Our Mission

Learn who we are and how we serve our community

Leadership

Meet our leaders, trustees and team

Foundation

Developing the next generation of talent

C+CT

Covering the latest news and trends in the marketplaces industry

Industry Insights

Check out wide-ranging resources that educate and inspire

Government Relations & Public Policy

Learn about the governmental initiatives we support

Events

Connect with other professionals at a local, regional or national event

Virtual Series

Find webinars from industry experts on the latest topics and trends

Professional Development

Grow your skills online, in a class or at an event with expert guidance

Find Members

Access our Member Directory and connect with colleagues

ICSC Networking Platform

Get recommended matches for new business partners

Student Resources

Find tools to support your education and professional development

Become a Member

Learn about how to join ICSC and the benefits of membership

Renew Membership

Stay connected with ICSC and continue to receive membership benefits

Trends for 2017

January 1, 2017

As the U.S. economy headed into 2017, it had the wind at its back, with gains in such bellwethers as consumer spending, take-home pay, employment, housing starts and nonresidential construction, along with a post-election surge in consumer sentiment and expectations. Sanguine predictions for a healthy year came from a variety of quarters. University of Michigan economist Richard Curtin projected that U.S. consumer spending would advance by 2.5 percent this year. The Paris-based Organization for Economic Cooperation and Development, meanwhile, raised its expectations for the global economy, predicting a 3.3 percent expansion over the next 12 months. One investment site ran a story headlined “Why 2017 Is the Year to Invest in Retail Stocks,” citing such factors as retailers’ stronger portfolios, smarter investments in e-commerce and training, stronger comps at best-in-breed apparel brands and higher levels of consumer confidence. 

Experts in retail real estate are no less optimistic about the coming year. Below they discuss just a few of the trends they plan to watch, and, in some cases, help shape. One observer describes tapping the power of advanced research methodologies to explore new territory in corporate responsibility and sustainability. Another outlines new opportunities in specialty leasing, which is growing more experiential by the day. Despite headlines about store closures among large-format chains, two executives at top development companies describe their successes in rapidly filling anchor vacancies and adeptly positioning their portfolios. Others discuss how savvy strategic responses may be used to combat “decluttering” (epitomized by the consumer mantra “when in doubt, toss it out”), the evolving science of harmonizing physical and digital retail and the value of seeking public input to create shopping centers that communities will rave about.

TAKING SUSTAINABILITY TO THE NEXT STEP
Will Teichman, senior director of strategic operations, Kimco Realty 

Top owners have made strides on environmental sustainability over the past few years, often hiring full-time officers to oversee efforts to slash energy usage, reduce waste and save water. For Kimco Realty’s Will Teichman, the next step is to think more expansively about sustainability itself. “We are starting to shift gears now to look at some of the social effects of our company,” Teichman said. “That could mean everything from the impact that we have on our own employees, to how we affect our tenants and the communities surrounding our shopping centers.”

In the year ahead, New Hyde Park, N.Y.–based Kimco aims to refine the metrics it uses to measure the social effects of its shopping centers and operations, Teichman says. “Five years ago we were trying to get our arms around what the right metrics were to track our [environmental] performance,” he said. “Now we’re going through a similar process for social indicators.” As part of this push, Kimco is honing the satisfaction surveys it sends to its employees. “We’re asking more-detailed questions and are trying to understand what drives employee satisfaction within our company,” Teichman said. “We’re then using that feedback to implement changes.” Similarly, the company will conduct more surveys on the wants and needs of its retail tenants. “These are things that, maybe five years ago, would not have been mentioned in the same breath as sustainability,” Teichman said. “The boundaries are starting to expand as we look at sustainability more holistically.” 

To be sure, the natural environment is still part of Kimco’s focus. Last year the company rolled out green construction standards for retail tenants across its 534-property portfolio. “It’s a common-denominator approach to raising the standard for all of our tenant up-fits,” Teichman said. With an active development and redevelopment pipeline valued at $1.7 billion, Kimco is now moving forward with a similar approach for its ground-up development and redevelopment projects. The effort hinges on thinking through the construction process to find ways to improve design, materials and the like. “If you choose to lay your circuitry in the right way in your parking lot — by burying lines underneath the asphalt — you can enable much-improved lighting controls of the parking field, which can lead to dramatic improvements in energy savings,” Teichman said. “For a major project, there are dozens, if not hundreds, of similar opportunities. But to make sure that everybody involved in the project, including third-party vendors, is connecting the dots, you have to establish and communicate your standards, so that’s what we’re focused on.”

