By Robin Lewis
The industry continues in its shakeout and shake-up phase, as technology has empowered a nextgen consumer culture which is forcing radical transformation across all consumer-facing industries. The shakeout has already shuttered thousands of stores, with more to come. Also, other than so-called ‘A’ malls, many of the roughly 900 lesser performing malls have closed, and the rest are under the threat of closure. Hundreds of retailers and brands, many with iconic names, have been forced into bankruptcy.
Those remaining stores, malls and brands in the shake-up phase, having avoided the shakeout, are wrestling with how to transform their models, driven by dynamics they have never seen before. Simply speaking, a tech-armed consumer has flipped traditional commerce on its head. That’s pretty simple to understand, but in reality, it is enormously complex for all consumer-facing businesses to respond to. But this truly is a do-or-die moment.
On a more positive note, there is light at the end of the tunnel for those who are embracing the challenge as an opportunity to change their models. And they are not doing this in a vacuum. They are surrounded by entrepreneurial upstarts that are launching almost daily. These agile, consumer-centric “speedboats” are rapidly finding ways to wipe out old paradigms as they race ahead to change the world.
So, once again I repeat the operative word: “urgency.” The traditional, old world players must think and act with agility and speed to transform their models. And if they can’t build it, they should buy it. Walmart bought speed and agility through its acquisition of Jet.com, which is also acquiring more “speedboat” upstarts. Amazon bought its way into the physical grocery world through its acquisition of Whole Foods. The major point here is that while these are two giant examples, they send a clear message that acquiring transformative expertise and assets is quick and efficient instead of spending the time and capital required to “build out.” Accordingly, the M&A opportunities during this shakeup phase are enormous.
Likewise, real estate developers are scurrying to repurpose much of their space that is either underperforming and/or vacated by downsizing legacy retailers. Many are already embedding new technologies to enhance the shopping experience. They offer nextgen appealing shops, restaurants, farmers’ markets, movie theatres, workout clubs, and other recreational and experiential concepts. These innovators will be the winners.
As this shakeup phase will continue into 2018. Success will be achieved by those retailers, brands and mall developers who embrace it as an opportunity to reshape their models around the desires of the new generation of consumers. And Shoptalk presents a range of retail, brand and real estate examples, as well as investment firms pursuing these new opportunities. Once again, it is the must-go-to learning platform for all consumer-facing businesses.
The Retail Industry Shakeout
By Zia Daniell Wigder
This year we’ll be introducing three new sessions at Shoptalk that look at high-level changes in the retail industry and what we can expect to see in 2018 and beyond. The sessions will analyze shifts in the industry from the perspective of large retailers, retail investors and real estate companies.
The Retailer Perspective: Adapting to Changing Consumer Preferences
Shoppers today are spending in new ways, leading some retailers to flourish while others fail. In addition to the migration to ecommerce, consumers are favoring experiences over physical goods, younger consumers are flocking to urban areas over suburban ones and shoppers continue to seek out value. Despite these challenges, which contributed to a record number of store closings in 2017, there are signs the industry is experiencing somewhat of a resurgence. On the heels of the best holiday season in years, we’ll hear from three retailers who are successfully navigating these changes in consumer behavior about their strategies and outlook for the industry:
- Sur La Table is a 45-year-old kitchen and culinary retailer with 135 stores and industry-leading ecommerce capabilities. As more spending shifts online, Sur La Table is using its physical store footprint to connect, entertain and build lasting relationships with customers. That includes hosting interactive cooking classes in half its locations. The CEO will share how these types of experiential, personalized experiences are helping Sur La Table build brand loyalty amid changes in consumer preferences and turn its stores into assets.
- Nordstrom is considered an industry leader in customer service and personalized shopping experiences both online and in stores. The President of Nordstrom.com will speak about the initiatives that have helped the retailer maintain a loyal customer base while also attracting new shoppers.
- Levi’s products are sold across 110 countries at more than 50,000 locations including owned and operated stores, department stores and other multi-brand retail chains. Yet as consumers shop in a more interconnected commerce environment and are looking for distinctive brand experiences, Levi’s direct-to-consumer businesses have become more critical–now accounting for nearly a third of the brand’s $4.6 billion in revenue. The EVP and President of Global Retail will discuss how Levi Strauss & Co. is adapting to this change in customer preferences and focusing on delivering both a unique and consistent experience no matter how their fans choose to shop.
