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Retail Law Advisor

Set Pickup Location: Uber Is Coming to Retail

Posted in Retail, Retail Sales

NowOn-demand delivery services, such as Uber and its competitors Lyft and Postmates, are increasingly taking steps that have the potential to offer a counterpunch to online retailers such as Amazon and may shake up the brick and mortar retail industry in a big way.

UberRush: On-Demand Delivery Service Could Compete with Amazon

Uber is rolling out a platform, UberRush, to connect retailers with their customers, aiming to provide the sort of seamless, on-demand service to deliver goods that it currently uses to deliver passengers. Once a retailer signs up for the new UberRush service its customers can make purchases remotely via an app or website and rely on Uber’s network of on-demand drivers to make same-day or scheduled deliveries of those purchases. For brick-and-mortar retailers UberRush is a possible response to Amazon’s rapid delivery services. With Amazon’s next-day – and in some markets same-day – delivery option drastically reducing customers’ waiting time for online purchases and increasing convenience, there is growing evidence that the online retail behemoth is beginning to have a meaningful effect on brick and mortar retailers.

Amazon sweetened its rapid delivery service by waiving shipping fees for a one-time $99 subscription. Brick-and-mortar retailers could do something similar by offering reduced delivery costs for customers with subscriptions. For its part, Uber has shown some willingness to discount prices for certain types of trips where it can expect volume usage and seems to be in the market for partners.

On-Demand Food Delivery Is Already a Mature Market

On-demand delivery for certain types of brick-and-mortar outlets is not a new concept: customers have been ordering food for delivery as long as pizzerias have existed.  In many urban areas there is an already-crowded market of food ordering or delivery services that serve multiple food vendors, such as Grubhub, Doordash, Seamless, Foodler, Postmates, and, yes, even Uber. Likewise, on-demand grocery delivery services such as Instacart (which, like Uber, relies on individuals using personal vehicles) and Peapod (which uses dedicated delivery drivers) allow customers to shop from home for same-day and scheduled grocery delivery. Even grocery leader Wal-Mart is dipping its toe in on-demand grocery services.

The experiences of restaurants and grocers and the growing market-share of Amazon suggests a shift in customers’ expectations about their retail experience. Customers want the option to be able to skip the shopping trip and have goods and food delivered to them at home or at work. UberRush and similar services offer brick and mortar retailers a low-capital solution to provide same-day delivery services customers are seeking.

Technology continues to shape retail, and on-demand mobility applications may be the next frontier for brick-and-mortar retailers – at least until the drones arrive.

To Brexit or Not to Brexit? Our Observations on UK Retail

Posted in Real Estate, Retail

British flagOur Retail team just returned from a week in London where we met with the firm’s UK-based retail clients and other retail industry professionals. The biggest topic of conversation centered around Brexit.

On June 23rd, Britain will hold an historic referendum on whether the country will leave the European Union, which is often referred to as Brexit. There is a long history behind the relationship between Britain and the European Union and this is not the first time that a break has been considered. Most of the retail professionals we spoke with are against Britain leaving the EU because of the anticipated negative impact it would have on the UK’s economy, at least during the three or four years following the exit. Those in favor of Britain leaving the EU are nonetheless concerned about the ability of citizens of other EU countries to freely emigrate to the UK which, as the argument goes, takes jobs away from UK citizens and exacerbates security concerns. The bottom line is that there is uncertainty on both sides of the issue, resulting in a pause in commercial transactions pending the outcome of this vote.

Is there any good news? Amazingly, despite these concerns, it certainly seems that the everyday business of retail in London is moving along fairly well. Although there are always exceptions, such as the recent collapses of retailers BHS and Austin Reed, we happily found the streets and stores bustling and the mood to be positive overall. The iconic Hamleys toy store on Regent Street was bursting at the seams with young and old alike, and the beautifully merchandised The White Company store in Covent Garden was filled with many shoppers. And, there is no doubt that London retains its preeminent role as the mecca for international retailers.

We would be remiss if we didn’t make note of the many questions we were asked repeatedly about the upcoming U.S. presidential election. Many of the clients we spoke with have a very favorable view of President Obama, but they were perplexed, if not nervous, by our current presidential campaign and its possible outcomes.

