Goulston & Storrs’ Team Talks MAPIC 2015 and International Retailers Expanding to the US

In two weeks, the 2015 MAPIC Conference will be meeting at the Palais des Festivals et des Congrès in Cannes (pictured), bringing together more than 8,500 participants from various companies and countries to speak about retail properties and the industry at large.

Bisnow is thrilled to be the official media partner and spoke with three Goulston & Storrs partners—David Rabinowitz, Jennifer Furey and Matthew Epstein—to share their experiences at previous MAPIC conferences and to give you just a taste of what will be talked about at this year’s conference, which will focus on US retail.

Bisnow: What do you think is the main thing international retailers tend to forget or need assistance with when coming to the US?

Matthew: The biggest thing is fear of the unknown and getting past all of the stereotypes these retailers might have about operating in the US. I think they’re worried about how litigious the market appears here. They’re worried about lawsuits and potential liability. They also need assistance understanding geography, where their customer is and the speed and extent of any expansion they should pursue. They don’t have significant contacts with all the consultants and experts they’ll need, which we’ve been able to help them with because of our depth of experience helping international retailers expand into the US. They might know brokers, for instance, but they don’t know whether those brokers are appropriate for their business. Of course, they’re concerned about protecting their brand and [intellectual property] and want to know how their product will translate in the US.

Bisnow: What country should people in the US retail commercial real estate industry be looking to court? Will we be seeing an influx in retailers from the UK? China? Korea?

David (snapped at a Bisnow event): I don’t think you can say one country is going to have the highest influx in terms of number of retailers or flow. We’ve been working more with companies from the UK, Germany, France, Belgium and Eastern Europe. European retailers are really interested in expanding to the US, and we’ve spoken with Japanese retailers as well. But from a MAPIC point of view, I think there’s more of a European focus than Asian. Again, it’s less of a matter of what country the retailer is from, and more of a discussion of where a retailer thinks the opportunities are. The US economy, compared to other economies throughout the world, is doing fairly well, and international retailers see the US as a large market where they can replicate the success they’ve had in their own countries. For an expansion-minded company with capital, the US looks very, very attractive.

Matthew: The economy in Europe has almost devolved into city-states. Paris, London and Berlin are major economic powerhouses, but in England, if you go into Birmingham, for example, retail isn’t as strong. So, as a result, London and Paris are extremely expensive for retailers. You almost can’t expect to make money there. It’s more of a marketing play.

Bisnow: Based on your interactions with clients, what appeal does US real estate have for foreign retailers? How should developers and property owners promote their spaces to greater appeal to foreign chains?

David: I think American retail developers and owners like to court international retailers because it brings something different to their project. If you walk through a mall in the US, you often see the same retailers there, regardless of what part of the country you’re in. More developers are looking to differentiate themselves from their competitors, and international companies have a certain flair to them that attracts people to their properties. From a US property owner's perspective, they need diligence on the retailer in order to make sure it has a credible balance sheet and can execute on its plan. Some retailers who come to the US don’t have a plan, which is dangerous. How are they going to be successful without knowing what they’re going to do ahead of time? That’s where we try to help them. We sit down with them, educate them and introduce them to professionals who can help them create a business plan that will increase the likelihood of success in the US.

Bisnow: What are the main markets foreign retailers are looking at? Are there any that surprised you?

Matthew (pictured, above, talking on the phone to potential co-panelists at MAPIC): We’re working with a UK company that’s very big over there that’s opening its first two stores in Portland, ME and Lynnfield, MA. Savvy retailers like this client want to go where their customers are, but at least 50% of international retailers think if they want to break into the US, they have to open in Manhattan, despite the costs.

David: If you’re going to generalize, Europeans tend to look to Manhattan and some even look toward Brooklyn to open their first stores. It’s an easy flight, distribution is easier and Manhattan has a big cache to it with a lot of people. But it’s also extremely expensive. It’s difficult for retailers opening in New York to make money due to the high rent and other expenses associated with it. For some clients, a Manhattan location is less as a vehicle for making money and more about exposing their brand to the United States and being able to build around it. Similarly, Asian retailers tend to come in through Los Angeles and San Francisco simply due to proximity. I moderated a panel last year at the MAPIC conference about international retailers entering into the US and we got into a discussion between the traditional method of entry via New York or LA versus foregoing those markets and going into malls across the country. An executive from Sears was on the panel and was promoting Sears’ stores with extra space in malls throughout the country, and he argued that, based on costs and different geographies, companies should make deals with retailers like Sears to get space and exposure throughout the country. There are merits and downsides to each approach, and that’s where a retail consultant who really understands the retail business and the US market can guide and help come up with a real estate strategy that makes sense. It is also important to engage an experienced real estate broker who is knowledgeable about the foreign retailer’s business and the markets and submarkets throughout the US.