The Investment Perspective: Trends Shaping the Future of Retail
Upheaval in the retail industry has grabbed Wall Street’s attention. Some investors are placing long-term bets on the brands and retailers they feel have sustainable business models, while others are unwilling to wait for returns on their investment. At the same time, activist investors are seeking out businesses whose shares they deem to be undervalued, often requesting spots on the company’s board or making demands such as pushing executives to sell off real estate. In this session, we’ll hear from some of retail’s biggest investors about their outlook for the sector, including whether the robust 2017 holiday season is a harbinger of things to come:
- Advent International is one of the largest global private equity firms. The company has invested over $39 billion since its founding in 1984, including over 70 investments in the retail, consumer and leisure sectors across 21 countries worldwide. We’ll hear from one of the firm’s Managing Directors about what Advent looks for when investing in consumer-facing companies like Five Below and Douglas. As a board member at Lululemon and First Watch Restaurants, she will also discuss the relationship Advent has with its portfolio companies’ management teams as they seek to improve operations and drive sustainable growth.
- JP Morgan’s Investment Banking Consumer & Retail Group has served as an advisor on many of the sector’s high-profile M&A deals including Family Dollar’s merger with Dollar Tree and BC Partners’ $8.7 billion acquisition of PetSmart. As consumer tastes have shifted, however, the companies partaking in these types of deals is also changing–causing traditional players like Walmart and Whole Foods to join forces with Jet.com and Amazon, respectively. We’ll hear from the Managing Director and Global Head of Consumer Retail Investment Banking about how retail M&A is evolving as online sales grow and the market deals with an oversupply of product and real estate. He will also share his outlook for future deals.
- Advance Venture Partners is a venture capital firm that was founded in partnership with Advance Publications, a media and technology holding company with a portfolio that includes Condé Nast, Charter Communications, Discovery Communications and Reddit. AVP invests in small- and mid-sized software, commerce and media companies and has an investment portfolio that includes consumer-facing commerce platforms such as Farfetch, Rent the Runway and Curology, as well as commerce-oriented technology companies like Gigya, a customer identity management platform, Compass, a technology-oriented real estate firm and EVRYTHNG, an IoT platform that brings analog consumer products online. We’ll hear from AVP’s Founding and Managing Partner about how he evaluates investments and what he considers to be the most significant shifts in business models and technologies that will affect the retail industry.
The Real Estate Perspective: Locations and Experiences that Attract Shoppers
The rise of online shopping has made it possible for consumers to purchase an endless array of products without ever stepping foot in a store. As a result, real estate firms are reimagining their shopping centers as entertainment and lifestyle properties that are less dependent on traditional, transaction-based retail and more about creating experiences. In this session, we’ll hear from two shopping center owners and a global commercial real estate services firm:
- GGP, one of the country’s largest owners of retail real estate, has been actively redeveloping its 120+ shopping centers to meet changing consumer tastes. These changes include splitting vacant anchor spaces into smaller stores to bring in additional retailers and entertainment, incorporating more food and beverage, and bringing in interactive learning centers for kids. The SVP of Business Development will discuss these changes, as well where GGP is experimenting with online brands, makers, pop ups, experiences and environments.
- JLL, a commercial real estate services firm with $6.8 billion in annual revenue, advises brands entering foreign markets on topics including site selection and lease terms, as well as the “retail programming” landlords are engineering to add freshness to their centers. We’ll hear from the Chairman of the firm’s Global Retail Leasing Board, who will share his perspective on the attributes shared by the most innovative properties around the world. He will also discuss the nuances in shopper behavior that determine what features will make a property successful in one market but which may not resonate in another.
- Australia-based Westfield Corporation is reinventing several of the flagship properties in its $32 billion portfolio to adapt to changing consumer tastes. The EVP of Leasing, who is responsible for the company’s major development projects, will discuss the changes Westfield is making to its tenant mix, as well as the new technologies and amenities it’s integrating into its properties. His recent projects include the $1 billion makeover of Century City in Los Angeles and Westfield World Trade Center.