Only time will truly tell what the effects of the Brexit vote will be, but in the interim, we will continue to monitor the situation and guide retailers through whatever impacts may be headed their way.

Are Prohibited Uses Prohibiting Opportunity?

Posted in Landlords, Leasing, Retail, Tenant

Outlet ShoppingDespite how it may sometimes seem when in the throes of negotiating a lease between a shopping center landlord and a retail tenant, the overarching goals of the two parties are aligned. Both parties want the tenant to be successful and want the landlord’s shopping center to be active and vibrant, filled with “hot” tenants and many shoppers. Landlords will sometimes agree – typically in connection with the lease to an anchor or box tenant – that certain uses shall be prohibited at the center, which “prohibited uses” will then restrict the use of space at the shopping center by other prospective tenants. The standard list of prohibited uses was solidified years ago and today remains more or less uniform. These prohibited uses generally fit into at least one of three categories: (1) uses that would pose a threat to the health and/or safety of shopping center occupants, (2) uses that are regarded as improper (e.g., the sale of pornography, tattoo parlors and so-called head shops), or (3) uses that monopolize parking spaces for use by consumers who are not (historically) there to shop (e.g., movie theaters, bowling alleys and health clubs, to name a few examples relevant to this post). While the basic list of prohibited uses that has been used for decades is still being used in anchor tenant leases today, one need only look around at the newest retail centers – whether a part of an urban mixed-use development or a suburban lifestyle center – to see that the list (in particular, the prohibited uses related to parking) no longer reflects the realities of today’s centers and therefore needs some updating.

At Bisnow’s Boston Retail 2016 event last week, several movers and shakers in the Boston retail scene contemplated the latest trends in retail, including strategies for brick and mortar retailers to coexist and thrive in the omni-channel age. During that conversation, Deborah Byrnes, President of Retail Resource, Inc. keenly observed that “the Internet is isolating.” The antidote: create an experience for consumers to draw them out of their isolation and into society… and while they’re there taking in an experience, they’ll likely do a little shopping too. Take, for example, Boston’s new Seaport Square – an urban retail/office/residential development that is currently in the later stages of development. Seaport Square is being anchored by operators of three traditionally prohibited uses: Kings (a bowling alley), Equinox (a health club) and a 10-auditorium ShowPlace Icon Theatre. This development epitomizes the sea change in retail models, where experience providers are now viewed as important suppliers of consumers to a development’s retailers, as opposed to merely parking hogs.

In addition, medical uses have historically been viewed negatively by retailers. But it has become apparent that certain medical services, such as minute clinics, community health centers and providers of medical supplies to consumers, bring consumers to retail centers on a consistent basis all day long. “Medical retail” provides a steady supply of foot traffic to the surrounding retail and restaurant space, which only benefits a shopping center. Similarly, Pilates, yoga and spin studios, where members spend around an hour or so in a class, but which are “health clubs” and, thus, traditional prohibited uses, are becoming increasingly popular tenants as a result of their ability to bring consumers to, and symbiotic relationship with, retail. Who doesn’t want a reward – whether in the form of a smoothie from the anchor grocer or a new outfit, maybe even one size down as a result of hard work, from the anchor department store – after a good workout?

A critical review of the once tried and true prohibited uses list, in light of the evolution of retail centers, tends to suggest that certain historically prohibited uses should be rotated off the list to facilitate the shared goal of retailers and landlords that the centers in which they are operating remain fresh, lively and full of consumers involved in, and not isolated from, society.

Retailers’ On-Call Scheduling Practices Under Scrutiny in Eight States and D.C.

Posted in Employment, Retail

time-management-tipsOn April 12, 2016, New York Attorney General Eric Schneiderman sent letters to fifteen retailers requesting information regarding their use of “on-call shifts” in scheduling employees. The letters were similar to those letters sent by the New York Attorney General in April, 2015 with a critical difference – the Attorneys General from California, Connecticut, the District of Columbia, Illinois, Maryland, Massachusetts, Minnesota, and Rhode Island also signed on, committing to investigate the same retailers’ scheduling practices in their own jurisdictions.