SEIZING OPPORTUNITIES IN LARGE-FORMAT RETAIL
Vincent A. Corno, executive vice president of leasing and development, DDR Corp.; Joseph F. Coradino, CEO, PREIT 

Shopping center landlords in 2017 will keep an even closer eye on the fortunes of large-format retailers — particularly Sears and other department-store chains. Fortunately, top owners have spent years positioning their portfolios for maximum resiliency in the face of change. Beachwood, Ohio–based DDR, for one, will be ready even if a glut of vacant space hits the market, says Vincent Corno. As a result of anticipating Sports Authority’s collapse and developing a detailed action plan for the real estate it occupied, DDR weathered the situation quite well, Corno says. Sports Authority, which filed for bankruptcy protection in March and eventually announced the closures of 460 stores, anchored 12 wholly owned DDR centers and one jointly owned property. But because well-positionedå assets in growing markets tend to attract retailers, DDR was able to make rapid progress on replacement tenants, Corno says. Some of the deals moved ahead while Sports Authority was still in bankruptcy court. “Of the 12 assets wholly owned by DDR, we were pleased that we had three that were actually assumed while Sports Authority was in bankruptcy court,” Corno said. “Two of them went to Dick’s Sporting Goods and another to T.J.Maxx.”

Six other locations are now the subject of active discussions with the likes of Dick’s, T.J.Maxx, Ulta, specialty grocers and fitness centers. DDR is confident it will be able to lease the Sports Authority boxes at the remaining three centers, Corno says. “Backfilling with a user that takes the entire box is the easiest and most cost-efficient way to redeploy those assets,” he said. “But in instances where it is appropriate, we are looking at the prospect of subdividing the boxes and leasing them to multiple tenants. The Nikes and Ultas of the world don’t need a 40,000-square-foot box. We welcome that type of redeployment.”

In the mall space, meanwhile, Philadelphia-based PREIT is reaping the benefits of its portfolio repositioning strategy, says Joseph Coradino. “Over the last couple of years, we have sold off 14 of our noncore malls, meaning those that were doing average sales of less than $300 per square foot,” Coradino said. “Today we have a completely transformed portfolio. Given that backdrop, we have been beautifully surprised by the opportunity for upside, driven by a robust interest in replacement candidates.”

As talk continues over the possible fate of Sears, PREIT’s focus on balanced exposure seems prudent, Coradino says. “We started out in 2012 with 27 Sears stores and today have 11,” he said. “There is a real balance in our portfolio now between Macy’s, JCPenney, Boscov’s and Bon Ton.” Just as DDR is backfilling Sports Authority boxes with higher-performing tenants, Macy’s store closings are clearing the way for new approaches at PREIT centers. “We have a real opportunity to further transform the portfolio by taking back our underperforming Macy’s stores and replacing them with traffic-driving, high-performance retailers,” Coradino said.

At PREIT’s 1.3 million-square-foot Cherry Hill (N.J.) Mall, where annual sales per square foot are $651, on average, the closure of Strawbridge’s (after the $11 billion Federated Department Stores acquisition of The May Co. in 2005) allowed the mall to add Nordstrom, Crate & Barrel and roughly 25 new-to-the-market retailers, Coradino noted. “At our Willow Grove [Pa.] Park, a similar anchor closing allowed us to get Nordstrom Rack, Cheesecake Factory, JCPenney, H&M and Forever 21,” he said. “At Willow Grove, we remerchandised an old, sizable department-store box into a number of fresh new retailers.” The tight supply of new regional malls, moreover, makes it more likely that the major-market expansion plans of international retailers like Zara and Primark will overlap with PREIT’s footprint, Coradino says.

DDR’s focus on portfolio strength is attributable in part to the reality that expanding retailers such as Burlington, Dick’s, Ross Dress for Less, T.J.Maxx and Ulta tend to flock together, Corno says. That is good news for the best properties, but a hard reality for centers in lackluster markets, which will be more likely to struggle to lease space. “Co-tenancy matters, there’s no question about it,” Corno said. “Strong retailers like to be neighbors with strong retailers.” Despite the volatility, he says, it is important to note that large-format retailers can certainly rebound by making the right strategic adjustments. 

“A great example is Best Buy, which has been in the news as being somewhat e-commerce-vulnerable, yet is showing tremendous signs of a turnaround,” Corno said. “There is a place for large-format retail in this e-commerce world. If the merchandise is right and it is in the right spot, arguably, the historic pure-play, bricks-and-mortar retailers have a competitive advantage in that they are closer to the customer. They can get merchandise to her faster in an e-commerce world.”

