Do you have a fabulous new concept that you passionately want to share with the rest of the world, but are having difficulty fronting the initial overhead costs that oftentimes accompany brilliant ideas? Incubators may provide a solution. Let’s call it the musical chairs of the retail/restaurant industry with a whole lot more winners.
Since the economic disruption of the Great Recession in 2008, landlords and brokers have embraced new approaches to successfully leasing properties. One such strategy includes the revolving tenant showcased in the incubator model.
In the business world, an incubator is referred to as “an enterprise that is set up to provide office space, equipment, and sometimes mentoring assistance and capital to new businesses that are just getting started.”
Today, entrepreneurs have taken the incubator idea a few steps further by forming like-minded collectives of small businesses still in their formative stages. Incubators offer business owners affordable retail space, a collaborative environment, and administrative support that they would otherwise have to handle alone. Perhaps most importantly, they create opportunity for small businesses to succeed and grow, often supporting local and regional talent.
Dallas’ Trinity Groves is home to a restaurant incubator model, Kitchen LTO. Kitchen LTO provides chef-driven concepts and artists the opportunity to present their wares in an established environment for a limited time, typically for six months at this venue. Incubator retail has become quite the catalyst in re-igniting the restaurant scene for many local economies.
Pink Magnolia, a Kitchen LTO protege, is scheduled to open a permanent location in summer 2015 and offers patrons tasty fare with what chef, Blythe Beck, describes as “swanky Southern flair.” Chef Beck’s concept spent a year in the Kitchen LTO environment before deciding to launch Pink Magnolia with restauranteur, Casie Caldwell.
In the national arena, venues such as DC’s Union Kitchen have been a notable proponent for the retail/restaurant incubator model. Since it’s launch over two years ago, over 120 start-ups have graced the facility, many simultaneously. One delightful concept is Potomac Pastry. To date, 15 of the start-ups have successfully opened in permanent locations around the DC area. These successes have spawned additional growth with a new incubator location, a 15,000 square-foot warehouse, in the Ivy City area of DC.
The affordable retail lease approach has also gained global momentum over the past five years.
In the United Kingdom, IncuBus Ventures has partnered up with Camden Market to launch a retail start-up that will “nurture” 18 selected applicants who will literally be mentored on a bus. The applicants’ concept backgrounds are broad; ranging from e-commerce, to fashion, to food and drink. The program is set to begin running in September 2015 for a three-month period and offers expertise from successful businesses like ASOS and Burberry. The end result will hopefully create new market opportunities for landlords, brokers and retailers and restaurants alike.
Looking for proven direction in finding the best incubator option for your retailer or restaurant concept? Reach out to one of our knowledgable brokers at CBRE.
The Maker Movement is a trend that has received substantial media attention lately. Defined as a social movement with an artisan spirit, The Maker Movement culture has found a place in the ever-evolving world of retail. It’s hard to believe it’s been around for a decade.
It’s a safe assumption that almost everyone has shopped for or been the recipient of a handmade item. DIY online-shop culture has been in full force since 2005. Think Etsy. This long-term trend stems from significant upgrades in manufacturing which have allowed the individual and/or retailer to pursue smaller, more cost effective operations. 3D printing and other cutting-edge technologies have become more accessible in recent years, making it easier for the maker to take the risk of expanding their product line with minimal production overhead compared to the risk vs. reward of the past. The opportunities this technology affords are boundless.
On the forefront of every retailer’s business plan is enhancing the consumer’s retail experience. Collaborating on the creative process brings a new dimension to customization and further personalizes that retail experience; the customer is engaged and fully involved with the product. Clients want to know that their opinions and preferences are valid input to the creation process.
There’s also a bit of magic involved in the making of a handmade item. Each fine-crafted good has a unique story. Authentic, ethical and high-quality are buzz words often associated with handmade goods.
