This week the San Francisco Board of Supervisors will vote on whether to require owners of vacant storefronts unoccupied for more than 30 days to register their properties and pay an annual fee. This is one of the proposals they are considering to get a better idea of and start to remedy the glut of unused storefront space around the city.
Industry experts place their bets on the supermarket of the future.
The trouble with predictions about the future of food is that they usually wind up being wrong. Where, for instance, is the dog-sized cow engineered to graze in my backyard? Meals today don’t come in pill form, and despite decades of anticipation, insects haven’t replaced farm animals as a meaningful source of protein. You’ll understand why I’ve approached the question of how we’ll shop for food in the year 2069 with some amount of hesitancy.
To find my footing, I called Max Elder at the Institute for the Future, a think tank based in Palo Alto, California. Elder works as a researcher in the Food Futures Lab, which companies and governments hire to do exactly the type of blue-sky thinking that conjures up an idea like that backyard cow—or, in this particular case, blenders and refrigerators that can conspire to manipulate commodity markets. Whether or not these concepts bear out, Elder tells me, he believes that engaging in such speculation is critical to shaping our world. Fail to dream about the future, and you forfeit your role in its creation.
Today, the grocery store is in a period of particularly rapid change, as more and more companies vie for their share of America’s $650 billion food retail sector. Legacy supermarket chains like Kroger and Albertsons are now up against discount rivals like Walmart and Costco, European transplants Aldi and Lidl, plus drugstores, dollar stores, and, of course Amazon, which has been steadily encroaching on food retail since its 2017 acquisition of Whole Foods. All that competition has produced a climate of innovation, as retailers try to best each other on exclusive products and services, value, technology, and convenience. The choices they make matter: Everybody eats, after all, and what we consume is determined to a large extent by what our grocery stores decide to offer.
In forecasting where the industry will go over the next few decades, Elder told me, “The idea is to push people beyond notions of what’s plausible to what’s possible. What are the values implicit in the question? What will the food system look like if we optimize for different values?” He encouraged me to think of it all not so much as predictions but imaginings. So, I decided to suspend disbelief, loosen my grip on reality, and imagine a world where T-bone steaks grow on trees (or at least in bioreactors), snacks are tailored to my microbiome, and my morning coffee arrives by drone. Saddle up, everyone! Don’t forget your decoder rings.
Restaurants, one of the supposed saviors of regional malls, have been hurt in the past 12 months by too much expansion and a slowdown in consumer spending.
Stephen Wall’s restaurant chain Pho is the kind of tenant that mall landlords would love to attract. The Vietnamese menu is right on trend, the business is expanding and, even better, it has a track record of success in shopping centers.
Yet he thinks that even restaurants like his won’t be the savior of malls suffering from the rise of internet retailing and mobile phone addiction.
As competition from the likes of Amazon.com Inc. and Asos Plc intensified, British mall owners looked to food as a way to stay relevant. People would come to the restaurants to eat, buy some clothes in the shops while there, and the extra spending would allow the landlord to boost the rents. A simple, virtuous circle.
Instead, food and beverage operators have been hurt over the past 12 months by a combination of rapid expansion and a consumer-spending slowdown. An influx of private-equity investment into restaurants led some chains to open too many outlets that aren’t breaking even. Popular names like Gourmet Burger Kitchen, pasta place Carluccio’s and the Jamie Oliver chain — often found at big malls like Westfield and Bluewater around London or Manchester’s Trafford Centre — have been among those suffering. Nationwide, the number of restaurants going insolvent rose 24 percent last year, compared with 2017.
Dollar store chains are among America’s fastest-growing retailers, but their impact on the industry is coming under increased scrutiny.
Nonprofit Institute for Local Self-Reliance reports that dollar stores are more prevalent than Walmart and McDonalds locations combined, and they feed more people than Whole Foods stores. In some urban neighborhoods, low-income and rural areas, dollar stores might be one of the only retail options for residents.
The number of dollar stores in America has grown from 20,000 in 2011 to almost 30,000, per ILSR. With many Americans living paycheck to paycheck, it’s not surprising these small-box stores selling affordable merchandise are thriving.
The ILSR report contends that dollar stores — which lack fresh produce and meat but offer a host of frozen, processed and canned food options — aren’t a symptom of economic distress in some communities, but the cause of it, as they stifle independent grocers and other local retailers.
“To the extent that dollar stores are filling, in some ways, a need in communities, I think that is true in the short term,” Marie Donahue, one of the report’s authors, told Civil Eats. “But really our research is demonstrating…those foods aren’t as good quality as full-service grocers or independent local stores, which may be able to connect to local farmers and the larger food system.”
The concept of the food hall has taken deep root in U.S. retail properties, with scores up and running and hundreds in the pipeline.
Though a popular addition for struggling retail properties, celebrity chef Todd English said that without the right approach, food halls are not always the solution for owners. English spoke at the recent Second Annual International Council of Shopping Centers-Baruch College Real Estate Conference, as reported by Real Estate Weekly.