SYNCHRONIZING PHYSICAL AND DIGITAL
Dana Telsey, CEO and chief research officer, Telsey Advisory Group; Fred Schmidt, president and COO, Coldwell Banker Commercial 

When it comes to savvy strategies for 2017, retailers would do well to think in terms of “ization,” says Telsey Advisory Group’s Dana Telsey. “I’m a big believer in ‘ization,’” she said. “Everyone should be focused on it, whether you’re talking about personalization, localization, customization or regionalization.”

While omni-channel strategies are nearly universal in retail, Telsey notes, this coming year the savvy chains will further synchronize digital and physical retail. In some cases this will even affect where they choose to operate stores. After all, Telsey says, retailers have learned that their online sales happen to be higher in those markets where they operate stores. “Physical and digital together are critical to getting market share,” she said. “E-commerce helps drive sales, and stores help drive profit. Retailers need to strike the right balance. In particular, the combination of experiential retail driving traffic to stores is key.”

A survey published in November by Coldwell Banker Commercial reinforces the point. Nearly half of the 2,000 adults surveyed expressed a preference for buying things in stores as opposed to online shopping. But the research showed the importance of ensuring that stores offer some sort of distinctive experience, according to Fred Schmidt, the Coldwell Banker’s president. 

Virtually any retail experience beyond the norm of shopping itself — a yoga class at Lululemon, say, or a cooking demo at Whole Foods — can be a powerful draw, Schmidt says. In the CBC survey, 74 percent of respondents reported that the availability of such experiences would make them more likely to visit a physical store. “What really jumped out at me was that 89 percent of older Millennials — those in the 30-to-34-year-old range — expressed this about these kinds of user experiences,” Schmidt said. Meanwhile, 40 percent of younger Millennials (ages 18 to 29) reported that they would be more likely to buy online if they could return the item to a brick-and-mortar store. 

In the year ahead, Telsey says, retailers will continue to lure shoppers by offering specialized services and doing sublease deals with traffic-driving shop-in-shops by Apple, Samsung, Tesla, Topshop and other brands. They will also further refine their tech-related offerings, such as “buy online, pick up in store,” ship-from-store, mobile apps, virtual inventories and social media, she says. But technology is shaping consumer demand in other ways as well. “Look at cosmetics,” Telsey said. “The selfie has transformed things. Everyone wants to look good all of the time.”

Consumers are rapidly becoming “channel agnostic,” according to Telsey: When e-tailers such as Blue Nile, Bonobos, Fabletics, ModCloth or Warby Parker open physical stores, shoppers see no contradiction. For retailers, there are solid reasons to try to win the loyalty of these channel-agnostic consumers. “An omni-channel consumer spends more than a single-channel (in-store or digital) customer,” wrote Telsey Advisory Group researchers in a report published in November. “Walmart has said an omni-channel consumer spends $2,400 a year versus an average store-only customer spend of $1,400, and an average digital-only consumer spend of $200.”

The need to beat competitors to the punch on omni-channel will likely translate into a further escalation of the battle of the supply chains this year, says Schmidt. “It’s all about the last mile,” he said. “If I want same-day delivery, can you get the product to me?” Already, more e-tailers and retailers are seeking to lease strategically located spaces for warehousing and fulfillment to support online grocery delivery and other services. It is a potential boon to landlords, Schmidt says. “Some of the multitenant, multistoried industrial buildings that used to be obsolete will make good targets for adaptive reuse,” he said.

WORKING WITH COMMUNITIES AMID A FAVORABLE LENDING ENVIRONMENT
Jeff Garrison, partner, S.J. Collins Enterprises

Toward the latter half of last year, Jeff Garrison started getting more phone calls from investors seeking to put their money into retail projects by the Fairburn, Ga.–based development firm. Wariness of the overheated apartment market was a primary driver of those calls, he says. “The slowdown in apartments has been such that there really is limited demand for equity capital in that sector,” Garrison said. “But retail is still very healthy, especially the high-end, specialty-grocery-anchored projects that we focus on at S.J. Collins.”

With federal regulators warning some banks about overexposure to apartments, lending in that sector is harder to come by. Even retail-focused companies like S.J. Collins, which has a portfolio of 24 properties already built or under development, have noticed tighter loan-to-cost ratios in the wake of the FDIC’s warnings to banks. “We’re seeing that the loan-to-cost ratio is probably about five-tenths of a percent less than it was even six months ago,” Garrison said. “We used to get 75 or 80 percent loans on all of our projects. Now it’s down to 65 or 70 percent.”

