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Retail Law Advisor

Looking Inside the Mind of a Gen Z Shopper

Posted in Retail, Retail Sales

As the 2017 holiday season nears, consumers are getting ready to open their wallets and retailers are hoping their promotions will attract those consumers. Generation Z (“Gen Z”), which includes young people born in the mid-1990s to mid-2000s, is an important but often forgotten portion of the consumer population. There are about 2.5 billion Gen Z consumers worldwide, collectively wielding $44 billion in buying power. Although one might assume that having grown up in a world of technology, Gen Z consumers prefer exercising their buying power online, Gen Z buyers surprisingly prefer shopping in brick-and-mortar stores.

In January 2017, IBM and the National Retail Federation produced an executive report titled Uniquely Generation Z, which analyzed Gen Z buying habits. Sixty-seven percent of the Gen Z consumers surveyed for that report said they prefer to shop in stores while only 35% preferred to shop using a browser or an app.

More recently, PWC conducted a survey analyzing the 2017 holiday outlook. Of the 301 Gen Z consumers surveyed, 81% preferred to shop in stores. Many of those surveyed stated that the reason for their preference was fun experiences, live events, and in-store specials. Still, the survey suggests that a Gen Z buyer’s motivation to shop in stores may be due to their inability to purchase items online. Moreover, the survey cautions that as Gen Z shoppers grow older, wealthier, and busier, their preferences may change.

Nonetheless, this holiday season, retailers may want to customize their marketing strategies to capture the attention of Gen Z shoppers who prefer in store shopping. Retail Dive suggests the following three ways to reach Gen Z buyers this holiday season: (1) tell a story; (2) promote unique, personalized gift options; and (3) use the right medium.

First, retailers should target Gen Z shoppers by using visual forms of storytelling. The PWC 2017 holiday outlook survey referenced above showed that while Gen Z consumers prefer to shop in stores, a majority also look to Instagram, YouTube, and Facebook for inspiration when picking out a gift. Second, retailers should promote personalization services in their storefronts and focus on training store associates.  Gen Z consumers value fun experiences when making purchases and are more likely to make purchases based on a retailer’s recommendation. Finally, while Gen Z shoppers favor shopping in stores, they, more than any other generation, tend to research products online before buying. This includes reading reviews, looking through photo galleries, and using online wish lists. Retailers should capitalize on this preference by targeting Gen Z shoppers on social media, and connecting that online exposure with a more tangible experience in brick-and-mortar stores.

As we have discussed in previous blog posts, most retailers strive to strike a balance between online retail and the traditional brick-and-mortar experience. With so many ways to reach consumers, it is important for retailers that serve younger consumers to tailor their marketing strategy, especially for Gen Z, a new generation of consumers with unique buying habits.

New Experiences, New Retail Opportunities

Posted in Retail, Retail Sales

Despite all of the noise about the rise of e-commerce and omni-channel distribution and the demise of brick-and-mortar, 85% of retail sales are still made in physical stores, and physical stores will continue to be at the core of retailers’ efforts to enhance their brands and drive sales.

That said, in light of the increased competition from e-tail, retailers have increasingly been turning to “experiential retail” as a way to leverage the value of their physical stores. Simply, experiential retail provides customers with a positive experience to support sales. More strategically, experiential retail is about re-thinking the ways that retailers use their physical stores to differentiate themselves from competitors by providing non-monetary value to customers while at the same time increasing the likelihood that customers purchase full price goods.

One experiential retail strategy encourages customers to engage with and experience a retailer’s products. In addition to allowing customers to play with products in their stores, Apple offers programs to encourage teachers and students to use Apple products for educational purposes. REI offers outdoor classes for consumers to use their products to kayak or paddleboard or cross country ski in real world settings outside of the store. Toys R Us is planning to emerge from bankruptcy and invest heavily in re-designing its stores into “interactive spaces” with party rooms inside stores for people to gather and where children can play with the latest toys.