A beautiful example of the sustainability of the Maker Movement and the power of the client experience can be found in the business approach of The Sabah Dealer. The retail endeavor was first inspired by a gift of a traditional pair of handmade Turkish slippers: sabahs. Mickey Ashmore, son of CBRE Vice Chairman Mickey Ashmore, is the founder of the company and is himself known as The Sabah Dealer. Young Ashmore has become a passionate champion of the uber-comfortable, versatile sabah shoe. After a year of “test-marketing” the sabahs through his globetrotting adventures and in response to numerous inquiries and requests from friends as to where they could acquire a pair; Ashmore recognized he was holding a product for an untapped niche market. He reached out to the Turkish artisans and in late 2013, after cultivating a personal relationship with the craftsmen in Turkey (to this day they continue to directly consult each other), Ashmore launched his business. He harnessed the ease and accessibility of social media and opened his home once a week for wine/fitting sessions (dubbed Sabah Sundays). The end result: The Sabah Dealer created a memorable customer experience; one that stands out among the latest retail trends.
Word travels and the social media responses were extremely positive: The perfect slipper. Fits like a dream. Hand-sewn, quality leather. They were hand-delivered to me. Where do I get a pair?!
In true Maker Movement fashion, the slippers are made in small batches and the time afforded to sew them (they average an 8-10 week delivery timeframe) is well worth it. They are made from quality calfskin leather in an array of colors. (Fabulous limited editions are offered from time to time as well.) Firsthand accounts speak to The Sabah Dealer’s stellar customer service. Hospitable fitting appointments. Hand delivered orders. It is apparent that the customer’s experience is of paramount importance. Take note retailers. If the edgy, urban boutique around the corner doesn’t carry them yet, go visit The Sabah Dealer’s Instagram account, for need-to-know info on how you can slip into your own pair.
A strong majority of consumers view shopping as a social event. That’s where the retail centers enter the scene. Retailers are seeking out brick and mortar locations to provide the consumer with the opportunity to view the physical product before purchasing online. Consumers still crave a tactile yet personalized experience. They want to feel the merchandise and involve all their senses.
Customers want to try on the clothes, smell the scents and feel the textures. This creates opportunity for shopping centers to craft a unique destination experience. Through pop-up shops, trunk shows, workshops, and developing a more tactile experience; retail centers are taking the initiative in the hopes of luring consumers to the store and driving sales of these new niche products.
Sabah Sunday shoe fitting parties have been wildly positive and ever-the-globetrotter, The Sabah Dealer has segued into hosting trunk shows in a variety of cities across the country. Ashmore regularly travels to New York, Los Angeles, Atlanta, Miami, Dallas and possibly a city near you. These pop-up ventures have been heralded with much success.
The emergence of pop-ups launched by Etsy retailers have also received rave reviews. x Dossier in NYC (Lower East Side) and Etsy House in London (Covent Garden) have embraced the concept within the last year as part of their holiday marketing campaign.
Many retail real estate brokers are experiencing an uptick in tenant representation opportunities from the DIY e-commerce sector. From eBay to Etsy to Bonobos’ Guideshop retailers are seeking out space and keeping the brokers focused and innovative. The traditional large format isn’t satisfying the needs for these innovative retailers, they want to trim and tailor their specifications to fit the smaller operations platforms that dominate the pop-up… think kiosk only more refined. How creative are your brokers?
P.S. I predict The Sabah Dealer will be coming to a chic, urban brick and mortar retail location in the near future.
Photos courtesy of The Sabah Dealer.
Food trucks are a great way for restaurant entrepreneurs who are eager to get their hands dirty and test out new food concepts in a particular market. As these trucks grow in popularity, many operators choose to move into a more permanent space.
Many see it as a natural progression for this type of business. Having a permanent space opens the restaurant to a broader audience and takes away the anxiety that comes with operating a food truck. Operating a food truck is not the most economical endeavor either. Dining options need to be priced lower to meet the patrons’ expectations and in most instances kitchen space must be rented to prepare what cannot be made inside the truck. Brick-and-mortar sites allow for more kitchen space for experimentation and ability to make everything in one place.
Several well-known restaurants first started as food trucks. Franklin’s Barbeque in Austin first started with a customized trailer and within two years converted to its current location. Komodo in Los Angeles was one of the first food trucks to follow the trend to create a more permanent location and currently has two permanent restaurants. Lardo in Portland moved to a permanent location in part due to the demand of its customers who wanted to linger and did not want to take their meal to go. Its three locations have ample indoor and outdoor seating for people to hangout.