On-call scheduling (or Just-In-Time scheduling) is a labor practice in which employees’ work hours are closely linked to consumer demand. Employees are required to contact employers the day of a shift to determine whether they are required to show up for work or stay home without pay, leave work before completing their scheduled hours if the store is slow, and make themselves available for last-minute shifts. This blog has been reporting on the increasing public awareness of and growing public concern over the unpredictability and uncertainty that on-call scheduling can create in the lives of workers (see posts on 9/17/2014 and 1/13/2016). According to a 2014 report, researchers from the University of Chicago found that 41 percent of 26- to 32-year-olds with hourly work received their work schedules a week or less in advance.

The letters from the Attorneys General state that “unpredictable work schedules take a toll on employees. Without the security of a definite work schedule, workers who must be ‘on call’ have difficulty making reliable childcare and elder-care arrangements, encounter obstacles in pursuing an education,” and interfere with workers’ ability to supplement their income with second jobs. The letters cite the New York state reporting pay law, 12 NYCRR 142-2.3, which requires that “an employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours or the number of hours in the regularly scheduled shift, whichever is less, at the basic hourly wage.” Although Maryland, Minnesota, and Illinois don’t currently have reporting pay laws, those Attorneys General signed onto the letters to express concern about the impact of on-call scheduling on hourly workers and their families according to CBS News.

The information requests were sent to Aeropostale, American Eagle Outfitters, BCBG Max Azria, Carter’s, Coach, David’s Tea, Forever 21, Justice, Pacific Sunwear of California, Payless Shoesource, Tilly’s, Van’s, Uniqlo, Walt Disney Co., and Zumiez. In 2015, as a result of a similar inquiry by the New York Attorney General, brands including Abercrombie & Fitch, Gap, J.Crew, Urban Outfitters, Pier 1 Imports, and L Brands (parent company of Bath & Body Works and Victoria’s Secret) all agreed to end the practice of assigning on-call shifts.  In their letter, the Attorneys General cite the conversion of these businesses to other scheduling methods designed to address unexpected absences and unanticipated business volume as evidence that on-call scheduling is not a business necessity. According to the Wall Street Journal, Coach, Forever 21, Payless Shoesource, and Uniqlo have stated that their companies don’t engage in on-call scheduling, and American Eagle ceased the use of on-call shifts in their stores in November 2015.

The Newly Enacted Defend Trade Secrets Act: What Retailers Should Know

Posted in Intellectual Property, Retail

Laptop Magnifying glassOn May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (the DTSA), creating the first Federal civil cause of action for misappropriation of trade secrets. The DTSA overlaps substantially with, and does not preempt, the trade secret acts already existing at the state level and adds an additional, powerful tool for protecting trade secrets in federal court that may have been previously unavailable to trade secret owners. Unlike state trade secret laws, the DTSA applies only to interstate and foreign commerce.

Retailers seeking to enhance the protection of their trade secrets should be aware of some of the very important facets of the DTSA and take steps now to avail themselves of the advantages the DTSA offers.

Forms of Relief

There is a three-year statute of limitations for a claim brought under the DTSA commencing on the date misappropriation is either actually discovered or by the exercise of reasonable diligence should have been discovered. The DTSA cannot be applied retroactively, meaning the DTSA cannot be used for claims of misappropriation occurring before May 11, 2016, even when the act of misappropriation is discovered after May 11, 2016.

To many retailers, injunctive relief preventing disclosure of trade secret information is most important. Monetary relief is also available, including actual damages, damages from unjust enrichment, or a reasonable royalty derived from sales of products or services utilizing the misappropriated information. For willful or malicious misappropriation, double damages and attorneys’ fees may also be available.

Perhaps the most significant remedy available under the DTSA is an ex parte order authorizing law enforcement to seize property without notice to the defendant. In “extraordinary circumstances,” a court may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret.” The DTSA sets forth very specific and strict guidelines necessary for the issuance of what is often considered a drastic remedy. This remedy may be particularly powerful when, for example, a former employee downloaded trade secret information intending to disclose it to a competitor.

