Header graphic for print

Retail Law Advisor

Retailers to the Rescue

Posted in Retail

Hurricane Harvey has traumatized southeastern Texas. With unprecedented rainfall, there are many people who need urgent help. The competitive retail market can be difficult and wonderful all at the same time. We see (time and time again) that when human needs emerge, retailers are often among the first to lend a desperately needed hand. Within a few days, retail businesses pledged over $72 million to Harvey relief efforts while others gathered goods and clothing to bridge the immediate gap for human comfort.

We are proud to see American retailers pulling together to support Texans. There is a long list of retailers who are pledging their help, working together to ease the suffering in Texas. For example, Bass Pro Shops sent rescue boats to help reach flooded communities, while the Bank of America’s Charitable Foundation made a $1 million commitment to help those suffering from the storms.

A particularly creative response to the need for temporary housing came from a furniture store in the Houston area, Gallery Furniture. The furniture retailer saw the opportunity to help the community by turning showrooms into shelters. The 160,000 sq. ft. showroom is filled with towels, shoes, clothes, toys and (of course) furniture for evacuees and rescuers to use as needed. Another great contributor is H-E-B Grocery Stores who rolled out a disaster relief convoy, including fifteen vehicles carrying two mobile kitchens, water and fuel tankers, portable generators, emergency grocery supplies and equipment. They are also providing a fully equipped H-E-B pharmacy and mobile business services unit to help people get important medications and access their bank accounts through an ATM.

It is no mystery that retail companies are passionate about their industry and work hard to run their businesses efficiently. It is inspiring to see these companies apply the same passion and energy to the well-being of Americans who are suffering great, unexpected loss. We are proud to work alongside many of these gifted retailers, supporting their efforts each step of the way.

America’s Next Top (Business) Model? Evaluating Fashion’s Big Experiment

Posted in Retail

Last year, scores of top fashion designers defied convention by abandoning traditional shipping schedules, which favored delivering collections four to six months after they appeared on Fashion Week runways, and moved instead to a system allowing designers the ability to give the “insta-generation” instant retail gratification. Faced with the challenges to the traditional Fashion Week format posed by technology and consumer demand (as well as the rising prominence of fast fashion brands), many designers opted to adopt the concept of “in-season relevancy,” in which a designer times fashion events to coincide with when collections hit stores in order to maximize sales. In a previous post, we wrote about the various ways designers and industry stakeholders were choosing to interpret the “in season relevancy” concept – from showcasing immediately shoppable looks during Fashion Week to hosting pop up shops to immediately bring the runways directly to consumers. With a year of experimentation under its belt, is the industry on the heels of a revolution, or experiencing just another fleeting fashion trend?

The answer depends on the brand. Some of the earliest supporters of the “in season relevancy” model are reverting back to traditional retail schedules for this September’s New York Fashion Week (NYFW). Designer Thakoon Panichgul, who previously opted for season-less collections and a focus on e-retail, has decided to take a hiatus to reevaluate the new business model, claiming that the new business model is “ahead of the current retail environment.”  Designer Tom Ford is also returning to the traditional calendar this September. Ford experimented with the new business model for one season last September, debuting a fall collection at a time when designers typically showcase spring/summer collections. Ford cited scheduling inconsistencies with the new business model, which favors fall shipments in August with collections revealed on the runway nearly a month later.  For Ford, that lost month of sales preceding NYFW and the waning sales weeks after the runway did not make the shift worth it for his brand.

However, those brands catering to the younger, more contemporary consumer continue to extol the benefits of the new business model. Designer Rebecca Minkoff has reported a 64% increase in sales year after year since shifting to the in season relevancy model. Designer Tommy Hilfiger is making its immediately shoppable collection even bigger this year, with runway items set to appear in nearly 300 stores the day after its debut. The brand has cited a nearly 900 percent increase in its website traffic in the days immediately after a collection debut.

With brands reluctant to reveal official performance figures, it is difficult to quantify the impact of the new business model on the fashion industry. And, although some designers have opted into “in season relevancy,” as retailers and shoppers brace for NYFW this September, they might expect an everything-in-moderation approach from most designers.  Most retailers will still obtain the vast majority of their merchandise from designers on the traditional schedule.  Further, due to the cost of restructuring a brand to incorporate the new business model, and the potential need for investor buy-in, most brands opting for the “in season relevancy” model will do so on a limited basis, with small, immediately shoppable capsule collections or partnerships with retailers for consumer-facing events.  For now, whether the new business model will upend the traditional fashion calendar remains a wait and see game.