“Food trucks are great incubators to test out various concepts with different demographics,” states Sasha Levine with CBRE. “Traveling to different neighborhoods allows a truck to solidify its identity and also determine which area supports its concept the most. A truck will identify where a majority of its customers live and choose a site in that area for a permanent location.” Sasha Levine has worked with several food truck operators, including Cajun Tailgators and Nammi, to help place them at Dallas Farmers Market’s newest addition The Market, an artisanal food hall.
Even after moving to a permanent space, restaurant entrepreneurs are not quick to trade in their trucks. Most operators continue to use their trucks to test out new food items as well as market their restaurant. The brick-and-mortar locations complement their trucks, not replace them, and provide another channel to reach their customer base.
The idea of the “Third Place” isn’t exactly a new one; urban sociologist Ray Oldenburg coined the term in his 1989 book, The Great Good Place. He describes the third place as that place where people spend their time outside of the confines of their home (the first place) and work (the second place). A third place is a place to be social, to feel comfortable and accepted, and to exchange information and ideas that are the foundation of community life. A third place is free or fairly inexpensive, provides free or inexpensive food and drinks and is nearby and easily accessed. It is a place people tend to go to on a daily basis that feels welcoming and friends new and old can be found there; the kind of place where you become a regular.
Sounds pretty nice, right? But why should retailers and property owners care? RetailWire explains that “We are shaped and defined by our third place, whether it’s a pub, a local store, or what has become the world’s most popular third place, Starbucks.” Of that ubiquitous retailer, Forbes states “The chain has inserted itself into the American urban landscape more quickly and craftily than any retail company in history, and has forever changed the way Western companies market themselves to consumers.” Trendwatching.com, which tracks global consumer trends, explains that retailers who have successfully put this idea to use are “accommodating consumers outside of the home and office, becoming a relevant and useful part of their daily lives offering them surprise, discovery, empathy, transformation.”
When retailers become a third place they increase their brand awareness in the public space; when developers and property owners actively shape their properties into third places, they attract successful tenants and in turn, consumers. Shopping centers that have a carefully curated tenant mix that provides for the full range of consumer needs like convenience, service and experience do well, but when combined with pleasing architectural design, thoughtfully landscaped outdoor space and easy access for both pedestrian and vehicular traffic, they become a third place. Fast Company explains, “Vital third places contain the physical elements—seating, landscape, a connection to surrounding retail and other public activities—that make people feel welcome and comfortable. Spaces that are visible and easy to get to, stay in, or move through are ideal third-place territory, especially when located near public transit and other civic destinations.”
The Shops at Park Lane is a great example of a center hitting all the marks. With a tenant roster that includes Nordstrom Rack, Old Navy, Ulta and Dick’s Sporting Goods along with Aveda, Whole Foods, Bowl & Barrel and plenty of restaurants like Bar Louie and Grimaldi’s, shoppers from all walks of life have reason to stop and stay a while. Close proximity to a DART station and plenty of onsite parking makes the center easily accessible and very walkable. The most recently opened addition that brings this center to third place territory is The Park, a green space with water fountains, seating, free Wi-Fi and charging stations nestled between a Flagship Starbucks and Zoe’s Kitchen. The Park plays host to public events like GrillFest and Fitness in the Park which offers free yoga and Pilates classes led by Studio 6 instructors. CBRE’s Amanda Gross, who leases the retail portions of the center says, “The Park has been a great addition to the Shops at Park Lane. This area has become the heartbeat of the project. People are using this space as a meeting point and also a place to hang out before or after shopping and eating.”
With the rise of trends like e-tailers opening brick and mortar locations and experiential retail, shopping is no longer about just getting in and getting out. Smart retailers and property owners are creating comfortable and attractive spaces with public amenities like Wi-Fi and charging stations that are giving consumers a reason to settle in for a while, make new friends and discover a new third place.
With rumors swirling that Amazon may purchase former RadioShack stores for its own retail use, many have been asking why the successful e-commerce company would want to move into a retail space. Being an online-only retailer allows a company to save on costs such as leases and employees, and managing and supplying inventory to several locations. What Amazon discovered when opening a pop-up store in New York prior to Christmas is that its customers want to interact with its brand.