Another strategy aims to draw customers by providing experiences which support the retailer’s brand, but with no explicit tie to the goods they sell. Urban Outfitters’ store in New York’s Herald Square has one of New York’s first branches of Intelligentsia Coffee, an upscale third wave coffee purveyor, and the New York outpost of Hairroin, a famous Los Angeles hair salon. Whole Foods opened a new store in City Center Philadelphia with a bar and food court focusing on local Philadelphia restaurants, including, among others, a branch of Dizengoff, a hip and high quality fast-service hummus and pita restaurant.

Experiential retail strategies focus on making the shopping experience more appealing to customers, but there is no single best practice. Each retailer should carefully develop its own strategy to support its business plan and the core attributes of its brand.

When implementing a new experiential retail program, retailers should carefully review their leases to determine permitted uses. Retailers may also wish to engage their landlords directly with these efforts, as many landlords are using entertainment and events to draw retail traffic and there may be ways for retailers and landlords to create synergies that further enhance the appeal of physical stores.

2017 ICSC US Shopping Center Law Conference

Posted in Retail

San Antonio was host to this year’s ICSC US Shopping Center Law Conference, which occurred from October 25 through October 28, 2017. In-house counsel, counsel from outside law firms, tenant’s lawyers, landlord’s counsel, paralegals, lease administrators and others involved in the retail business came together to discuss the changes occurring in the retail industry. Attendance was strong with more than 1,350 attendees, over 300 of which were first-time attendees. This premier event brings together first-year lawyers and experienced practitioners to learn from each other and share experiences in this rapidly changing industry.

Against the backdrop of the industry disturbance caused by the Amazon/Whole Foods merger, the Conference offered attendees over 100 programs, including workshops, seminars and smaller peer-to-peer sessions, as well as roundtable discussions. With the diversity of program offerings, the Conference really has something for everyone. There are many larger introductory sessions on leasing, risk management and ethics. Or, for the experienced attorneys, there were many smaller interactive sessions that allow the opportunity to learn from not only the presenters but also from other experienced attorneys. Formal learning opportunities were available for attendees at all levels of experience. As important, however, the Conference also presented attendees the chance to network – putting names and faces together. In this age of technology, with many deals negotiated over email or the telephone, the Conference allows practitioners to create personal connections which often ease transactional friction and help deals to be resolved more quickly and efficiency.

The keynote panel discussion kicked off the Conference bright and early on the first full day of the show. Val Richardson, ICSC Vice Chairman and VP of RE at The Container Store, Will Higham, Consumer Strategist, Futurist and Founder of The Next Big Thing and David Darling of Ramo-Gershenson discussed the changing retail landscape. The panelists noted that at this moment in time, with over 7.56 billon square feet of retail space in the United States, we may be somewhat over built (or under demolished) but this is in the process of rebalancing. They noted that the threat from e-commerce may be overblown with about 12% of total retail sales coming from e-commerce and 50% of those on-line sales derived from brick and mortar retailers.  Pure play e-commence is less than 5% of total retail sales. Many previously pure e-commerce players realize that they need brick and mortar locations to really grow their business. The panel emphasized that the real key for retailers is to remain relevant to their customers – they need to fortify the fundamentals and sharpen the brand. Bankruptcy filings are populated by those retailers that did not heed that advice – those that do not innovate risk irrelevance. Developers need to focus on creating a sense of place with their new projects and recognize the importance of experiential retail.

The impact of millennials cannot be overstated – and currently they are interested in retail venues that offer activities, not products – a workout, a movie, a night out with friends. The new anchor might be the bowling alley or a local retailer that is unique in the community. The panel acknowledged all the change that is facing the retail industry, but they did so with a sense of optimism. Change can be hard and the unknown is scary, but it is not new in the retail industry, and the interplay between bricks and mortar and e-commerce will bring many exciting new industry developments.

Notwithstanding all the turbulence in the industry, the Conference presented a wonderful opportunity for attendees to make new connections and solidify existing relationships. The sense of optimism was prevalent in all of the sessions. San Antonio and the Riverwalk presented a great first-time venue for the show. All are looking forward to connecting again next year, October 24 through October 27, 2018, in Orlando for the 2018 Law Conference.

