owing toahigh rate of millennial migration in the past several years. Keynote speaker MollyAlexander,ExecutiveVicePresidentofEconomicDevelopmentattheDowntownAustinAlliance,callsit“theAustinRenaissance”andsharedherpersonalexperiencesofacitythatcombinesnaturalbeauty,urbanconvenienceandasenseofcommunity.

Thecityhasmadeseveraleffortstoattractmillennials.Forexample,thereisaWeWorkspace in downtown Austin to accommodate millennials’ preference for flexible workschedules.Thecitywasoneofthefirsttoadoptacitywidecar-sharingprogram,Car2go,andthisyear,Ford’sshared,on-demandvanservice,Chariot,cametoAustin.Thecityalsohostsmanyexcitingeventsfortheexperience-drivengeneration,suchastheAustinCityLimitsMusicFestivalandSXSW(SouthbySouthwest),whicharesomeofthemostwell-knownfestivalsintheUS.

8) TheUSEconomyHasEnteredanAgeofExpansionthatIsStrongEnoughtoEncourageActivityintheRetailRealEstateMarket

AndrewNelson,ofColliers,isgenerallyoptimisticabouttheUSeconomy.“Onbalance,therearealotmoreplusesthanminuses.TheUSeconomyisstrongernowthanitwasatthepeakofour lastcycle,”hesaid,citingahealthyhousingmarketand jobmarketand a strong consumer balance sheet as some of the positives of the economy. By ashowofhands, themajorityof conferenceattendees think that theeconomy isdoingwell,butcouldbebetter.Thisyearstartedoffonaweaknote,withplungingoilprices,the slowing of the Chinese economy and plummeting stock markets. However, therecession that some had predicted did not happen. Nelson commented that the USeconomyisexpectedtoreboundinthesecondhalfof2016.Regardingimplicationsfortheretailrealestatemarket,Nelsonsaidheisseeingahighlevelofbuyingandrentingactivity,encouragedbythehealthyoutlookfortheeconomy.He indicated that the current expansion should not lead to overheating of the realestatemarket in thenear term,asbusinessesstillholdacautiouslyoptimisticviewoftheeconomy.


OCTOBER20,2016

9) SmartphonesAreaRetailKillerthatReplacePhysicalRetailGoodswithOnlineServices

Nelsoncontinuedhisremarksbyintroducingtheideaofthesmartphoneasretailkiller.Manyretailgoodsandservicesthatconsumerspreviouslypurchasedatstoresarebeingreplaced by mobile apps, he said, noting that smartphones also serve as cameras,radios,notebooks,newspapersandmusicplayers,amongotherthings.Asaresult,thesaleofgoodsatretailisbeingpartiallysupersededbyonlineservices.

Nelsoncitedthemusic industryasaprimeexample,sayingthat2015markedthefirstyearthatonlinemusic-streamingrevenuesexceededthoseofmusicdownloads.MusicstreaminghasreplacedtraditionalCDsandrecordsinthemusicindustry,hesaid.

10) ExperientialRetail:AFocusofFutureShoppingCenters

During a panel entitled “Experiential Retail in the Internet Age,” entertainment,convenience services and personalized loyalty programswere highlighted as differentmeansretailerscanemploytocreategreatexperiencesintheirphysicalspaces.

Panelistsnotedseveral specificexamplesof successfulexperiential retailers. iFLY isanAustin-basedindoorcompanythatoffersskydivingsimulationstoadventureseekersofall ages. Alamo Drafthouse Cinema is a new kind of experiential movie theater thatcombines a restaurant, bar and theater in one place. Both companies have attractedfoottraffictoshoppingcentersadjacenttotheirlocations.

Jay Ramirez, Head of User Experience at Chick-fil-A, shared his company’s journey indeveloping an app that allows customers to seamlessly order and pick up food, andJonathanDyke,ChiefOperatingOfficeratSpringMarketplace,discussedhiscompany’spersonalizedrewardsprogramsformallshoppers.


OCTOBER20,2016

DeborahWeinswig,CPA

ManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJingWangResearchAssociate

HONGKONG:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406LONDON:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com

10 takeaways from the icsc research connections conference€¦ · the icsc also highlighted its...

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