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A Survey from FTI Consulting Retail Real Estate Beat
Final data analysis prepared by Oxford Economics
November 8, 2017
Executive Summary and Key Findings
The FTI Consulting Retail Real Estate Beat survey reveals a significant gap in the perceptions of mall and shopping center landlords and their retail tenants about the role of brick-and-mortar in the future of retail. Respondents demonstrated a disconnect about such priorities as location, store design and configuration, as well as conflicting views of the impact of online shopping on the retail industry’s brick-and-mortar needs.
The survey results also demonstrated divergent views of landlords and retailers about business issues such as competitive pricing and advertising and marketing support, as well as the impact of evolving consumer demographics and the shift to shopping online.
Key Findings include:
While 93% of landlords agree or strongly agree that new stores are critical to retail sales growth, just 61% of retailers agree or strongly agree.
Owners believe being near other high-traffic retailers (87%) and a compelling architectural design and physical environment (73%) are the two most important benefits a landlord could offer a retail tenant. Fewer retailers (66%) say high-traffic locations are most important and cite convenient parking (52%) as the second most important benefit.
One of the biggest disconnects between landlords and retailers is the concern about evolving consumer demographics and preferences: 70% of landlords cite this concern; while only 40% of retailers raise this issue.
Only 33% of landlords agree that shoppers require a more personalized in-store experience compared to 73% of retailers.
Landlords (60%) agree or strongly agree that customers are shopping in stores less often, while only 37% of retailers agree or strongly agree.
The results of the Retail Real Estate Beat survey of the 30 biggest retail REITs, mall and shopping center landlords and 90 U.S.-based retailers demonstrate the need for landlords and retailers to develop a better understanding of each other’s needs and how the evolving nature of retail will impact them both.
2
Question-by-question results
Landlords are far more concerned than retailers about the shift to online shopping and changing consumer
preferences, perhaps because e-commerce threatens their own business model.
They appear to underestimate the threat of competitive pricing to their tenants.
Surprisingly few property owners or tenants see an urgent need to bring products to market faster.
17%
80%
40%
70%
47%
7%
33%
3% 0% 3%
63% 54%
42% 40%
28% 23% 21% 19%
6% 3% 0%
20%
40%
60%
80%
Competitive pricingand promotional
pressure
Continued shift awayfrom physical storesto online shopping
Working capitalmanagement ormanaging capex
Evolving consumerdemographics and
preferences
Enhancing inventoryand supply-chain
systems to addressomni-channel
demands
Integrating socialmedia into the overall
marketing andcommunications
approach
Managing oroptimizing the storeportfolio or store-level economics(including staff
levels)
Need to bringproduct to market
faster
Loyalty programs Cybersecurity/Risk ofdata breach
Landlords Retailers
Shopping patterns top the list of business concerns
4
Landlords/Retailers: Which of the following business and technology trends do you expect to have the greatest impact on your tenants/your company over the next three years?
Top-three ranked responses
20.2%
14.7% 14.3% 13.4% 10.2%
7.8% 7.3% 6.8% 5.2%
18.8% 17.3%
13.0% 13.4% 10.2%
7.6% 7.3% 6.6% 5.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Clothing, shoesand accessories
Restaurants Department stores Big Box/Homegoods/ Electronics
Grocery orspecialty food
Services (i.e.,fitness clubs,
salons)
Discount anddollar stores
Entertainmentspaces
SportingGoods/Toy &
Hobby/Leisure
Today In three years
Landlords expect the store mix to stay fairly steady
5
An increase in restaurant square footage is expected to offset the decrease in clothing/shoe/accessory and department
stores over the next three years.
Most respondents anticipate little or no change in occupancy by other categories of retailers.
Landlords: Approximately what percentage of your shopping centers’ square footage comes from the following types of tenants, now and in three years?
Mean scores
Most landlords’ occupancy rates are at target or better
6
Nearly one-quarter of mall owners say their occupancy rates are above target, and only 13% are below target.
3%
23%
60%
13%
0%
0% 10% 20% 30% 40% 50% 60% 70%
Significantly above target
Above target
At target
Below target
Significantly below target
Landlords: Which of the following best describes your occupancy rates today?