Retail Hybrids: Following Trends in Cars, Sports and Food

Posted in Retail

Hybrids of many sorts have been trending in countless industries throughout the years and show no sign of fading away anytime soon.  Toyota announced that it sold its 10 millionth hybrid car this year, twenty years after launching its first Prius. Prior to this year’s NBA Final, the New York Times described four time NBA MVP and three time league champion LeBron James, arguably the league’s best player, as “a hybrid of Magic [Johnson] and Michael [Jordan], with some Karl Malone, too.” The hybrid trend has also been a mainstay in the culinary field for years ranging from the delicious (Cronuts) to the exotic (Sushi Donuts) to the indescribable (Burger King’s Mac and Cheetos—a fried Cheeto filled with macaroni and cheese). Recently, in following with other hybrid trends, retailers and office tenants have begun combining their space needs into a hybrid retail/office storefront.

For years, coffee shops have been the de facto offices of college students, struggling writers, and professionals desperate to find reliable Wi-Fi connections, but Capital One has gone ahead and officially made the coffee shop its office. Peet’s Coffee and Capital One have combined your neighborhood java distributor and local bank branch office into Capital One Cafes. These cafes are staffed with both “digital lifestyle coaches” assisting customers with online banking needs and baristas serving up your morning cup of joe. Despite the fact that the banking industry has seen a steady decline in the number of bank branches (reports show the number of bank branches in the U.S. declining from 99,500 in 2009 to 92,997 in 2015), Capital One Cafes are expanding and offering customers a convenient alternative to traditional banking. Capital One Cafes are located in Boston, Chicago, Denver, Boulder, Los Angeles, Philadelphia, Richmond, West Palm Beach, San Francisco and St. Cloud, MN with plans to open cafes in Seattle, South Florida and Austin.

Although many of us may think that Capital One Cafes are offering a limitless supply of the most important office supply—coffee, Staples and Workbar are collaborating to make sure that some businesses are never in danger of being out of any office supplies. The space within a space idea provides Workbar with co-working space inside of three Staples retail locations in Massachusetts: Brighton, Norwood, and Danvers. The Workbar spaces offer some of the newer amenities that you might see in a tech start-up space, such as smart boards, interactive screens, and a putting green. These amenities are all bundled in a collaborative environment encouraging consultations with co-workers and collaborations with other businesses operating in the same space. Plus, there is the obvious upside of being a few feet away from those ever elusive printer cartridges and that special type of pen that you like, but can never find.

Mixed-use developments that include office, retail, and residential space are not a new innovation, but the integration of office space with inline retail space in lifestyle and strip centers is further blurring the lines between office and retail. Whereas dentist and other medical offices have traditionally been part of the lifestyle and strip center tenant mix, such office uses are expanding to include urgent care facilities and new types of office tenants, which are helping to reinvigorate once quiet retail centers. For example, the Westfield San Francisco Center is a nine-story mall featuring over 150 shops and restaurants. The fourth floor of the Center is now occupied by Bespoke, a company that offers a trifecta of co-working, demo and event spaces where tech and retail market places converge. Bespoke is estimated to have attracted 100,000 additional customers to the Westfield project in its first year as a tenant.

While these innovative ideas for retail and office show great promise, it remains to be seen whether they will have the staying power to help existing retailers thrive, or will, like most trends, fall out fashion. The key to a successful hybrid is bringing together two things that people want and/or need that when combined create a whole greater than the sum of its parts. As the demands in both retail and office change, combining the two may provide greater flexibility for retailers and space for office tenants that meets their shifting needs.

Artificial Intelligence in Brick and Mortar Retail

Posted in Retail, Retail Sales, Technology

Headlines about brick and mortar retail tend to be dominated by how these establishments are in decline while online retail is burgeoning. Fortunately for brick and mortar retailers, their demise is not preordained since tools from the online retail universe may also help them succeed. One such tool is artificial intelligence (AI), which is expected to grow rapidly in the next few years.

Online retail is able to target customers easily because of the large data collection that occurs with every transaction. However, brick and mortar retail establishments may employ various AI tools to collect data to tailor in-store shopping experiences and target consumers. For example, video and/or audio surveillance can be used to track shopper activity in stores, and stores can then predict customer preferences and behaviors by analyzing and conglomerating in-store surveillance. Such surveillance methods can use facial and/or voice recognition software to analyze facial and voice expressions to understand how customers react to particular products or experiences.

Robots are another AI tool that may help brick and mortar retail compete more effectively with online retail. Robots may enhance the physical shopping experience in many ways. Humanoid robots can be deployed into retail establishments to greet customers, answer questions, and guide them through the store. Lowe’s has piloted a robot program at its Bay Area stores, where robots help customers search for products and guide them in the stores. Also, robots are being used and expanded to check and resupply inventory, deliver products, and assist with checkout and payment.