Preventing Misappropriation by Former Employees

Retailers, like many employers, may utilize the DTSA to prevent the disclosure of trade secret information by former employees to competitors through the above forms of relief. However, to gain the benefit of double damages and attorneys’ fees for misappropriation by an employee, contractor or consultant, the governing agreement must include an express written whistleblower immunity notification advising employees, contractors or consultants of their right to immunity for disclosing trade secret information in confidence to a government authority in order to report a violation of law. The inclusion of such a provision only applies to agreements entered into on or after May 11, 2016. To be clear, the DTSA does not mandate that all agreements contain such a provision, only that the employer may not be entitled to the benefit of these enhanced damages and attorneys’ fees if such a provision is not included.

The DTSA expressly rejects the inevitable disclosure doctrine. In practical terms, this means that the basis for relief cannot rest on the assumption that the former employee’s knowledge of the trade secret will be passed on to his or her new employer. Instead, injunctive relief that would prevent or restrict future employment by a former employee must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”

Things to Be Doing Now to Take Advantage of the DTSA
  • Audit internal measures and procedures for protecting potential trade secret information, including reviewing and implementing non-disclosure agreements and security protocols, and confirming exactly who has access to such information.
  • Review and revise form employment, contractor and consultant agreements to include whistleblower immunity provisions so the benefits of enhanced damages and attorneys’ fees for misappropriation may be available.
  • Consider the availability of ex parte seizure orders in extreme cases where flight, destruction of evidence, or imminent disclosure of the trade secret by the wrongdoer are of serious concern.
  • In each potential case, consider the advantages of being in state versus federal court, as the federal courts have original, but not exclusive, jurisdiction to hear claims brought under the DTSA.

ICSC RECon 2016 – Holding Court

Posted in Real Estate, Retail

d36faa060a1fe99d9fc4ec28b1eb7d31ICSC RECon 2016 tipped off with a keynote address by Earvin “Magic” Johnson, Chairman and CEO of Magic Johnson Enterprises and former NBA superstar. Attendance was up by about 2.7 percent from last year, with around 36,000 attendees, representing the more than 1,100 companies that registered for the sold out event. Real Estate developers from throughout the country touted new projects, while brokers and retailers hustled through the Las Vegas Convention Center halls in search of new deals. The mood of the crowd was mostly positive, reflecting a sense of cautious optimism with the current economy.  At the same time, some expressed unease with the lack of visibility on the direction of buyers’ shopping habits and trends, and a feeling that there could be a pullback in upcoming quarters.

Doug Karp, President of New England Development, a premier developer of retail centers and mixed-use projects, reflected positively about this year’s show. “We had great meetings out at ICSC. The general theme from potential retail tenants was to look carefully for the right opportunities and to proceed with caution. Most retailers seemed to have limited buys and wanted to be strategic where they applied their capital. But the good news was that with good real estate, the retailers were looking to make deals. We too are cautious but optimistic about the outcome of the convention.”

Conference attendees were greeted by a new Technology Lab exhibit, a showcase of technology start-ups and their products, as they entered the main Convention Center lobby. The growing impact of technology and the dynamic nature of retail was a big theme at the formal sessions this year, with topics such as “Retail Technology Trends to Watch”, the “Future of Retail” and “Tomorrow’s Shopping Center Today”.  As we have noted in several blogs in this space, the increasing impact of social media and new developments in technology and omni-channel retailing are top of mind for retailers and developers alike, as they continue to work to find common ground in this rapidly changing retail landscape.

But most attendees were not there for the formal presentations, but rather to be part of the game itself. Fit bits were buzzing everywhere, with people hitting their target step count by mid-morning as they weaved through the crowds to get from meeting to meeting. The wheeling and dealing continued late into the evenings at large after session parties, such as the New York Developer’s party poolside at the Bellagio and the Bisnow Beltway Bash at Intrigue at the Wynn, as well as numerous dinners and booth-side cocktail events.

By the time the final buzzer sounded for the show on Wednesday afternoon, all were exhausted, yet hopeful that their efforts would lead to some slam dunk deals in the near future.