Bisnow: David, as one of New York's key contact for retail, what is one major thing you find a lot of foreign retailers need to learn before setting up shop in the Big Apple?

David: Everything in New York is more challenging and expensive to do. So it’s critical they understand space and hire a contractor who can give them a feeling of what the cost is going to be to construct and fit out their store. There are always hidden things when you start ripping things up in New York, so it’s an unknown that often gets allocated to the tenant rather than the landlord. It’s really important retailers do their diligence in terms of construction and permitting. Negotiating leases in Europe and in the US are very different processes. In Europe, there tends to be less negotiating and leases are shorter. In the US, they tend to be heavily negotiated and quite lengthy. So it takes longer to get a deal done, and it’s a lot more back and forth than they’re used to. So a lot of what we do with international retailers is talk with them, get to know them and help explain the different ways of doing business in New York.

Bisnow: Jennifer, intellectual property can be a nightmare for many foreign clients, especially considering the different restrictions and levels of severity across borders. What do your retail clients need to know and clear up before looking to open a location abroad?

Jennifer (pictured, far left, speaking on a brand management panel last week): From my perspective as an IP litigator, there are two important components that must be considered by an international retailer looking to come to the US. One is from a defensive perspective and focuses on clearance research and looking at whether the retailer is going to run into any problems in the US and understanding potential conflicts between its brands and any existing US brands. Retailers need to assess the risks and consider modifications before investing in the US market.

There’s also the more offensive perspective, which is considering whether to seek US protection for its own brands. There are all sorts of US protections that are available for an international retailer, many of which are cost effective, particularly if the brand is already protected abroad.

And then there is of course IP management that overlays all of this even if you have US protections and registrations in place. IP management involves constantly looking at the market to see if your own rights are being infringed. That protocol is a critical part of brand protection.

Lastly, as Matt said, one of the trepidations international retailers have is fear of litigation in general and I look forward to discussing with retailers at MAPIC steps they can take at the outset—whether it’s arbitration provisions in contracts or best practice employment protocols—that will make litigation less likely.

Bisnow: Matthew, what advice would you give up-and-coming retailers if they were considering a national roll-out?

Matthew: I always start with asking what their motivation is. Based on my 30 years of experience, I find if you have the wrong motivation, you end up making mistakes such as picking poor locations because you’re trying to drive revenue and not opening stores where your customers are. In terms of a roll-out, I think motivation is critical. You also need to determine a conservative approach to how many stores you want to open. You have to make sure that the infrastructure you have in place can support a roll-out. If you don’t have enough architects and contractors in place, for example, you’re bound to disappoint yourself and a landlord by not meeting deadlines. You have to know where your points of distribution are so you satisfy inventory demands and resupply goods that are selling well. There’s a whole series of questions I’d put to an international retailer that wants to expand to the US. I’d say you should start conservatively, unless you have such an international cachet. If Harrods wanted to open a store in the top five US cities, I wouldn’t discourage them, but not many chains have that cachet.

Bisnow: What connections—that you can speak about, of course—have you forged at MAPIC? What lessons have you learned at its panels?

David: There are a number of things. Over the period of years we’ve been going, we’ve seen more of an interest in the United States as an area of expansion each year. Every year I see more property owners going there to promote themselves and their projects and to attract European retailers to their project if they’re interested in coming to the United States. When I first went in 2011, two major owners of property in the United States, Star Equities and Vornado, were there for the first time and over the last couple of years, more and more have been coming. But, of course, it’s really about meeting with international retailers and talking with them about how things are going in their home countries, how their existing stores and restaurants are doing, what their plans are in terms of expanding into the US, and what homework they’ve done. Sometimes they’re under misconceptions—and it’s an interesting give-and-take to try and understand their perspectives and, at the same time, educate them on how to do business in the United States.

Bisnow: Are you going to this year's MAPIC? What panel or speaker are you most looking forward to?

Matthew: This is our fourth year, and I think we’ve developed a brand equity as the American law firm to go to for these issues. We’ve been able to learn from our experiences and better target the companies we want to talk to in depth. We’ve made a lot of friends there, so we can also enjoy the delightfully rich food with them at night. And since the US is the focus country in 2015, we hope that will attract people who will talk to us about coming to the US.

To learn more about this Bisnow Partner, click here.