Retailers predict a sharp rise in e-commerce
7
Retailers expect e-commerce to account for 23.6% of their sales in three years, up from 16.1% today.
Meanwhile, they expect in-store sales to decline to 76.1% of sales in three years from 83.4% today.
36.9%
46.5%
10.3% 5.8% 0.4%
32.1%
44.1%
12.8% 10.8% 0.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
Standalone physical stores Physical stores within malls orshopping centers
E-commerce: Desktop E-commerce: Mobile device Neither physical nor e-commerce(e.g., catalogue, phone)
Today In three years
Retailers: Approximately what percentage of your company’s revenue nationwide comes from the following channels, now and in three years?
Mean scores
Landlords value physical stores more than their tenants do
8
Property owners may overestimate retailers’ reliance on physical locations for growth and brand identity.
Yet they appear far more attuned than their tenants to the shift to online shopping.
Retailers’ focus on personalized experiences suggests they are betting on omnichannel for growth.
93% 87%
60% 57% 47% 47%
33% 7%
61%
76%
37% 48%
39% 43%
73%
22%
0%
20%
40%
60%
80%
100%
New physical stores are critical to my
tenants’/my revenue growth.
Physical locations are critical to my
tenants’/my brand identity.
Retail customers areshopping in stores
less often.
My tenants/We havea strategy for
managing the shiftfrom physical stores
to online.
Profitability is a challenge at my
tenants’/my physical locations.
Attracting newcustomers to
their/my physicalstores is increasingly
challenging.
My tenants’/My shoppers require a more personalized in-store experience.
It is difficult for mytenants/me to attractyounger shoppers totheir physical stores.
Landlords Retailers
Landlords/Retailers: To what extent do you agree with the following statements?
"Agree" and "strongly agree" responses
A disconnect on retailer priorities?
9
Landlords and retailers have similar top priorities for brick-and-mortar stores: location, design, and parking.
However, landlords overestimate the importance of these basics to their tenants—while underestimating the
importance of flexible store configuration and lease terms.
Retailers’ interest in flexible store configuration may reflect their focus on offering a more personalized in-store
shopping experience.
87%
73% 63%
47%
10% 10% 7%
3%
66%
44% 52%
47% 40%
13%
27%
11% 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Location near otherhigh-traffic retailers
Compellingarchitectural design
and physicalenvironment
Convenient parking Promotionalevents/grand
attractions to drawshoppers
Flexible storeconfiguration
Digital infrastructure Flexibility on leaseterms
Mall-sponsoredmobile apps
Landlords Retailers
Landlords/Retailers: Which of the following are most important for your retail tenants/brick-and-mortar locations?
Top-three ranked responses
Owners and tenants see real estate amenities differently
10
Landlords’ and retailers’ different perceptions of amenities largely mirror their priorities.
However, landlords are much more likely to say they offer promotional events than retailers.
10% 3%
23%
73% 60%
30%
53% 60%
90% 93%
77%
20%
7% 70%
3%
37%
36% 41% 49%
34% 48% 46% 42%
56%
64% 57% 51%
44% 30% 36%
12%
43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Landlords to some extent Landlords to a great extent Retailers to some extent Retailers to a great extent
Landlords/Retailers: To what degree do your landlords provide these benefits/do you provide these benefits for your tenants?
Not all retailers value owners’ traffic-boosting plans
11
Overall, landlords are already improving the things their tenants value most: marketing, physical access and
environment, and security.
Nearly half (43%) of property owners expect to be adding more non-retail options to increase mall traffic in three
years.
93% 93% 97% 93%
57%
73%
87%
23%
97% 97% 97% 97% 97% 97% 97%
43%
71% 66% 64% 61% 56% 54% 52%
3% 0%
20%
40%
60%
80%
100%
Increasing traditionaladvertising and
marketing, includingspecial events
Improving access,parking and traffic
flow
Enhancing thephysical
environment andcommon areas
Increasing security Increasing use ofsocial media and
mobile applications
Adding more foodand entertainment
options
Adding new andinnovative storeconcepts to the
tenant mix
Adding other non-retail options
Landlords doing this today Landlords doing this in three years Valued by retailers to a great extent
Landlords: What are you doing to increase traffic to your retailers today? In three years?