Nonetheless, the influx of equity from private sources means that new projects are doable, financially speaking, for S.J. Collins. For many developers, Garrison says, the greater challenge in the year ahead will be to meet the ever-higher bar set by the communities in which retail projects are built. “Here in Atlanta, we’re developing two Whole Foods projects — one in Chamblee-Brookhaven and the other in Decatur — and both of those have pocket parks that have been designed by the community,” Garrison said.

S.J. Collins’ 89,570-square-foot project in Decatur is slated to open in the summer of 2018. The Chamblee-Brookhaven project is set to open this spring. “In Decatur we probably had 50 meetings with local residents and stakeholders trying to understand how they saw themselves and what they wanted the project to be,” Garrison said. “What we heard time and time again was that they wanted it to be walkable.” Toward that end, S.J. Collins designed the Decatur project with lighted crosswalks and 10-foot-wide, multimodal pathways for coming and going. “They allow for people to be walking, jogging or biking on the same trail without having to step off into the grass to let someone by,” he said. In planning the project, S.J. Collins worked with the community to create a lively design, with outdoor café seating and big windows facing the road to give passersby a sense of the activity within. Residents also made clear that the environmental footprint of the center was important to them. The loading bay will be fully enclosed to minimize noise, trash smells and truck fumes, Garrison says. The project will also include a water-saving rain garden. “We’re actually taking water off of the roof for the garden,” he said. “Close to 30 percent of our project is green space. That’s a big improvement, because you’re talking about the site of an old auto dealership, with no green space to think of.”

As they move forward with new projects in the year ahead, developers would do well to engage with the community as early as possible in the process, Garrison says. This approach has served S.J. Collins well since 2007, he says. “Of the last 10 grocery-anchored centers that we have done, we have not had one community citizen that has stood up in opposition,” said Garrison. “So what I hope we will see in 2017 and beyond is that projects become part of the daily life of the community. You want people to go there, not just because it is there, but because they want to be there.” 

THE POWER OF EXPERIENCE IN SPECIALTY LEASING
Patricia Norins, SLD, vice president,publishing and specialty retail, ICSC

Specialty leasing has always been a dynamic part of retail real estate, but thanks to such trends as experiential retail and the rise of food-and-beverage, developers in the year ahead will have more options than ever to leverage traffic-driving specialty tenants at their centers, according to ICSC’s Patricia Norins. “As the 2016 data make clear, consumers were eager to spend more of their disposable income on recreation and eating out last year,” she said. “However, this wasn’t just true of the permanent side of the business. Last year we really saw it extend into specialty leasing as well. It’s a trend that will only continue.”

The popularity of the new crop of painting studios — Painting with a Twist, for one, now operates at 321 locations — shows that fun and memorable experiences can form the foundation for successful retail concepts, Norins says. “At the new crop of painting studios, you go out with some friends and, with the help of an instructor, all paint the same painting,” she said. “Some of these operators even serve cocktails. It’s a fun night out.” But while developers have made strides in signing experience-oriented permanent tenants, opportunities abound for using temporary tenants to enrich the experience even further, Norins says.

Tapping diverse food-and-beverage operators is one way to accomplish this. “We are seeing more and more kiosks offering authentic and interesting food-and-beverage items,” Norins said. “The microtrend here is single-food kiosks offering everything from french fries to meatballs to macaroons.” For years now, food trucks have spiced up various retail properties across the country. In much the same way, foodie-friendly kiosks selling artisan tacos or Korean street cuisine can enliven regional malls, open-air centers or upscale food halls. “We know from industry research that when you have ample food-and-beverage in the shopping center, dwell time increases,” Norins said. “And that, of course, can increase dollars spent in the center.”

With respect to the lease, some landlords are making longer-term commitments to these tenants (up to three years) even as others go in quite the opposite direction. “We’re seeing an increase in what I’ll call ‘micro specialty leasing,’ ” Norins said. “In some cases, tenants are coming in for a weekend or a week. Westfield Sydney has a store that rotates in a new tenant every Sunday night. Others are carving out permanent pop-up store spaces and then rotating the tenants on a weekly or monthly basis.”

Meanwhile, such brands as Kate Spade, Pantone, Samsung and Shake Shack remain bullish on the marketing punch provided by pop-up retail. Here too, novel experiences tend to be part of the picture, Norins says. Both West Elm and Burberry, she notes, have brought in local artisans to add something new, different and authentic to their pop-up stores. “Retailers are looking for ways to bring in curated merchandise and to incorporate that local movement into their stores,” Norins said. “At the West Elm store, they actually set up tables so that customers could make their own crafts. It created a mini event within that pop-up store space.”