Finally, the collection of sales data can help retailers personalize a customer experience and ultimately help increase sales – whether in-store or online. Data can be collected online and then used in stores, or data collected from a customer’s previous visit can be used to enhance his or her next visit to a bricks and mortar store. “Machine learning” can discover patterns in a customer’s behavior and then make suggestions or produce incentives, such as instantly printing coupons for products that are likely to be desirable to an individual customer. The same data collection can be used to better tailor inventory, customize shopping experiences, adjust pricing, and refine product selection. While all of these techniques are equally useful online retail tools, their utility in the bricks and mortar environment may help these physical establishments remain competitive with their online counterparts.

A Nation of Shopkeepers

Posted in Restaurants, Retail, Retail Sales

David Rabinowitz and Matt Epstein who, with Nancy Davids, co-chair Goulston’s Retail, Restaurant and Consumer Group, spent some time in London last month surveying the retail landscape. There are both similarities and differences between the US and UK markets. Of course, the impact of ecommerce on bricks and mortar is top of mind. It doesn’t seem that many UK retailers who started out peddling their wares on the web have jumped to the High Street, a la Warby Parker, Bonobos and Amazon. You will, however, find that entertainment and food takes up more and more square footage on both sides of the Atlantic. It’s not simply aimed at appealing to the Millenials’ appetite for the next “experience”; restaurants seemed packed with baby boomers as well. The Brits are taking the Brexit uncertainties in stride; the professionals we met with are charging forward with their deals with the belief that you can’t control that which you cannot predict. We heard differences of opinion regarding the future of The City (i.e. London’s Wall Street). Some expressed concern about the rumblings from banks, hedge funds and private equity shops that Paris, Dublin and Frankfurt were looking more and more attractive. Others discounted the likelihood of a mass exodus of money to cities which lacked the infrastructure, labor laws and financial depth of London.

Perhaps the greatest difference we noticed between London and Manhattan can be attributed to the ownership of large tracts of London by tradition bound and centuries old estates, such as the Crown Estate and the Grosvenor Estate. You simply don’t see the same level of retail vacancies on Regent and Bond Streets as you find on Madison Avenue and in Soho. These large estates take the long view; landlords look for stability and don’t squeeze the last dollar in rent from each tenant. This results in some very hefty key money payments from tenants assuming leases. But with the Crown’s wealth, it’s not necessary to continually refinance to take your cash out. It’s a steadier retail landscape with more gentle hills and shallower valleys. Although we’re not making any value judgments, shoppers in London—and the footfall on Regent Street is something to behold—rarely encounter the depressing vista of an empty store that resulted from the oversized rental expectations of a landlord with a hungry lender awaiting its monthly feeding.

ICSC Deal Making Conference Explores the Changing Retail Industry

Posted in Retail

The ICSC New England Conference & Deal Making was held from July 18 through July 20, 2017 at the Hynes Convention Center in Boston. Registered attendance at the Conference was strong again this year, with over 1,200 people registered for the show.

The sessions on the opening day of the show included a program on public/private partnership, as well as some fun from NextGen with real estate trivia. The key note speaker of the opening day was Tom Wilder from The Wilder Companies. In his remarks, Tom highlighted many of the changes that are transforming the industry. He pointed out the decline in the apparel retailers, which is a trend that so many at the Conference are seeing in their projects. However, the growing importance of retailers that offer an experience or a service, including restaurants, entertainment, medical office or other service retail, is changing what projects look like today. Mixed use projects that offer a vibrant round-the-clock atmosphere are well positioned for success. Tom closed his remarks with advice that in order to survive and thrive in these changing times, landlords and developers need to take risks and try something new. The Retailer Runway in the afternoon was consistent with Tom’s remarks, featuring many restaurants and fitness concepts, as this segment of the industry continues to grow and flourish. A common theme among the participating retailers in the Retailer Runway (including Frank Pepe Pizzeria Napoletana, Orange Theory Fitness, and honeygrow, among others) was the “halo effect” that a vibrant tenant use can have in terms of attracting other tenants and customers to a project.

The deal making session on the second day of the show was attended by both landlords and tenants. While at times the traffic in the leasing floor seemed light, attendees reported several positive and productive meetings. The mood at the after-Conference party was upbeat and positive. There was acknowledgement that the industry is in a period of change, but a recognition that there is opportunity as well.