Bonobos had gained a strong brand loyalty from its customers for its men’s pants. However, when the company ventured into shirts and other clothing items, its sales were lackluster. It decided to experiment with a few pop-up stores near its headquarters and sales increased. What it learned was that people really like to touch and feel the clothing. These pop-up stores did not have any merchandise and all purchases made from these stores were ordered online and shipped. The no-inventory stores, which Bonobos refers to as “guideshops,” have increased sales for the company, and it plans to expand to 40 stores nationally by year end, 2016.
Other online retailers are following suit, opening pop-up stores to see if this is something their customers want before expanding to full brick-and-mortar establishments.
Amy MacLaren, Vice President of Retail/Urban/High Street Brokerage Services states, “We are seeing retailers understand and respond to the experiential trend of our retail world. The brick-and-mortars help to legitimize these brands with their customer. It also allows the retailer the opportunity to WOW the consumer with the experience of their retail environment first hand.”
Warby Parker, a socially conscious eyewear provider, found its customers liked to interact with its products in a physical setting. While a majority of its sales still come from online purchases, its stores have also been profitable, averaging just under $3,000 in sales per square foot. Warby Parker currently has 14 stores and showrooms throughout the US with plans to open more.
Birchbox, a beauty products purveyor, decided to explore brick-and-mortar because of consumer demand. Birchbox set out to create an offline experience for its customers that incorporated the personalized features from its e-commerce site that its customers enjoyed. Unlike other beauty product stores, Birchbox merchandises its store much like its website with products organized by category and not by brand. It also tested out a few pop-up stores before opening its first location in New York.
Women’s clothier Modcloth recently announced it is exploring opening stores similar to Bonobos’ guideshop concept. Its CEO states that physical stores are a key part of its web retail strategy. Modcloth opened a pop-up store in LA in April, 2015.
Retail real estate experts see the success of both online and web and do not fear that e-commerce will take away the need for stores and the customer shopping experience. Warby Parker co-founder Neil Blumenthal states “We believe the future of retail is at the intersection of e-commerce and brick-and-mortar.” Web retailers have realized the power of the consumer experience and brand immersion, and are seeking to expand their brand to capitalize on that notion. It’s not just about buying, it’s about experiencing.
2014 was a great year for real estate in Dallas-Fort Worth and some are saying it was one of the best on record. The Dallas Business Journal and D CEO recently announced the winners of their annual commercial real estate awards for 2014. With so many great deals under consideration for the top awards, CBRE is honored that our brokers were some of the leading recipients in retail real estate categories.
One of the biggest retail deals in DFW is the relocation of Neiman Marcus from Ridgmar Mall to the new Shops at Clearfork, a 500,000 square foot outdoor, open-air shopping destination in the heart of Fort Worth. The new 90,000 square foot, two-level store is significant for being the first fully built store for the company in years. CBRE’s team of Jack Breard, Amy MacLaren and Amanda Gross represented and brokered the deal for Neiman Marcus and Cassco Development. It was the first time that Neiman Marcus used an outside brokerage firm to introduce a site and finalize the negotiations.
This deal was a substantial win for the Clearfork Development. Securing a flagship anchor tenant of this caliber has put the entire development on the fast track and retailers are now jumping at the opportunity to be a part of this high-end establishment and significant urban infill. The impact of this deal is a large reason why Jack Breard was also named Best Retail Broker of the Year by the Dallas Business Journal.
Another award winning project that CBRE brokers helped shape is the Dallas Farmer’s Market. Jack Gosnell and Sasha Levine, along with the help of private partnerships and a TIF from the City of Dallas, are putting this historic area on track to again be a central hub and give Dallas what it is missing, a true farmer driven market. Both Jack and Sasha have led the efforts to lease the retail component for the entire project, including The Market. When complete in June 2015, The Market will house a unique mix of 30+ artisanal shops ranging in size from 144 square feet to 1,620 square feet with most stores averaging 400-600 square feet. These efforts did not go unnoticed; The Dallas Business Journal awarded the project its Best Community Impact Award, and D CEO named it a finalist for The Best Redevelopment in Dallas.