Count on this explosion of creativity to continue in 2017, Norins says. “I’m eager to watch as specialty leasing continues to evolve in the year ahead.” 

SAVVY RESPONSES TO CONSUMERS’ IMPULSE TO ‘DECLUTTER’
Deborah Weinswig, managing director, Fung Global Retail & Technology

The trend toward “decluttering” — in which consumers strive to buy fewer high-cost products — demands a response from fast-fashion chains in particular, according to a report published in November by Fung Global Retail & Technology. This trend to watch in 2017 has its roots in the minimalist movements of the 1970s, according to the report, but is gaining steam thanks in part to consumers’ concerns about labor practices at some fast-fashion chains. Chains like Cuyana, Everlane and Zady, however, have already been successful in addressing the trend by emphasizing durable, ethical garments. 

“Some retailers are responding to the evolving preferences of their shoppers,” writes Deborah Weinswig in the report. “Patagonia’s Common Threads initiative provides a framework for responsible consumption based on five precepts: reduce, repair, reuse, recycle and reimagine. Muji offers waste-reducing packaging, minimalist housewares and eco-friendly products. Other brands espousing minimalism include Scandinavia’s Bang & Olufsen and Cos., the U.S.’s Calvin Klein and Japan’s Uniqlo.”

The “when in doubt, toss it out” mantra is a response to high housing prices that give consumers little choice but to live in dwellings that have a lot less room for stuff, Weinswig observes. Meanwhile, the sharing economy, as typified by frugal Millennials who would rather use Uber or Lyft than buy a car, she notes, has further reduced consumer ownership. “Consumers’ future priorities will be ethics, a concept of ‘disownership’ and sustainability,” Weinswig writes.

Marie Kondo’s best-selling book, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing, has sparked a global decluttering movement, Weinswig points out. “Retailers ... should align their product and service offerings more closely within the values of their target customers,” Weinswig writes. Such strategies, she observes, could hinge on marketing messages and packaging that highlight product sustainability, ethical production or durability. 

PLENTY OF WORK IN WASHINGTON
Betsy Laird, senior vice president, global public policy, ICSC

“ICSC expects that the major policy initiatives from President-elect Donald Trump’s administration will include repeal and replacement of the Affordable Care Act; immigration reform; a jobs-and-growth agenda that is likely to include regulatory reductions; a major infrastructure package; and a pro-growth tax-reform plan. 

“Tax reform has been a primary policy priority for Speaker of the House Paul Ryan as well, and something that ICSC has followed closely. With Republicans holding the House and the Senate, many in Washington suggest that Congress could use the budget reconciliation process to push a substitute for ACA and tax reform in 2017. If this approach is chosen, the House Ways and Means Committee Blueprint released in June 2016 will likely be the starting point. The House Blueprint proposes to eliminate the deduction for interest paid on debt-financed projects but offers full expensing on capital expenditures. Trump has suggested that perhaps taxpayers should be allowed to select business-interest deduction or full expensing. 

“ICSC continues to push for federal legislation requiring online-only sellers to collect and remit state sales taxes and level the playing field for community-based retailers. Thus far, Congress has not acted, and states are stepping up to enact their own legislation. In 2016, 20 state legislatures introduced 46 e-fairness bills. Some observers believe the courts are primed to resolve the issue. Mississippi Attorney General Jim Hood and 10 other state attorneys general have filed an amicus brief urging the court to hear the arguments in Direct Marketing Association v. Brohl, a Colorado case that would reconsider the 1992 Quill decision that prevents states from taxing sales by out-of-state sellers lacking a substantial physical presence, or nexus, in the state.

“In the 115th Congress, ICSC will advocate for the reintroduction of legislation to curb the abuse of lawsuits related to the Americans with Disabilities Act. We expect similar legislation as was introduced in the 114th Congress by Reps. Ted Poe (R-Texas) and Scott Peters (D-Calif.) in the House, and by Sen. Jeff Flake (R-Ariz.) in the Senate. The coalition of business groups, led by ICSC, will work with the Republican-led House and Senate to build upon its previous success.

“According to a report by Seyfarth Shaw, the number of ADA Title III lawsuits filed is increasing at a staggering pace. The 2016 midyear count shows that the number filed in federal court is already at 3,435, up 63 percent from last year’s midyear number of 2,114.
If the pace continues, the 2016 total may top 7,000. The states with the most lawsuits are California, Florida, New York, Arizona  — which saw a more than 2,000 percent increase — and Texas.”