Surprises For International Retailers Coming to the USA

Posted in Cross Border, Leasing, Regulatory, Retail

We are all aware that stateside landlords long for that new, fresh idea—something they can show off at their mall or street location and that can’t be found in every mall in every city in the country. Successful international retailers are aware of this potentially lucrative avenue to increase revenues. USA demographics are incredibly enticing. Some international brands translate well; upscale malls and high streets would suffer  tremendous vacancies without contributions from European luxury retailers. Unfortunately, however, it’s not always clear sailing. Some brands don’t translate well, be it style, sizing or color. And frequently, international retailers encounter operational requirements which differ drastically from their home turf.

London-based retailers can comfortably anticipate that if their construction drawings satisfy the national building code, they can secure a building permit for new stores in Birmingham, Liverpool, Manchester and elsewhere throughout the country. So, the notion that one building inspector in a small town in New Jersey can hold up construction of a store in a major regional mall is confounding and confusing to those retailers. And, they were expecting unfettered USA capitalism and the loosening of regulations! On the flipside, the sale seasons in Spain and Germany are limited and strictly regulated. It isn’t easy to pivot to an American environment of perpetual discounting.

Another cultural and legal difference relates to the negotiation of leases. European retailers are not accustomed to the wide-open negotiation of almost every term and condition of a lease. In Europe, a good number of lease provisions are governed by statute or common law. This provides for shorter—and cheaper—lease negotiations. Typical tenant protections in Europe are time-consuming and costly to obtain from tough USA landlords. Imagine—as in the UK—that there is a legal presumption that a tenant has a right to renew its lease, irrespective of the terms of the original document.

Perhaps the most difficult adjustment is the necessity to understand and comply with widely-varying state regulations and laws. A major international retailer entering the USA market will need guidance on credit card laws, advertising, labor standards, discounting disclosure requirements and other operational concerns which differ state to state. You are legally prohibited from requesting zip codes from customers in Massachusetts, for example. Is that privacy protection the same in New Jersey or Montana? Do you need to disclose that an item being sold in your outlet store was manufactured exclusively for outlets?

Alexis de Tocqueville famously stated that “there is hardly a political question in the United States which does not sooner or later turn into a judicial one.” Little did he know that his comment would ultimately apply to retail as well.

Medtail: Why Your Doctor Is Treating You in a Strip Mall

Posted in Real Estate, Retail

The retail universe is well aware of the hype that it is only a matter of time until brick and mortal retail succumbs to its online competitors.  However, despite the “doom and gloom” we generally see in headlines, retail has actually remained stable and, in fact, is thriving in certain sectors. According to a recent report from Jones Lang LaSalle (“JLL”), certain core statistics that generally represent the strength of retail appear steady through the first half of 2017.  For example, JLL’s 2017 midyear report indicates that total retail vacancy has actually declined by 20% during the first half of 2017.  Retail space is crucial to the United States’ overall real estate market, as the United States has an enormous retail footprint – over thirteen billion square feet, which equates to approximately 32 square feet per person in the United States. To put that number into context, the United States’ retail square feet per capita is twice as much as that of Europe and three times that of Asia. These figures beg the question: how will developers fill their retail spaces in the long term?

One way in which developers have managed to keep their retail spaces afloat, and adapt to the ever-changing retail landscape, is by incorporating “internet-resistant” and service-oriented retailers into their retail spaces. Nowhere do we see this innovative tenant mix more than in strip malls. We all probably have our preconceived notions regarding strip malls – essentially one-story shopping malls located on a (sometimes) busy road. According to a number of sources, strip malls are doing remarkably well in this competitive retail market.  Strip mall owners are succeeding by complementing their tenant mix with not only discount retailers, quick-service restaurants, and smartphone shops, but also medical clinics. Over the past several years, outpatient clinics and specialty medical services have been relocating to retail spaces (including strip malls) as opposed to traditional office buildings and hospital campuses – a phenomenon some refer to as “medtail.” One reason why medical clinics – such as facilities dedicated to women’s health, dermatology, walk-in health care, chiropractic and physical therapy – are finding homes in retail spaces, and strip malls in particular, is the expense of renting space in office buildings, hospital campuses and other “traditional” locations for medical clinics.