Many of our other brokers were also recognized by the Dallas Business Journal for their great work this past year. CBRE brokers Brandon Harris, Tey Tiner and W. Thurston Witt, Jr. were finalists for the Dallas Business Journal’s Best Land Transaction Award for their work with Craig Ranch. Jack Gosnell and Jack Breard assisted with retail efforts for Mixed Use Development winner McKinney & Olive, and the Best Creative Financing Deal winner, The Olympic at 1401 Elm Street, was aided by Amy MacLaren and Jack Gosnell as well.
These awards proved once again that CBRE is the consistent leader in Dallas retail real estate. As the DFW area continues to grow, our team of brokers will continue to provide the best service in project leasing and tenant representation.
Retail as Art is in full swing and gearing up for its 7th Annual Exhibition and Scholarship Presentation. We at CBRE look forward to this event every year, anticipating the new talent that will be revealed by the students and the excitement exuded from those lucky few who will win the coveted prize money to be applied to their college of choice. Having been a part of this event for seven years, our brokers and management team know much about this annual contest; however, there are a few things even they don’t know.
1. The Idea for Retail as Art did NOT come from Mickey Ashmore.
Well not Mickey Ashmore, Vice Chairman of CBRE. It came from Mickey Ashmore’s son, Mickey Ashmore. When the company was approaching its 20th Anniversary, the partners wanted to give a thank you gift to those clients that had helped them reach this milestone. When the idea of commissioning photographs to include with this gift came about and the price of these exceeded the budget, Ashmore’s son Mickey suggested asking students from Booker T. Washington High School for the Performing and Visual Arts to take the photos. Several students submitted many great photographs and the partners decided to have a contest, display the submissions and award money to the best photos for scholarships. When the partners saw how excited and esteemed the students felt to see their hard work on display, Mickey Ashmore realized that this needed to be an annual event.
2. 42 Scholarships Have Been Awarded Since 2008.
In 2008, only one school and approximately 10 students participated. Last year we had our biggest participation thus far with 93 students entering the contest from 21 schools. As the participation has grown, support for the organization has grown as well, helping to award more money to go towards students’ higher education.
3. This Contest Launches Careers.
In 2012, with encouragement from her teacher, Abigail Chang entered Retail as Art having little experience with photography. That year she won third place. This sparked in her a desire to learn more about photography and possibly pursue it as a career. She entered the contest again in 2013 and won second place, and in 2014 won first prize for the image titled Lobster Dinner, seen below. She has since traveled the world shooting for her family’s nonprofit aid organization Linking the World, where she has photographed the aftermath of the typhoon Haiyan as well as areas in Haiti and the Dominican Republic for the organization.
Other students who have won this competition have gone on to pursue higher education and careers in the arts from such prestigious universities as San Francisco Art Institute, Northwestern, School of the Art Institute of Chicago, Southern Methodist University, University of Texas, Syracuse University and the Maryland Institute College of Art.
4. You Don’t have to Own a Camera to Enter.
Last year, Retail as Art brought in a new component to the contest, Instagram. Its directors thought this would be a great way to open the contest to those who may not have access to a camera since most students were already familiar with the platform and using it in their daily lives. Over 100 entries were submitted via Instagram, forcing Instagram expert and judge Jeyson Paez to make a tough decision. Go to @retailasart to see this year’s submissions.
5. You Have 3 Days to View all the Entries.
In the past, if you wanted to see and purchase the entries in the contest, you only had one day to do it. This year the Goss-Michael Foundation has partnered with Retail as Art to not only host the 7th Annual Exhibition and Scholarship Presentation on April 25, but also open its doors on April 23 and 24 for patrons to come and view the exhibit. Being able to display the students’ work for three days is a first for Retail as Art and will be thrilling for the participants. Scholarships will be awarded at an event on April 25 from 5-7. Space is limited so make sure to RSVP to secure your spot and a chance to find out the winners.
Still want to know more about Retail as Art? Check out the video below with highlights from last year’s event.
You may not immediately recognize the term Experiential Retail, but you have certainly experienced it. At the most basic level, shoppers are already participating in experiential retail when they grab a food sample while wandering the aisles of the grocery store or when testing out multiple shades of lipstick before selecting a final color for purchase. A few savvy retailers are taking the experience concept much further and capturing the attention of that Holy Grail group of consumers: Millennials.