Retailers: To what extent do you value these landlord initiatives to increase mall traffic?
Retailers see an omnichannel future
12
Nearly half have already altered their store inventory management, and three-quarters plan to do so in three
years.
Return and shipping options will continue expanding to reflect changing customer expectations.
Nearly half (44%) of retailers plan to improve price transparency and checkout in three years, and more than
half (53%) will adjust store staffing levels.
44%
53%
44%
64%
67%
69%
74%
24%
28%
29%
39%
40%
46%
48%
0% 10% 20% 30% 40% 50% 60% 70% 80%
The check-out experience
Store staffing levels
Price transparency
Shipping options (buy in-store, free delivery)
Flexible return policies (including return of items bought online)
Store upgrades/refreshes (ambiance and environment)
Inventory management
Have changed Will change
Retailers: To what extent, if at all, have you changed the following in your brick and mortar stores to meet new customer demands in the online era? What will you have changed in three years?
"Substantial" and "transformative change" responses
Landlords don’t always see what matters to retailers
13
A wide gap between landlord and retailer perceptions on security suggests tenants take it for granted.
Conversely, retailers are far more interested in marketing support than landlords appreciate.
63%
77%
10%
33% 37%
13%
53%
13%
69% 61%
40% 36% 31%
24% 19% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Rapid response toservice issues and
repairs
Regular upgrades andrenovations
Advertising andmarketing support
Ability to deliver tenantsor other activities that
consistently drawshoppers
Cleanliness ofshopping center and
grounds
Ease of communicationand back-office support
for billing/accounting
Security systems andprocesses
Insurance coverage
Landlords Retailers
Landlords/Retailers: Which of the following qualities do your tenants value the most? Which of the following are most important to you in a landlord?
Top-three ranked responses
Respondent Demographics
Landlords: Shopping center formats and properties owned
15
60% 17%
10%
7%
3% 3%
Mix of regional and other shopping centers
Class A super regional malls
Class B or C regional malls
Power centers
Lifestyle centers
Outlet malls
27%
37%
23%
7% 7%
20%
43%
23%
7% 7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Fewer than 50 50–100 101–250 251–500 501–1,000
Today In five years
What is your primary shopping center format?
Landlords
How many properties do you own or manage today? How many will you have in five years?
Landlords
Landlords: Property types today and added in 2 to 3 years
16
27%
20%
40%
50%
30%
33%
73%
50%
57%
53%
43%
50%
53%
20%
17%
17%
7%
17%
13%
3%
7%
7%
7%
3%
3%
0% 20% 40% 60% 80% 100%
Neighborhood/Community centers
Power centers
Lifestyle centers
Class A super regional malls
Class B or C regional malls
Central business district/urban orsuburban town centers
Outlet malls
0 1–25 26–100 101 or more
33%
37%
60%
60%
53%
40%
90%
50%
53%
33%
27%
30%
40%
10%
13%
10%
7%
13%
17%
20%
3%
0% 20% 40% 60% 80% 100%
Neighborhood/Communitycenters
Power centers
Lifestyle centers
Class A super regional malls
Class B or C regional malls
Central business district/urban orsuburban town centers
Outlet malls
0 1–5 6–15 16 or more
How many of the following types of properties do you own or manage today?
Landlords
Approximately how many properties will you redevelop, develop, or acquire in the following formats over the next 2–3 years?
Landlords
Landlords: Property types closed in 2 to 3 years
17
57%
67%
63%
83%
63%
73%
97%
37%
27%
33%
17%
27%
20%
3%
3%
7%
3%
10%
7%
3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Neighborhood/Community centers
Power centers
Lifestyle centers
Class A super regional malls
Class B or C regional malls
Central business district/urban or suburban town centers
Outlet malls
0 1–5 6–15 16 or more
How many properties will you sell, close or otherwise dispose of in the following formats over the next 2–3 years?
Landlords
Landlords: REIT status and recent revenue
18
83%
17%
Yes No
33%
10%
30%
27%
$50 million–$299 million $300 million–$499 million
$500 million–$1 billion $1 billion–$5 billion
Are you structured as a REIT?
Landlords
What was your company’s revenue for the last fiscal year?