Medtail offers numerous advantages to property owners and tenants. For property owners, they are able to diversify their portfolio tenants beyond the stores and restaurants that we are accustomed to seeing. Medical clinic leases also tend to have longer terms, as medical facilities want to establish their practices within the community and recoup the costs of the often expensive equipment and tenant improvements necessary to operate the facility. Medical clinics are also clearly finding benefits by moving to retail spaces – for example, retail spaces tend to be located closer to patients, which in turn results in more frequent visits to the clinics.

As healthcare costs continue to shift to patients, and consumer preferences require conveniently located, less expensive healthcare, medtail seems in a prime position to thrive. Despite the ever-growing negative impact of e-commerce on retail spaces generally, patients will always need face-to-face visits with their medical providers. As time goes by, patients may find themselves increasingly making that visit to their local strip mall.

Robots Will Reshape – Not Replace – Retail Work

Posted in Restaurants, Retail, Retail Sales, Technology

As we have discussed in earlier blog posts, rapid changes in the retail landscape due to the rise of e-commerce and a shift in customer’s interests from old-school, one-stop department store shopping to experiential retail, has led to a recent wave of retail bankruptcies and store closings.  The shuttered stores also mean a loss of retail jobs, in particular traditional retail sales clerks. Now traditional retail jobs face another threat – automation.

Retailers have been introducing automation throughout brick-and-mortar stores, from Amazon Go (a high-end convenience store with an entirely automated sales process), to the rise of self-checkout lanes, to the mobile order and pick up option popularized by Starbucks that is now popping up throughout the fast-casual sector, including at Sweetgreen and Panera Bread locations. Even fast food restaurants are jumping on the automation bandwagon. McDonald’s is starting to introduce the “Experience of the Future” including mobile ordering and the use of new digital ordering kiosks that will replace cashiers. Wendy’s is also introducing a similar kiosk ordering system in their restaurants.

Automation is pushing the next shift in the needs of retail employers. Although the increase in mobile ordering, e-commerce purchases, and kiosks certainly means some easily automated jobs – like cashiers – will become obsolete, there is room for growth in other customer facing jobs. Customers still crave human interaction and seek it out as a part of their shopping experience, even while appreciating the increased convenience of ordering ahead and streamlining check out. For example, while McDonald’s kiosks will reduce the need for cashiers, the simultaneous introduction of table service creates a new role for at least some of those displaced employees. And e-commerce platforms like Bonobos and Warby Parker are actually increasing their physical presence using “guideshops” that allow customers to try on products, interact with employees and other customers, and place orders through e-commerce sites. It is important to remember that previous examples that foretold doom and gloom for certain job sectors – like the advent of ATM machines – did not come to fruition. After ATMs became prevalent in the 1970s there were widespread predictions that ATMs would eventually eliminate bank tellers. However, precisely the opposite happened. Although ATMs reduced the number of tellers needed in each bank branch, the cost to operate bank branches fell so dramatically that the total number of branches increased, and so did the demand for bank tellers.

Although automation is sure to shape retail employment in the coming years, it is unlikely that predictions of robots taking over a majority of retail positions will come true. Instead, automation will hopefully move humans into more enjoyable roles, interacting with consumers, while allowing their robot counterparts to take over more mundane tasks, such as ordering, checking out, and restocking.

The FTC Won’t Let Me Be: Warnings and Enforcement Actions Targeting Social Media Influencers

Posted in Intellectual Property, Retail

According to recent Nielsen ratings, the most watched TV shows and live TV events top off at around 20 million viewers. In contrast, the most popular personalities on various social media platforms have well over 100 million followers. It’s no surprise then, that retailers and advertisers are increasingly turning toward these social media “influencers” to help advertise their brands and products. For example, Amazon recently announced its Influencer Program, a service that allows social media personalities to earn commissions on the Amazon products they promote.

This trend has not gone unnoticed by regulators. We previously blogged about the Federal Trade Commission’s (“FTC”) growing concerns about deceptive use of endorsements and testimonials in social media advertising. Since the time of that posting, the FTC has taken its first enforcement action against individual social media influencers, sent warning letters to a larger group of influencers, and updated a staff guidance document on influencers and marketers.

