What's In Store For Retail? Exclusive Q&A With A&G Realty Founder

It’s no secret this past season’s sluggish holiday day sales on top of steadily declining mall traffic, e-commerce and high-profile store closings have put a major damper on the future of American retail.

To get a handle on just where things are headed—and what it could mean for commercial real estate—Bisnow recently chatted with retail expert and A&G Realty Partners co-founder Andrew Graiser, whose firm managed the sale of Radio Shack's retail leases and sales following the firm's Chapter 11 bankruptcy filing last year.

Bisnow: We all know these are difficult times for retailers. Beyond the things that have already been well-documented, what will be the long-term impact on commercial developers and landlords?

Andrew: The first thing to keep in mind is that consumers are spending. More and more, however, they are looking to spend their disposable income on experiential shopping like vacations and going out to dinner with friends versus having eight luxury pocketbooks collecting dust in their closets.

Bisnow: From a pure real estate perspective, what will be the long-term impact of this retrenchment on commercial developers and landlords?

Andrew: One of things we’re seeing is that there might not be a need for multiple locations in the same market. On the flip side of that, though, is the fact that most landlords aren’t just sitting on their hands waiting for a tenant to renew their lease.

This is particularly true in the case of shopping malls, where the landlords are starting to add more restaurants, movie theaters, small performance spaces and service-type venues like hair salons. You’re also beginning to see supermarkets in the lower-volume malls, which is important because that creates more repeat visits.

Bisnow: What about instances where these malls may be too old or obsolete to make any significant upgrades?

Andrew: We’re seeing that a lot these days—especially with malls that were built 40 years ago—where you suddenly have vacancies from anchor tenants. Although you’re starting to see teardowns, you’re also seeing a lot of mixed-used redevelopment that includes offices, medicals facilities, apartments, condominiums and retail. One of the significant trends we’re seeing is the sale of these local centers in places like Cincinnati, Minneapolis and Nashville. One of the biggest benefits is that the developer can use their influence with the local government agencies, which can help create better access and security.

Bisnow: In terms of best-case scenarios, what is the future of shopping malls?

Andrew: Clearly, there is less traffic, but I think it’s a little too early to say there’s a serious problem here. At the end of the day, it’s all about having strong anchor tenants and good merchants, which developers and landlords have been making a significant effort to attract by evolving their real estate so I can change with the times.

Bisnow: Going forward, how is technology going to impact malls, particularly when it comes to tracking consumer spending habits?

Andrew: Again, it's still a little too early to tell as many landlords are in the process of gathering information. There are certainly a variety of technologies out there to give them a better handle on where consumers shop, which helps them merchandise better and advertise more efficiently.

Bisnow: Getting back to retailers themselves, are some sectors going to be more vulnerable than others these days when it comes to store closures?

Andrew: I’m not saying there will be a lot of them, but certainly you’re going to start seeing more closures in every category, whether it’s just a healthy housecleaning or a retailer who has to get out of a lot of real estate when their lease expires. It’s also important to keep in mind that there continues to be a lot of strength in cosmetics, home furnishings and activewear.

Another trend we’re seeing is that retailers are spending a lot more time when it comes to making decisions about whether or not to open up new stores based on customer research, demographics, psychographics and the surrounding retail marketplace. They’re also becoming increasingly concerned with the outlet stores that are being developed near major cities.

At the same time, there are retailers who are opening in second-generation spaces in places like New York. One example is Restoration Hardware, which has recently opened in a larger space in Manhattan. You’ve also seen companies like Uniqlo, where they’ve had a larger presence in New York and then they’ve gone after some of the regional malls.

Bisnow: In general, do you think smaller is better these days?

Andrew: That’s an interesting question, because in some instances—like supermarkets—sometimes bigger is better just because you have a much wider range of merchandise. However, in other cases—like bookstores and office supplier, smaller is sometimes better and there are many retailers who have new smaller-box concepts that are expected to be rolled out in the next 12 to 18 months.