Meet The Jetsons: Fashionable Technology

Posted in Retail

Fashion technologyIn the opening montage of the famous American 1980’s sitcom, The Jetsons, we see the family zipping through their futuristic utopia donning clothing and accessories that we could only dream of, until today. Coco Chanel once aptly noted that, “Fashion is in the sky, in the street, fashion has to do with ideas, the way we live, what is happening.” What is happening now is that fashion and technology companies are coming together to create technological clothing that will forever change how we live and interact with our environment. Over the past decade, we have witnessed the evolution of the multichannel role that technology can play in the ever-changing cycle of fashion –e.g. through SMS text messaging, e-commerce, and, now, the fusion of technology and fashion. Like the Jetsons, whimsical inventions are now within the reach of modern-day consumers. The budding partnership between tech start-ups, such as Lyst and OMsignal, and fashion retailers has a chance to blossom into a fashion breakthrough that will allow consumers to personally engage with their innovative functional clothing, reveal their personalities, and interact with the environment.

As more and more brick and mortar stores devolve into deserted showrooms due to the rise of e-commerce, fashion retailers have finally recognized that technological innovation is a worthwhile experiment to hopefully reinvigorate the consumer experience and engage consumer’s every-day fashion lifestyle. Many trend-setters within the fashion industry, including Ralph Lauren, Victoria Secret, and Tory Burch, have begun to adopt new innovative strategies to infuse technology into apparel – including fashion shows and the retail experience, as a whole – that has day-to-day relevance, while also being aesthetically fashion-forward. By fostering the relationship between our physical and digital worlds, fashion retailers aim to reinvent the concept of a retail space and transcend consumer’s wildest expectations.

Major brand labels, including Burberry and Tory Burch, are in the early stages of developing fashion wearables that seamlessly blend into a whole line of other apparel in hopes of creating a trend-setting physical and digital collection that raises the bar in terms of functional tech-fashion. At this year’s Met Gala – the holy grail of fashion — many prominent fashion retailers displayed tech-inspired garments that pushed the boundaries of traditional fashion and heightened anticipation for what is to come. Among these pieces of fashion-tech innovation included a dress with adorned LED lights, a heat-sealed crystal dress, and a gown with a built-in IBM cognitive computer system. Even more encouraging, fashion retailers have begun to adopt new interactive measures, including, video and microchips in clothing and interactive digital screens in stores, to keep pace with the evolving penchants of consumers.

The growing spending power of Millennials is undeniable, and has spurred forward-thinking fashion brands to develop innovative campaigns and create interactive digital retail space to capture their minds, and, hopefully their brand loyalty. The next era of fashion is quickly approaching, and it promises to usher in tech-inspired clothing that interacts with our environment in culturally relevant ways – whether by addressing issues of sustainability through utilization of environmentally-friendly fabrics or managing our daily health and fitness. Fashion at its very essence is about evolution, and #techstyle is the future.

Retailers Take Notice: Will Customers .shop at Your .store?

Posted in Intellectual Property, Retail, Technology

gTLDHave you thought about establishing a new distinctive web address for your business? Do you worry that someone else may try to register your brand name within one of the new generic top level domains (gTLDs)? Whether consciously or not, many retailers have been sitting on the sidelines during the rollout of new gTLDs. But the recent approvals of .shop, .store, and other gTLDs with especially wide appeal should cause retailers to take notice and revisit their domain name strategies. Even if other gTLDs have not piqued their interest, retailers may want to register additional second-level domains (SLDs) within a gTLD such as .shop either for defensive purposes or for actual use.

In January 2016, GMO Registry, Inc. (GMO) paid $41.5 million to outbid seven other companies for ownership of the .shop gTLD. This was by far the highest amount ever paid by any company for a gTLD. The Internet Corporation for Assigned Names and Numbers (ICANN) has not yet formally “delegated” the .shop gTLD for use. Therefore, the sunrise registration period in which trademark owners can get a jump on registering SLDs has not yet been announced. However, considering the number of bidders and the hefty price that GMO paid for .shop, it is likely that GMO and others anticipate heavy registration activity and widespread commercial use of the domain.

ICANN also recently approved and delegated the .store gTLD, and the sunrise period for .store is currently open until June 5, 2016. Since the sunrise period will soon close, retailers may want to consider registering SLDs within .store before others grab the names they want. Another gTLD in ICANN’s pipeline that could have broad appeal is .shopping. This, too, bears watching.