Landlords
Landlords: Revenue growth and profitability
19
0%
63%
27%
10%
0% 10% 20% 30% 40% 50% 60% 70%
Increased significantly
Increased slightly
Remained flat
Decreased slightly
3%
47%
33%
13%
3%
0% 10% 20% 30% 40% 50%
Increased significantly
Increased slightly
Remained flat
Decreased slightly
Decreased significantly
How has your company’s revenue growth changed over the past three years?
Landlords
How has your company’s profitability changed over the past three years?
Landlords
Retailers: Decision-making authority and title
20
43%
57%
Corporate level (enterprise-wide)Regional level (Northeast, Southeast, etc.)
30%
46%
24%
C-level executive
Direct report to a C-level executive
Mid-level manager
How would you characterize your decision-making authority for your company’s real estate strategy and leasing decisions?
Retailers
Which of the following best describes your title? Retailers
82%
76%
11%
11%
14%
17%
11%
13%
3%
4%
20%
17%
2%
19%
23%
1%
21%
18%
18%
18%
Closing in three years
Opening in three years
Total in three years
Total today
< 50 50–100 101–250 251–500 501–1,000 1,001+
17%
17%
17% 17%
17%
17%
Clothing, shoes, and accessories
Department stores
Home-related
Big Box/Electronics/Sporting goods/Toy and hobby
Discount and dollar stores
Consumer services (e.g., fitness clubs, salons)
Retailers: Number of stores and industry segment
21
Approximately how many physical stores does your company operate today, nationwide? Approximately how many do you
expect to have in three years?
Total
What is your industry segment?
Retailers
Retailers: Overall recent revenue and same-store sales
22
27%
13%
13%
13%
7%
12%
27%
7%
7%
33%
13%
7%
16%
13%
20%
13%
13%
13%
13%
14%
33%
13%
40%
40%
40%
67%
39%
47%
27%
33%
7%
19%
Consumer services (e.g., fitnessclubs, salons)
Discount and dollar stores
Big Box/Electronics/Sportinggoods/Toy and hobby
Home-related
Department stores
Clothing, shoes, and accessories
Total
$50 million–$249 million $250million–$499 million
$500 million–$1 billion $1 billion–$5 billion
$5 billion or more
20%
20%
13%
9%
20%
13%
7%
27%
27%
33%
21%
7%
40%
27%
7%
20%
33%
22%
67%
27%
47%
47%
27%
27%
40%
7%
20%
13%
7%
8%
Consumer services (e.g., fitnessclubs, salons)
Discount and dollar stores
Big Box/Electronics/Sportinggoods/Toy and hobby
Home-related
Department stores
Clothing, shoes, and accessories
Total
Decreased significantly Decreased slightly
Remained flat Increased slightly
Increased significantly
What was your company's annual revenue for the last fiscal year?
How has your company’s average revenue per store (i.e., same-store sales) changed over the past three years?
Retailers: Profitability
23
7%
13%
13%
6%
27%
27%
20%
27%
33%
33%
28%
13%
40%
27%
20%
13%
33%
24%
60%
13%
40%
33%
27%
27%
33%
13%
20%
13%
7%
9%
Consumer services (e.g., fitness clubs, salons)
Discount and dollar stores
Big Box/Electronics/Sporting goods/Toy and hobby
Home-related
Department stores
Clothing, shoes, and accessories
Total
Decreased significantly Decreased slightly Remained flat Increased slightly Increased significantly
How has your company’s profitability changed over the past three years?
Contacts
Cynthia Nelson
Senior Managing Director
Real Estate & Infrastructure
(213) 452-6026 direct
633 W. 5th Street, Suite 1600
Los Angeles, CA 90071
Christa Hart
Senior Managing Director
Retail & Consumer Products
(212) 499-3619 direct
Three Times Square, 9th Floor
New York, NY 10036
24
www.fticonsulting.com/realestate www.fticonsulting.com/retail
About FTI Consulting
FTI Consulting is an independent global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centers throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities. For more information, visit www.fticonsulting.com and connect with us on Twitter (@FTIConsulting), Facebook and LinkedIn.
©2017 FTI Consulting, Inc. All rights reserved.