Twitter Chat: Michael Lagazo on the Current and Future State of Retail

Retail expert and value-add strategist Michael Lagazo, senior associate at investment sales specialist Rosano Partners, lent his expertise in the sector and experience in leadership positions at a number of leading publicly traded global and national REITs during his live Twitter chat with CPE editors in 140 characters or less per Tweet. What follows is a transcript of the exchange.

CPE: Michael, how will malls fare this holiday season?

Lagazo: Strong occupancy boosts regional mall REITs: https://www.snl.com/InteractiveX/Article.aspx?cdid=A-25148086-11313 . Reis reports third-quarter 2013 vacancies stand at 8.2 percent, down 10 basis points from the second quarter of 2013 and 50 basis points year-over-year. The report indicates the near-term outlook for retail continues to be challenging. Reis expects vacancy to compress by no more than 10 basis points in the fourth quarter of 2013, while rents grow at 0.3 to 0.4 percent. For malls, vacancy will continue to fall while rents continue to increase at faster rates than neighborhood centers. Here’s a good summary: Deloitte’s 2013 Annual Holiday Survey https://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_Retail_2013HolidaySurveyResults_102113.pdf.

Barbi Reuter, C&W RE (CPE Twitter follower): Michael, will Target retail hours become the norm, or will family values win the day?

Lagazo: Thanks for your question, Barbi. Demand exists. More shoppers are bargain hunting through big-box stores to capitalize on pre-Black Friday discounts. Target hours, I anticipate, will become the norm. Retailers make the argument that they are simply giving shoppers what they want.

Reuter: And sales will either bear that out or not. Thank you.

CPE: Will JCPenney do better than expected?

Lagazo: Yes, sales gains driven by deep discounts. Improvements in gross margin, or percentage of sales after the cost of goods, determine if JCPenney will have to raise cash in 2014. JCP’s desperation will escalate the promos drawing sales from other retailers diminishing profitability.

CPE: What about shopping online? Will we all become e-shoppers?

Lagazo: Customers want to feel like they have access to anything they need at any given time. “Are you at the store or is the store at you?” said AOL founder Steve Case. E-commerce makes up 5 to 8 percent of total sales, but it is increasing in percentage. There is a strategic role for digital in every business. U.S. consumer spending online is increasing, as per this Forrester post: https://blogs.forrester.com/reineke_reitsma/13-11-08-the_data_digest_happy_birthday_groupon.

CPE: What are the prospects for temporary/pop-up retail and the companies that broker their space, such as Storefront?

Lagazo: Companies like Storefront allow landlords to move at the speed of the customer. It is a great use of underutilized square footage. Here’s an example: Intel opening up retail pop-up stores in Nolita in New York for the holidays: https://www.engadget.com/2013/11/14/intel-pop-up-retail-stores/. Another example of a pop-up concept is illustrated in this Intel connected store video: https://youtu.be/xo-kpZtgzAM

The Cap Rate: In my opinion, services like Storefront are creating new types of prospects, allowing brands to experiment, and not just for Halloween anymore.

CPE: Are they taking the right approach for long-term growth of the sector? Do they appeal to the right audience?

Lagazo: It may not be a long term solution, but it is an effective interim solution for surplus square footage. Brands entering a market can pilot their concept to determine if the audience is a good match. https://blog.thestorefront.com/pop-in-shops-make-opening-a-store-inside-another-store-easy.

CPE: How big a trend is the decline of department stores? Are they an outdated format or an economic indicator of consumer spending?

Lagazo: A Glimcher Realty Trust survey says: “Anchor and non-anchor stores possess an equal amount of drawing power for consumer mall traffic.” Anchors help fund development as well as offset tax and operation costs for retail landlords: https://www.forbes.com/sites/prospernow/2013/05/28/nonanchor-and-anchor-stores-equally-popular-among-consumers/ Anchors will need to go through innovation but will not be outdated, in my humble opinion. Anchors indicate spending trends in durable goods, then other consumables. Small shops follow.

CPE: Are any of them innovating yet?

Lagazo: The next form of retail innovation will happen in convenience stores, according to Paul Barker of Hallmark. An example: Macy’s splurging $400 million on renovation in strategy and space: https://www.nytimes.com/2013/11/06/rea.

CPE: With international retailers shifting into urban markets, is that the end of anchor stores as we know them?

Lagazo: No, foreign investment and emerging market spending are driving acquisition of retail sites, including anchors.

CPE: Is showrooming fact or fiction?

Lagazo: Fact. We are in a hyper-connected, saturated retail market. The digital customer experience can and will differentiate brands from competition. E-commerce will fundamentally change not just how people buy goods and services but the physical structure needed for a sale. Retailers will not out-Amazon Amazon.

CPE: Thank you for a very informative chat, Michael!

Lagazo: Thank you for having me on #CPEchat. I enjoyed working with you. Hope your readers enjoyed the discussion.