On September 7, 2017, two online gaming influencers settled charges with the FTC relating to the allegedly deceptive endorsement practices of an online betting service named CSGO Lotto. The influencers, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, failed to disclose they jointly owned CSGO Lotto, and also allegedly paid other influencers to promote the site on various social media platforms without requiring disclosure of payment within the social media posts.

In a statement, FTC Acting Chairman, Maureen Ohlhausen, said that the enforcement action “should send a message that such connections [between paid influencers and brands] must be clearly disclosed so consumers can make informed purchasing decisions.” As we previously blogged, the FTC does not mandate the specific wording of such disclosures but requires that they be clear and conspicuous. Thus, starting a tweet with “Ad:” or “#ad” would likely be effective, whereas burying disclosures in footnotes, in blocks of text people are unlikely to read, or in hyperlinked sources would not.

On the same day as the enforcement action was publicized, the FTC announced that warning letters had been sent to 21 social media influencers, including Sofia Vergara and Vanessa Hudgens.  In these warning letters, the FTC inquired as to whether material connections existed between the influencers and the brands in certain posts, and if so, what actions will be taken to ensure that clear and conspicuous disclosures accompany each such brand endorsement.

Advertisers would be wise to take note of this marked increase in FTC attention to social media postings. The updated version of the FTC’s endorsement guide, which contains a list of frequently asked questions on the topic, is available here. Finally, below is a graphic summarizing the recent FTC guidance:

The Cure For The Last Mile? Retooling Shopping Malls as E-commerce Distribution Centers

Posted in Retail

In addition to gigantic warehouses that e-commerce companies are constructing away from population centers where real estate is limited or too pricey, shopping malls and former shopping mall sites are well poised to be the newest e-commerce logistics and distribution hubs. With the deluge of vacant malls and vacant retail space in malls, landlords must get creative to fill their spaces and what better way to do that than to serve the industry that is generally acknowledged to be the reason for the demise of the mall?

While the demand for and cost of industrial space and shipping and logistic space increases, many analysts are also projecting that hundreds of malls will close in the near future. Shipping and logistics centers may be the new hot tenant or developer for vacant malls that can take advantage of these large vacant sites.

The location of shopping malls is particularly appealing to e-commerce retailers who are looking to satisfy their customers and get products to them quickly and efficiently. Shopping malls are generally located close to population centers. This means that e-commerce retailers who can warehouse and ship their products from these sites will be able to get their products to consumers quickly – one of the mass appeals of e-commerce. These former mall sites are located perfectly to serve as “last mile” distribution centers, which are not main shipping hubs, but are an important part of the shipping network required to immediately deliver goods to consumers.

Amazon, whose e-commerce business helped to empty mall spaces is now building a shipping center on the site of a former mall complex in Ohio which was the largest shopping center in the world when it was built in the 1970’s. Similarly, FedEx is planning to open a distribution center on the site of a former mall in Mesquite, Texas.

In order for an entire mall site to be used as a logistics hub, such as with Amazon or FedEx, often the site will need to be re-zoned. However, it is possible to transform mall space into a logistics hub on a smaller scale without re-zoning.

Existing retailers may also choose to use less of their retail space for shopping and instead use a larger portion for warehousing and distribution of their products to the extent permitted by their leases and zoning and land use restrictions.

Just like video killed the radio star, it’s fair to say that e-commerce has taken the life out of many traditional enclosed retail malls. But by retooling these vacant malls as e-commerce distribution centers, the very thing that destroyed these malls can breathe new life back into them, and at the same time, provide the solution for badly needed last mile distribution centers that have been difficult to find to date.

A Changing Retail Streetscape: Rethinking Shopping Center Parking Lots

Posted in Retail, Retail Sales

A recurring theme of this blog is that e-commerce, mobile devices, and evolving technology are changing the retail landscape. It seems that technology shifts are also poised to change the retail streetscape. More particularly, changes to the design and use of retail parking lots seems inevitable, and a significant opportunity, as shopper habits and preferences change.

