Coming to Your Local Mall: Online Retailers Beloved by Millennials
November 14 2017 - 6:29AM
Dow Jones News
By Esther Fung
Landlords of top U.S. malls used to rent most of their space to
the biggest national retailers, which boasted the best credit and
the most desirable selection of goods.
Now they are looking beyond big chains and toward lesser-known
retailers and startups that started online but have amassed
customers and brand recognition.
The reason: such retailers tend to offer novel products that
resonate with web-savvy customers, particularly millennials, a
massive group of potential customers landlords are eager to
cultivate.
Century City, a recently opened 1.3 million square feet open-air
mall in west Los Angeles, has a larger-than-average number of
tenants that started out as e-commerce retailers. Candy boutique
Sugarfina, clothing retailers Bonobos -- now a unit of Wal-Mart
Stores Inc. -- and Untuckit, eyeglass retailer Warby Parker and
Amazon Books all have opened stores in the center, which had been
renovated by Westfield Corp.
Some of these stores are showrooms and don't carry inventory so
customers will have their purchases delivered to them or they could
pick up their purchases at the store at a later time. Such stores
take up less square footage since they have don't need to hold
inventory at the back of the store.
"The nature of retail is changing dramatically but consumer
desire for new and unique products is still very strong," said
Peter Huddle, executive vice president of development at Westfield.
"Many of these digital brands are ahead of the curve when it comes
to understanding what is driving consumer sales and how to market
in this new era."
In the past, a startup without a big portfolio of physical
stores could hardly get space in class-A malls. Landlords had
doubts about their longevity and their ability to operate stores
successfully.
"They would never put you in a Century City or Short Hills
mall," said Corey Bialow, chief executive at Bialow Real Estate
LLC, a firm that represents retail tenants. "Mall developers are
now very aggressive in enticing online retailers with favorable
rent deals."
The risk for landlords in embracing younger retailers is that
their tenants have shorter track records and might peter out.
Clothing retailers Boston Proper and Nasty Gal Inc., for example,
opened physical stores but eventually closed them after a few
years.
But analysts think betting on upstarts is a risk worth taking at
a time when the retail industry is being reshaped by online
shopping and changing consumer preferences.
"If you don't do that today, you're not innovative and I think
your real estate actually has intrinsically lost value," said
Anthony Buono, executive managing director of retail services at
CBRE Group, a real-estate consultancy. "A lot of increase in value
in real estate is because of the newest and most interesting, most
unique brands that have been formed in food and beverage, in
digital, in women's ready to wear, in men's ready to wear, in other
forms of entertainment uses," Mr. Buono added.
The volume of physical stores occupied by retailers that started
online stood at 140,209 square feet this year through the end of
October, up from 15,435 square feet in 2012, according to
real-estate data company CoStar Group, which tracked 22 online
retailers that have stores in the country's top 300 enclosed malls
and lifestyle centers. While this is a growing fraction of the
overall square footage of retail space, it is still small,
representing just 0.05% of the occupied rentable building area of
these malls.
The leases tend to be at least one year and don't include
occupants of pop-up stores that are typically dedicated to a
regular rotation of new retailers.
Not all landlords are benefiting equally from online retailers'
expansion from clicks to bricks. These new tenants are picky over
where to open a store and prefer to be in markets where they
already have online customers and where there is are potential new
customers. They usually stick with class-A malls in areas with
large populations and higher incomes.
"We look at each region and we don't have a mandate to be
mall-specific, " said Drew Green, chief executive officer of
Indochino, a Vancouver-based retailer of custom-made suits. The
company has recently opened its 18th showroom in Seattle last
Friday, and plans to open 18-20 more in the U.S. next year. It has
stores in malls such as Tysons Galleria in McLean, Va., and King of
Prussia Mall in King of Prussia, Penn., as well as street-front
locations in New York, San Francisco and Boston.
"We definitely reject more [offers of space] than we approve,"
said Mr. Green, adding that Indochino is profitable and its stores
break even in six to 12 months.
Some emerging retailers that started online, as well as older
retailers, said that having a physical store minimizes costs of
shipping and returns.
"Five years from now, we won't be debating whether 'e-tailers'
are taking share from 'brick-and-mortar retailers,' because they
are all the same," said Citi Research analysts in a recent research
note.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
November 14, 2017 07:14 ET (12:14 GMT)
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