E-commerce Is Changing the Definition of Retail Employment

Posted in E-commerce, Employment, Retail, Retail Sales

The retail landscape is in the midst of a mind-boggling – and fast-moving – evolution.  In a short amount of time, Americans have radically changed how they shop for things, utilizing multiple channels of shopping to meet their needs.  80% of Americans are now shopping online, and they utilize e-commerce for a wide range of purposes – from researching costs and reviews before making a buying decision (sometimes at home, sometime while they are in a physical store location), to ordering non-perishable household goods and clothing.

As a result of these on-going changes to the retail landscape, 2017 has seen an unprecedented number of retail bankruptcies and store closings, with department and clothing stores in particular taking big hits.  Just this year, The Limited, Wet Seal, Payless Shoes, and Gymboree have all filed for bankruptcy.  As reported by Bloomberg, the CEO of Urban Outfitters described the current retail clothing picture as a bubble, “and like housing, that bubble has now burst . . . We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

What has this larger sea change in retail meant for employment?  Retail jobs are a mainstay in this country, offering entry level positions and reliable work for tens of millions of Americans.  It is clear that along with shuttered stores, we are losing traditional retail jobs – reportedly 30,000 in March alone.  However, the report is not so bleak across the board.  It seems that jobs are shifting to new areas of demand, rather than simply disappearing.  While the rise of e-commerce has led to fewer traditional retail jobs, it is also driving a huge demand for warehouse, distribution and customer service jobs.  Amazon alone is planning to hire approximately 100,000 people by mid-2018.  That hiring boom, along with Amazon’s acquisition of Whole Foods, signals plenty of job opportunities in “new” retail.  Additionally, e-commerce jobs may be better quality work than traditional retail.  E-commerce pays significantly better than traditional retail jobs – approximately 26% percent more, as increased demand has led to increased competition for workers and higher wages, and the 100,000 jobs Amazon has announced are full-time positions with benefits.

Another area for retail job growth is customers’ increasing interest in so-called experiential retail.  Consumers don’t want to shop simply for goods (hence, the reduced demand for broad-based department and clothing stores), they are looking for brick and mortar stores to provide experiences and services.  The brands that provide such experiences are thriving, from fast casual restaurants like Shake Shack, to beauty providers like Sephora and Ulta, to specialty fitness like SoulCycle.  Experiential retail is also one way to address a major concern with new e-commerce jobs – specifically, how unevenly they are distributed.  New jobs in e-commerce are located near distribution centers, which are disproportionately located near large metropolitan areas.  That has left smaller metropolitan and rural areas with two waves of job losses – first from manufacturing, and now from retail shifts.  Therefore the demand for experience may pave the way for a renaissance of local businesses, even in rural and small metro areas, that provide services rather than goods.  So while mom-and-pop shops have been pushed out by Walmart and similar retailers, there is room for local stores as well as chains to spring up in lots of markets, if they offer services, such as spa and nail services, restaurants, local breweries, and fitness.

In short, while the consequences of e-commerce are still shaking out, and there are likely to be many more store closings and bankruptcies in the future, there is reason to be optimistic about “new” retail and the opportunities it can create for individuals.  That is, until the robots come.

Sneak peak at next month’s blog post topic – “The Robots Are Coming: How Will the Rise of Automation Alter Retail Jobs?”

Is Artificial Intelligence the Key to Retail Survival?

Posted in Retail, Retail Sales, Technology

In light of the sea change in the current retail landscape, which was punctuated by the recent acquisition of Whole Foods by Amazon, retailers today are forced to ask themselves: How will we combat disruption in our industry by giants like Amazon and its few peers? To what extent should we migrate to mobile shopping (“m-commerce”), adopt cashier-less checkout, or even try to deliver purchases by drone?

Artificial intelligence is the prohibitive favorite among analysts to influence the future of retail, but current examples of retail adaptations to changing consumer preferences show that not all success will be driven by technology. According to a Gartner report and a TechEmergence article, some of the many adjustments that retailers are making to stay relevant in the world of online giants are high-tech, but some are not: (1) free delivery and returns; (2) data collection by in-store audio and video monitors; (3) improving in-store footprint/layout; (4) providing in-store assistance from people and robots to improve the experience and make checkout quicker/easier; and (5) using browser history and/or in-person shopping history to personalize the shopping experience and provide personalized promotions.

The consistent theme of these changes appears to be tailoring the shopping experience to each customer and expediting the painful parts of the process, namely, standing in lines and paying. Retailers that originated as exclusively e-commerce operations inherently better understand and implement artificial intelligence solutions. On the other hand, large retail establishments and boutique brick and mortar shops have had varying degrees of success in maintaining a devoted consumer base despite the stores’ best efforts to stay relevant.