Changing shopper habits and preferences are showing up in the ways shoppers travel to and from retail centers. On-demand delivery, curbside pickup, drone delivery, Uber, electric vehicles, and—perhaps in the not-too-distant future—autonomous vehicles are upending the traditional distribution model. If the traditional model looked something like this: a shopper parks as close as possible to a store, goes inside, picks up and pays for wares, and takes those items back to the car before returning home, then the future could involve perhaps a half-dozen or more variations on that structure.

The changing transportation and distribution model for retailers opens up a host of possibilities regarding store design and layout. A significant opportunity also exists outside the store in the vast seas of parking that accompany so many shopping centers. The primary commonality in the changing world of how shoppers interact with brick and mortar retailers is that shoppers need less parking. For example, of those shoppers who have their goods delivered to them at home, or who pick up goods curbside, or who arrive in an Uber, none require a parking space. As a result, significant portions of existing parking lots can be put to more beneficial uses, which can be an opportunity to generate additional revenue streams and rethink the placemaking (attempting to capitalize on local assets to create appealing and unique places where people want to live, work and play) strategies for shopping centers.

Macy’s appears to be an early mover in seizing on this opportunity. As reported in the on-line journal Modern Cities, Macy’s executive Doug Sesler, executive vice president for real estate acknowledged that a Macy’s store no longer requires the typical 20 acres of parking it sought when its stores opened in the 1970s and 1980s. Today, Macy’s is looking to develop portions of its existing parking lots into outparcels in part to shore up its balance sheet.

Removing or altering the physical parking landscape raises a host of challenges and questions:

  • Does a landlord (or a department store that owns its own parking lot) have the right to redevelop parking into occupiable space under either tenant leases or the reciprocal easement agreements that so often affect a shopping center? What kinds of obstacles do zoning regulations and loan documents present?
  • In the case of a department store with its own parking, is the department store capable of undertaking a redevelopment? Does that create undesirable competition from the landlord’s perspective?
  • What is the “right” balance of parking, curbside loading, electric vehicle charging, amenities, additional retail areas and placemaking?
  • Does the visibility from the street of easy and available surface parking matter as much to customers as the sense of arriving at a “place”?

None of these questions have straightforward answers, which means there will be plenty of opportunity for innovation and adaptation as consumer preferences and habits continue to shift.

Gearing Up for MAPIC 2017

Posted in Retail

Our Retail Group is once again getting ready for the annual MAPIC Conference (le marché international professionnel de l’implantation commerciale et de la distribution)! For the 7th year in a row, our team is traveling to Cannes, France for the largest annual gathering of European retailers, brokers and developers.  MAPIC is one of the leading events of our year, showcasing the best of international (and particularly European) retail, from both the developers’ and the retailers’ perspectives. We look forward to connecting with some of the 8,400 international participants from 78 countries who have expressed interest in venturing overseas and expanding their businesses to the States. With over 2,100 retailers, 2,500 developers and 1,000 investors and other major industry players in one place, it should be an exciting opportunity to network and share first-hand our market experience and observations about the current USA retail landscape.

Last year, we noticed the presence of more USA-based brokers and developers interested in attracting the next great retail concept to the States. This year, we anticipate that this trend will continue (and intensify) as owners of USA mall and high street properties seek an edge—something to distinguish their space from their competitors. We’re curious as to the types of European retailers who will be interested in making the move to the States. Will we see more of the big operators in the Primark mode, or perhaps some entry level luxury like The White Company, the UK retailer who opened its first USA location on Fifth Avenue in NYC this spring?  We will identify these trends and report back to you in November.

Finally, our team is looking forward to speaking at MAPIC sessions. These sessions—and the feedback we receive from fellow panel members and the audience—provide useful insights into retail trends, as well as myths and misunderstandings regarding the USA market. The brokers and retail representatives we speak with function as the proverbial “canaries in the mine” by serving as an early warning system for retail trends and tendencies. We look forward to sharing with you what we learn from this year’s conference.  Stay tuned for updates from the show and please join the conversation while we are there. Follow us @goulstonstorrs and share your ideas through #MAPIC #retail. In the meantime, a bientot!