Forbes describes Millennials’ shopping behavior as “No longer passive. Millennials want to interact with brands, to co-create products and to participate in the brand experience,” and suggests that “Millennials today are looking for relevance and authenticity. They want to develop relationships with brands that deliver a personalized, customized experience. Brands that don’t understand and respond to these needs will fail.”
Indeed, this has been proven by one of the best specimens of retailers doing it right; Apple. Millennial shoppers in an Apple store are surrounded by people their own age and by slick, high tech products that promise to simplify their lives. Apple’s advertisements echo this appeal- they show young, hip iPhone users expressing their individuality by putting their phones to creative uses and even inventing their own apps to make their lives easier. Fast Company recently stated that “Today, a product or service is powerful because of how it connects people to something—or someone—else. It has impact because we can do something worthwhile with it, tell others about it, or have it say something about us.” This generational shift in ideals is affecting purchasing habits- at least 70% of Millennials have purchased a product that supports a cause and they’re more willing to pay extra for a product if it supports a cause they also support. Both TOMS and eyeglass retailer Warby Parker employ the “for each item we sell, we give one to those in need” approach, which has been a huge hit with this emerging group of shoppers.
With Millennials’ preference for experiences over tangible objects and consumer behavior turning increasingly digital, retailers are using their brick and mortar and flagship stores to focus more on creating a fully-immersed brand experience for the customer. The TOMS flagship store in Venice, CA provides an experience beyond just shopping for hip shoes; they offer coffee and lattes, baked goods, and plenty of seating and free Wi-Fi to perpetuate their image as not just a place to shop, but a place to hang out and to see and be seen. London-based Burberry recently launched their flagship store as a physical representation of their website, complete with the world’s tallest retail screen, performance stage, and clothing containing RFID microchips that when tried on by shoppers, transforms dressing room mirrors into screens that show how the clothes look on a catwalk. They have also done away with cash registers and equipped staff with iPads with credit card machines, similar to the checkout process at an Apple store. Menswear retailer Bonobos refers to their brick and mortar locations as Guideshops, where customers can have a beer while consulting one on one with a Guide. Purchases are completed online and shipped directly to the customer; the stores are solely there to offer a personalized and individual experience for their customers.
By using new technology and appealing to customers’ sensory experiences, forward-thinking retailers are effectively using experiential retail to form memorable and emotional connections between the customer and the brand to generate loyalty and influence purchase decisions.
Download our DFW Retail Market 2014 Overview report.
Tax Increment Financing (TIF) is a method for local government to provide financial incentives for new development in targeted neighborhoods and/or for specific projects. Like many other local government incentive programs, the source of money is a portion of property taxes paid on the development in the future. That means:
- There is typically no upfront money from the City
- This program is geared towards helping larger projects (filling a vacant million square foot office tower for example)
- TIF programs do not work well for smaller projects or projects that replace existing tenants with new tenants TIF financing
How TIF Districts Work
Identify an Area
Areas that make good TIF Districts are:
- Areas of vacant land, surface parking or large, vacant buildings – these areas have the greatest potential for increased property value
- Favorable locations like areas situated between two areas where real estate performance is strong
- Adjacent to large scale public investment or assets – TIF Districts perform better when other public investment in the neighborhood is ongoing.
- When common ownership is motivated to redevelop the property
Create a Redevelopment Plan
How can unique features in existing neighborhoods be augmented to create a stronger new development?
- Enhance the historic core through new retail activity
- Keep housing close and at the edges of new development
- Be creative – look for alternative uses to vacant areas
Implement Redevelopment Plan
Usually a City’s staff find developers to build projects that fit the vision outlined in the Redevelopment Plan.
- City officials makes sure TIF funds are used to provide reimbursement for certain development costs for eligible projects that have approval prior to the start of construction.
- There is no such thing as ‘free’ money at City Hall. TIF incentives are all negotiated and being in a TIF District does not guarantee public funds for any project.
- TIF funding is typically based on the amount of new property taxes generated by the development and how well the new development fits with the redevelopment goals.
Dallas Farmer’s Market is an example of how common ownership came together to redevelop an area on the decline. Private partnerships worked with the City of Dallas to enhance a historic area and used creative solutions to rejuvenate this area of downtown.