Big box stores and club/membership stores are stereotypically slower to make changes because of their conservative boards and corporate hierarchies. The short-term bottom line matters most. Stock-price pressure will often force the hand of these stores to make only those changes that directly and irrefutably improve the bottom line. While artificial intelligence has gained traction in certain industries and certain companies, technology-based automation is often used in these stores only for certain pieces of the supply chain or manufacturing improvements, where the effect on the bottom line is perceived to be more easily calculated. With respect to UK grocery stores, for example, a recent Blue Yonder study found that “nearly 85 percent of UK directors said automation would help them to make faster decisions, yet in spite of this, half of grocery retail managers said that ‘gut feeling’ still plays a major part in their decision-making process.”

Boutique retailers often take a more personalized, but sometimes less high-tech, approach to improve customer conversion, retention and other KPIs. Their efforts may include: (1) targeted promotions based on proximity/mobile touchpoints; (2) back stories to products explained through multimedia productions; and/or (3) humanizing the shopping experience and making it more interactive (e.g., the DIY or “pick-your-own” movement; the sustainably-sourced local produce). Some small retailers also have a reliable niche customer base (such as tourists) who may be an exception to the general trend of online/mobile purchases. Even these niche retailers have an opportunity to expand their market through targeted advertising and facilitating purchases when customers leave the traditional reach of the niche shop.

Grocery stores, in particular, offer a unique opportunity for a brick and mortar stronghold due to the customer’s innate desire to see and select the fresh food he or she will consume.  The PwC strategy+business blog explains that groceries began as a “pull” over-the-counter industry where the grocer would pull products from a stock room based on a customer’s order at the counter.  The shift to a “push” industry began with the advent of supermarkets, now captained by worldwide retail grocery leader Wal-Mart. Push the products out on the shelves, the theory goes, and let the consumers select from the available choices. Then, more recently, the “digital pull” concept arose, through which mobile grocery orders can be submitted, the grocer will pull the desired products and either arrange for pick up or delivery.  We will see how Amazon applies the digital pull method to Whole Foods, and if the AmazonFresh (grocery delivery) and/or Amazon Go (cashier-less brick and mortar) models becomes their standard.

Nevertheless, in the face of such competition from the push giant, Wal-Mart, and the pull giant, Amazon, smaller grocery stores still have unique advantages of strong customer loyalty and responsive price changes and promotions to be able to “ply-your-wares,” as PwC suggests. The digital ply method may very well prove to keep boutique grocers alive:

A digital ply model gives consumers something they can’t get from a scale-based model: tailored offers based on historical in-store shopping patterns and micro-segmentation derived from big data. The family being targeted by a digital message is not just segmented, but analyzed for its needs and wants, almost down to an individual level. The supermarket no longer tries to compete with Amazon or Walmart by providing everything; instead, it provides what it perceives its customers will want and need most. Sometimes this will be fresh or precooked food; other times, just the right assortment of staple goods. Sometimes, the supermarket offers rare items that a few key customers have bought in the past, and that happen to be available now.

In practice, retailers may also find that a combination of the methods described above works best. Roche Bros., for example, is a Massachusetts supermarket chain that remains confident that it can weather competition from the likes of Whole Foods. It has grown its loyal customer base by implementing a combination of high-tech and traditional strategies. Roche Bros. has run its own e-commerce platform for over a decade, which has been updated and modernized by a top e-commerce software firm, and most locations offer certain delivery and pick-up services. Also, by emphasizing fresh produce, meats, seafood and prepared foods, Roche Bros. has tried to avoid relying on non-perishables that are increasingly purchased through online retailers. It is also expanding new concepts with smaller stores that even better address the needs of local repeat customers. This mixture of technological advancements and strategic product offerings has kept Roche Bros. on strong ground.

As is true in any retail environment, a wholly-successful relationship between a seller and its buyers occurs when the seller has exactly what each buyer wants to buy, and no excess inventory. Like small grocery stores, most traditional small retailers will need to adopt tech-driven solutions to achieve such a delicate balance. But they are best positioned to adapt to local demands and may be able to use a combination of low-tech and artificial intelligence strategies to sustain a loyal customer base, even in the face of giants.

Happy 4th of July!

Posted in Holiday, Retail

dreamstimefree_17461During this week, we pause to proudly celebrate freedom across the United States.

Our blogging team will resume providing timely information about issues that may be facing the retail industry next week.

Thank you for subscribing to our retail blog.  Have a safe and happy Fourth of July!

Warm Wishes,

The Retail Law Advisor editorial board