He warned that some food halls are merely “glorified food courts with better options.” He further called food halls a WeWork model, a kind of coworking space that “has to be about more than just food.”
Food halls are a draw because of their perceived authenticity, as local eateries, healthier options and craft breweries edge out standard food court fare (fast food, that is).
While not every food hall is going to feature chef-curated or otherwise expensive options, they have to be creative in some way, English said during the ICSC conference. “It’s not just another great turkey sandwich or croissant, or whatever the latest trend is, it’s something that brings people in.”
For retailers, a successful food hall is thus not a matter of simply setting up a food hall. With the increasing number of food halls, they too need to stand out to be competitive.
Office Depot is piloting its first-ever co-working space inside a retail store at its Los Gatos location.
The move comes as the office supplies retailer looks to edge in on co-working giants like WeWork by offering workspace for freelancers, small business owners and remote workers.
The space inside the store at 15166 Los Gatos Blvd. is called Workonomy Hub.
Much like WeWork, Workonomy offers options ranging from renting a desk in a common area ($40 per day) to private offices ($750 per month). The space also includes high-speed Internet, free refreshments, business services like printing, shipping and mail and package handling, and, of course “easy access to office supplies.”
“The combination of Office Depot’s current suite of products and services with a physical co-working space creates a comprehensive offering for small business owners, entrepreneurs and remote employees under one roof,” the company said in a statement.
Adapt or die isn’t just a tenet of evolution: It’s also the reality faced by the U.S. department-store industry. And some are doing it far better than their rivals.
Although the chains are often lumped together with other mall mainstays when lamenting the “retail apocalypse,’’ this past week’s earnings reports underscore just how different department stores’ strategies are amid a wider brick-and-mortar slowdown.
Nordstrom Inc., for instance, posted same-store sales that were almost four times higher than expected after drawing in buyers for both its full-priced and discounted merchandise, powered by a massive anniversary sale. At the other end of the spectrum, CEO-less J.C. Penney Co. saw its stock plunge to historic lows as it put more items on clearance to get rid of excess inventory. And for Macy’s Inc., which beat virtually every estimate set by the market but still disappointed investors, it seems the jury’s still out.
“If you’re not doing well now, you’ll have a hard time when thing slow down,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “Right now, we have a 50-year low level of unemployment, you have a consumer that’s flush, a stock market at record levels, a strong housing market and easy and low-cost credit. So you have the Goldilocks environment, or the perfect environment, for the consumer.”
Mall landlords, besieged for the past two years by the rise of online shopping, are trying to push a new narrative of improving sales and increased demand for empty space at their properties.
Second-quarter earnings results for the biggest owners were largely in line with expectations, according to DJ Busch, an analyst at Green Street Advisors LLC, a research firm that specializes in real estate investment trusts. And that’s good news for an industry that’s struggling to stay relevant.
“We are pleasantly surprised — boring is pretty good in retail,” Busch said. “Incrementally, we’re moving in the right direction, but it’s going to take several quarters to get back to speed and get some of these centers leased backed up.”
U.S. mall REITs have been beaten up as the growth of e-commerce and a surge in retailer bankruptcies and store closures upends their business model. In the past 24 months, a Bloomberg index of eight regional-mall owners plunged 25 percent through Monday, compared with a 3.3 percent decline for all REITs. After a brutal 2017, landlords are trying to paint a rosier picture and convince investors that the worst is behind them.
“Demand from tenants for space in our highly productive centers is increasing,” David Simon, chief executive officer of Simon Property Group Inc., the largest U.S. mall owner, said on a call with analysts last week. “We continue to redevelop our irreplaceable real estate with new, exciting, dynamic ways to live, work, play, stay and shop that will further enhance the customer experience.”
The company that’s shaking up office markets just took a major step into retail.
WeWork recently launched a new business concept, dubbed WeMRKT, at the co-working giant’s 205 Hudson location in New York City. WeMRKT is a small shop that sells products created by WeWork members, and while there’s currently only one location, WeWork said it plans to expand the concept nationally.
WeWork’s decision to step into retail comes at a turning point in the market. From Toys R Us to Nine West, retailers across the country are filing for bankruptcy at record levels as consumer shopping habits continue to shift.
But not all retailers are struggling. Discount shops are booming while retailers who effectively employ creative, omnichannel strategies are finding success.
WeWork’s new concept is another step in retail’s evolution. From the fusing of the office and retail sectors to new opportunities for brick-and-mortar, here’s what WeWork’s foray into retail says about the current state of the market.
The only thing more dangerous for America’s malls than a string of apparel-chain bankruptcies is when the trouble hits department stores.
Retailers like J.C. Penney Co. and Macy’s Inc. are considered “anchors” that keep malls humming and foot traffic flowing. They’re so important to the ecosystem that smaller tenants may refuse to set up shop without a promise that the anchors will stick around: Many leases include so-called co-tenancy clauses that let them cut and run or pay less if those key tenants depart.
Now, many landlords are pushing to eliminate or narrow the escape clauses in the wake of mass department-store closings. That means less flexibility for the remaining tenants.