Observers may wonder, though, whether the new gTLDs are gaining traction in the marketplace. The use of gTLDs by major companies in the banking and technology industries may indicate a trend toward use of new gTLDs. For example, large banks like Barclays and BNP Paribas have chosen to use their brand-specific gTLDs to replace their original .com web addresses (www.home.barclays and www.mybank.bnpparibas). Similarly, some regional banks like Lead Bank in Kansas City, Missouri have chosen to use the more generic gTLD .bank for their new web address (www.lead.bank).

Last year the gTLD trend attracted another major pioneer, the technology giant, Google. In 2015, Google created an umbrella company called Alphabet and chose www.abc.xyz for its web address. Based on subsequent registrations by others of some 20,000 .xyz domain names, Google’s use of a generic gTLD has already influenced other new gTLD registrants, and may encourage other companies to follow suit.

The implementation of gTLDs by large companies like Barclays and Google and the hefty amount paid for .shop are indicators of the potential value and impact of gTLDs. In some cases, a retailer may benefit from using a gTLD that matches its brand. In others, the retailer may benefit from establishing an online presence within a gTLD that corresponds to its field of business (e.g., .bank or .shop).  At the very least, retailers should take steps to protect their brand and business from abuse by cyber squatters or cyber criminals. Otherwise, they may risk becoming victims like Burberry, Tommy Hilfiger, and Adidas became in 2013 when the .clothing gTLD became available. When non-affiliated individuals in different regions of the world successfully registered adidas.clothing, burberry.clothing, and tommyhilfiger.clothing, these clothing retailers were forced to expend precious time and financial resources challenging the SLD owners. For tips on protective steps to take with regard to new gTLDs, please see our previous post on this subject or this article here.

It is still too early to know the full extent to which new gTLDs will affect the retail environment. But we do know that three new gTLDs that are especially relevant to retail will become available for registration and use this year. We also know that businesses have already invested significant capital to acquire and control new gTLDs, and that some high profile and established companies have begun using new gTLDs in their businesses. Therefore, now would be a good time for retailers to revisit their online marketing strategies to consider the role of new gTLDs such as .shop, .store, and .shopping.

Microbranding Leads to Big Success

Posted in Retail, Retail Sales

department storeFrom your local watering hole to Nordstrom’s, microbranding is making a big impact in retail. Microbranding is brand recognition experienced by small-scale businesses in a particular marketplace. The expansion of the internet marketplace, including websites such as Etsy and Kickstarter, allows small businesses to use various methods to tailor its product and target niche markets directly. Not to be left out, “Big Box” department stores are making space on their shelves for in-demand microbrands.

Kickstarter, a well-known crowd source funding site, allows an entrepreneur to tailor its products to consumers by introducing an idea to the marketplace then asking the marketplace to fund production. LIV-Swiss Watches placed one of its most recent watch designs, the Genesis X1-A, on Kickstarter with a goal of $40,000. The X1-A hit the $40,000 goal in 34 minutes and currently has 2,169 backers that have pledged $1,119,029. Backers receive a Swiss watch that may not have the same cache as other higher-end luxury Swiss watches, but the $500 pledge is tiny compared with the price tag of some Swiss watches that may cost thousands of dollars. Not only are backers buying the watch, but they are also “buying-in” on the company. The consumer knows that the pledge contributes to getting production up and running and experiences the feeling of having been among the exclusive backers/investors that were part of the overwhelming success of the product. The consumer is not just buying a product, but rather there is a relationship that goes beyond the normal consumer retailer interaction.

A major factor in achieving success through microbranding is the direct interaction between the consumer and the retailer. Pledging a contribution to a product is just one way of establishing a relationship between the retailer and consumer. Over the last twenty years, micro-breweries have used microbranding to take market-share away from Anheuser-Busch and other giants in the industry in order to earn enormous success. Breweries like Dogfish Head Ale use labels to tell the story of their brewery and their beer to create a dialogue with consumers. The Delaware based brewery has a Grateful Dead American Beauty pale ale and Robert Johnson’s Hellhound On My Ale brew to share not just a shared love of beer, but also a love of music with its consumers. By using storytelling and infusing consumer’s other interests in its product, Dogfish Head Ale is one of numerous breweries that has carved out a unique voice in a once homogeneous industry and found success.