For people and companies looking to explore opportunities in TIF Districts, here is a quick list of things to remember:
- Do your homework – Understand the goals of the TIF redevelopment plan. Be prepared to show how your projects advances the goals of the plan and is a good investment of tax payer money. Understand the district’s cash flow and outstanding obligations contained in the annual report for the district.
- Be Flexible – Listen to the goals for the area from city officials and be prepared to make some changes to the development plan.
- Hire a good design team – Cities are usually a long term investor. Good design and premium materials pay dividends for long term project value.
- Have reasonable expectations – For most districts, TIF incentives rarely exceed 10% of hard construction costs.
Dynamite comes in small packages.
It’s an old maxim seeing fresh play as many of the nation’s hottest grocers pursue a “rightsizing” strategy, revamping their supply-chain designs in a bid to maximize profitability and efficiency. And, after decades of the big box model driving supermarket industry growth, it’s a trend that’s heating up demand for smaller commercial spaces previously relegated to family-run and specialty grocers.
Food for thought
From Trader Joe’s to WinCo, there’s a fundamentals-fueled move toward smaller-format grocery that’s driving a permanent shift in the bricks-and-mortar grocery model. CBRE attributes much of this change to grocers becoming “digitally mature” in a bid to meet the demands of electronically savvy customers and, in particular, millennials.
It’s a perfect storm for smaller. Now that fulfillment giants like Amazon have stepped in to own the all-things-for-all-people segment, the smart money in grocery supply-chain design is embracing trends like right-sizing and supply-chain segmentation. The result? According to Progressive Grocer, it’s a group of grocers gaining ground by worrying less about total market share and more about achieving higher sales per square foot.
“It’s all about efficiency,” CBRE’s Stan Lotridge explains, “and from ALDI to Trader Joes, WinCo to Publix, real growth in the grocery space is being driven by the smart use of technology and, along with that, achievements in areas like inventory optimization.”
Grocery, by the byte
This equation starts with the seamless incorporation of technology into the retail-grocery experience: speedier check-out lines, coupons connected to digital devices and the like. “Smaller spaces go hand-in-hand with the digital piece,” says Karla Smith. “Today’s grocers are combining tighter inventories with more efficient spaces and state-of-the-industry technology, allowing them to get people in, out and happy in record time.”
And it’s a growing emphasis on sales per square feet – and away from total volume – that Fortune magazine states is prompting all retailers to explore focusing more on stocking the right merchandise (say, their top 1,500 SKUs) and less on trying to offer something for everyone. Even the Targets and Walmarts of the world are testing out this approach, with Target’s new 20,000-sq.-ft. store in Minneapolis, for example, and Walmart’s ongoing rebranding of its Express stores to Neighborhood Market outlets.
Fortune’s Dan Mitchell makes an emphatic case for the more-efficient, sales-per-square-feet driven grocer. In a March 14, 2014 report, he predicts the eminent of traditional, hidebound grocers, stating that “under assault from Walmart and Costco on one side, and Whole Foods and Trader Joe’s on the other, the traditional supermarket must transform or die.”
Aldi Gets a Smaller-Sized “A”
Global supermarket giant ALDI, the world’s eighth-largest retailer, offers a textbook case in this leaner, meaner path to grocery-industry growth. Publications from the New York Times to the Daily Mail hail ALDI speak-softly-and-carry-a-small-stick approach to success.
In a November 2014 report, the Daily Mail reported that ALDI is using the “dynamite comes in small packages” approach to take on the UK’s Top 4 grocery retailers, opening up stores in the 4,000- to 14,000-square-foot range and focusing on a tight-number of top-selling SKUs of its popular private-label-branded products.
One big driver of ALDI’s smaller-footprint growth, the Times reports, is that smaller retail spaces don’t trigger some of the emotional hot buttons that prompt many communities to oppose new big-box spaces. In a recent report, the Times states that ALDI “has faced little resistance, compared with the heated opposition often headed by unions and politicians that Wal-Marts have encountered in larger markets.” Why? According to the Times report, ”There’s no reason to oppose an ALDI — it’s a small format, and they usually get space from an existing landowner or landlord, a small guy who’s plugged into the community.”