As some once-small businesses find success through microbranding and begin to grow, there becomes a need to expand. Major department stores such as Nordstroms are providing financing and floor space for expanding online stores like customized shoes retailer Shoes of Prey. The collaboration between Nordstrom’s and Shoes of Prey accommodates consumers that want the customized options provided by online retailers with the immediate attention and satisfaction that can only be provided by a brick-and-mortar location. As the debate continues to rage regarding whether online or brick-and-mortar will reign supreme, partnerships between traditional department stores and microbrand online retailers are hoping for massive consumer appeal.

Apparel Peril!

Posted in Retail, Retail Sales

Today’s post is guest-authored by Nick Egelanian, a leader in the retail and shopping center industries. 

clothes racks

These are perilous times in the apparel sector. What seems on the surface to be a contradiction–a series of underwhelming sales reports in apparel sales, coinciding with a dramatic and ongoing expansion in many types of apparel retailing – are in fact the byproduct of an evolving retail segment sending up red flags for apparel retailers going forward.

The disconnect is particularly noticeable in discount and budget apparel, which continues to grow at a pace that far exceeds overall sales. Commodity brands like T.J. Maxx, Marshalls, Nordstrom Rack and Ross Stores are opening over 250 stores annually. On the specialty side, familiar names like H&M, Zara and Forever 21 (F21 red) accompanied by newcomer Primark are driving expansion. Outlet center expansion only adds further to the surge in discount apparel.

A race to the bottom

One of the clear trends in apparel right now is a “race to the bottom” on price, which is crowding out full price apparel and producing clear winners and losers in the segment.  Discount brands are gobbling up market share while full price brands and department stores are losing ground. It is no coincidence that iconic names like J. Crew and GAP are focusing their expansion resources almost entirely on off-price stores.

Virtual volume

Online competition is another issue apparel retailers are wrestling with. Online and mobile transactions make up approximately 25 to 30 percent of all apparel sales, a far more significant figure than the 7 to 8 percent overall number for the entire retail industry. This disparity is likely due at least in part to a segment where shoppers are accustomed to exploring omnichannel options for size, color and bargain hunting flexibility. Whatever the reason, the fact remains: brick-and-mortar apparel retailers already trying to adapt to a discount-dominated marketplace now have to face additional competitive pressure from virtual vendors.

What does it mean?

The big question remains: what do these developments mean for apparel’s future? With outlets and discount concepts growing at an eye-opening pace, and these trends showing no signs of slowing, mid-market brands and department stores will continue to struggle to respond. Even discount adaptation success stories like Nordstrom Rack have delivered weak numbers lately, and there isn’t much evidence that other brands can do much better.

As a result, brands like Aéropostale, Abercrombie & Fitch and Gap Inc. will tread water and will likely continue to lose market share. The forecast for department stores is even more dire. Icons like Macy’s and J.C. Penney, already in the midst of decades-long market share slumps, will almost certainly cede even more ground and the ripple effects will be profound as struggling B and C malls are especially hard hit with the loss of hundreds of additional department and full-price apparel retail outlets, leading more and more second tier regional malls into obscurity in the coming years.

As always in retail, however, challenges for some create opportunities for others. Federal Realty’s Assembly Row in Boston has redefined the discount retail venue, successfully combining entertainment and restaurants with outlet style apparel in a mixed-use shopping venue. Assembly Row demonstrates that adapting to new retail realities requires innovation and inspiration. In retail as in life: you evolve or you go extinct.

 

Today’s guest blogger, Nick Egelanian, served as Vice President of Real Estate and New Store Development for Crown Books and FAO Inc./Zany Brainy before forming SiteWorks Retail Real Estate Services in 1992. He pioneered the segmentation of retail into Commodity and Specialty sub-categories as the author of the Retail chapter of the Urban Land Institute’s Professional Real Estate Development: The ULI Guide to the Business, 3rd Edition in 2012.Nick is an active author and speaker on retail trends and the evolution of the retail industry, and has contributed numerous articles and editorials in publications such as the Urban Land Institute’s Urban Land Magazine and Madison Marquette’s PLACES Magazine.