These include:

While technology can deliver important innovation, shoppers still seek the human touch.  Merchants who can deliver enticing product assortment along with knowledgeable sales personnel continue to succeed in gaining loyalty and repeat business.  In a recently released report by Bain & Co., it was found that 75 percent of sales will still occur in physical location stores by 2025.

Where technology intervenes for the best, shoppers are partaking in “augmented retail.”  This trend blends both the online experience with brick and mortar – allowing the consumer to inform himself/herself on choice, brand and price – along with purchase method.

Story telling remains key.  Shoppers want both digital and in-person empathy.  They want to be engaged in shopping experiences that offer opportunities to attend lectures, fashion shows, designer appearances and with social media that tracks history, culture and educational offerings including exercise, fitness and art.  Examples of brands that have captured this ethos include MatchesFashion, Yoox and Sephora.

Physical stores are working to improve the check-out experience, parking and other accessibility issues.  Customers who are tech-savvy are also looking for such innovations as the “magic mirror” concept where they can try on different looks with their smart phones.  Dynamic communication via smart phone continues to drive sales as well with stores increasingly promoting items to customers as they shop.

Pop up stores within stores allows more conventional merchants to contend with fast fashion – examples include Nordstrom’s SPACE concept and Lord & Taylor’s upcoming “The Gallery.”  Other features being pursued by brick and mortar retailers involve concierge service, highly specialized personal shoppers and delivery speed.

Ultimately, retailers are forced to bridge the divide between online and in store.  Just as shoppers are constantly shifting from their digital universe to their weekend mall visit, retailers must use technology and data to create personalized shopping experiences that attract even the most wired consumer.  Keeping retail opportunities intimate and customized is an advantage that brick and mortar stores will always enjoy if they master the art of on-site personalization.

The post The New, New Future of Retail appeared first on PLACES.

According to the National Association of Real Estate Investment Trusts, Governors Terry McAuliffe (D-VA) and Brian Sandoval (R-NV) have been meeting with Congressional leaders to urge action on a bill that would allow states to end tax discrimination against Main Street stores.  The two governors are co-chairs of the National Governors Association (NGA), and have both been focused on bringing relief to retailers who occupy storefronts in their communities and across the country.

The Real Estate Roundtable has also long supported the “Marketplace Fairness Act,” a mechanism by which federal decision makers can help states balance their budgets and invest in key economic infrastructure, all the while providing much needed support to physically present retailers.

According to Washington insiders, meetings between the Governors and Congressional leaders Paul Ryan and Nancy Pelosi led to an assurance that Congress would turn its attention to the “Marketplace Fairness Act” in Spring 2017.  In South Dakota, developments in the case of The State vs. Overstock.com, the online retailers request for transfer to a federal court was rejected. This has led to speculation that a Supreme Court decision could ultimately decide the issue.

During his confirmation process as Treasury Secretary, nominee Steve Mnuchin was asked for his views on internet sales tax legislation.  Mr. Mnuchin asserted, “This is a very complicated issue.  If confirmed, I will work with Congress and the President to ensure that legislation considered by Congress is consistent with the President’s tax policy objectives.”

PLACES will continue to monitor for progress and developments in this very critical issue.

The post PLACES Update – Online Sales Tax appeared first on PLACES.

The PLACES team sat down with Madison Marquette’s Leasing Director for D.C.’s forthcoming Wharf project, Marisa Michnick, to discuss the right tenant mix, and what to consider when negotiating a lease. 

What makes a good tenant mix? How do you go about selecting the right composition of tenants?
For an up and coming urban development, you want to find tenants who are new to market and experiential. There needs to be a discovery component to what they’re offering shoppers.  Tenants that are providing fresh, innovative experiences in their store in terms of how they attract customers, is what keeps the customer coming back. We always look for brands that appeal to a wide range of demographics and psychographics, so that word of mouth can travel across generations and age ranges. Price point is an important factor, as we always look to find a middle ground between luxe and value.

We also want to make sure the tenants complement one another and have a similar ethos in their offerings, building on one another’s brand strength and core target audiences. It’s also vital to ensure that the retail mix is laid out in a way that brands and services are situated next to mutually beneficial and complementary retailers.

What are some challenges to look out for when leasing a property?

A major consideration when leasing a property is time and scheduling; especially since most leasing negotiations can result in a lengthy process. Often, soft goods retailers are the last to sign on to a project, so we always need to be mindful of how much time these deals take so that the lease gets completed and the tenant is successfully moved into the new space for the grand opening. Other challenges often involve collective buy-in. When you have a lot of stakeholders at the leasing table, there are a lot of opinions and avenues to consider. One of the most important things a leasing manager can prepare is due diligence on the retailer’s recent sales volumes and projections.  Sometimes a retailer is resistant to divulging an accurate sense of their sales numbers, but it is imperative for leasing teams to be armed with this information in advance, so they can determine how the tenant could fit into the larger merchandising plan.  A team may think one particular retailer is amazing, but if they don’t have enough volume to pay rent, neither the tenant, nor the landlord benefits.

From a scheduling perspective, all deals take time, but often, smaller retailers take longer than others because typically the same person who owns and runs the business is the same person leading the lease negotiation. The leasing team always needs to consider how to weave that into the design and construction schedule in order to meet the deadline for opening.  If a tenant is late to come on board, you have to work harder and more efficiently to get the lease executed, and get the tenant into the space on time. 

What are the components of a good tenant?

A good tenant wants to be at the project, they know the market and have a solid handle on their consumer. They’re telling their story effectively on social media and connecting efficiently with their customer. They also know how to tailor their merchandising and marketing programs toward the particular market they’re in.

What are some things to bear in mind when negotiating a new lease?

The first thing is to craft an LOI that is mutually agreeable and beneficial to both parties from a sales and merchandising standpoint. An owner is better equipped to collect rent by having a thorough understanding of a tenant’s financials—their existing sales volumes and projections for a store in that market. The tenant also needs to be educated about exactly what type of lease they’re signing up for, the economic package they’re agreeing to, whether it’s a single, double or triple net lease, are options included, and what type of concessions, including tenant improvement, are available. If they know a tenant can’t make set numbers, it’s not good for the center or the tenant, so the economic package has to be one that makes sense for all sides. A discussion around the percentage rent should occur early on in the LOI process, as well as developing a firm understanding on the types of space a tenant desires and the level of build-out required.  Some questions to ask are what kind of finishes do they need, what is the improvement allowance, and what are their projections for the market.

Another factor of sensitivity is the radius clause. If you bring a new to market tenant to a site, you want to discuss and establish radius restrictions, and whether or not they have plans to open in other areas of the city. Ultimately, the ideal negotiation is one of two-way open communications, where both parties are up front about all the information and requirements in advance of signing.

The post Successful Strategies for Urban Leasing appeared first on PLACES.

Malls are becoming increasingly high-tech with touch screen directories and virtual reality goggles. Now the technology trend has shifted to parking, as customers increasingly value convenience and ease of service.  Mall owners are investing in mapping functions and sensor technologies to allow customers to find parking quickly, and to get in and out of lots and garages as efficiently as possible.

Kirkland, Washington based INRIX is one such technology designed to help shoppers spend less time circling for parking, and more time in stores. The application will employ GPS enabled heat mapping to detect open parking spaces in close proximity to a customer’s destination within the mall.

PLACES sat down with Mark Fancher, CEO of Parking Advisors, the leading U.S. Parking Investment Asset Management and Advisory Firm to discuss some of the new technologies hitting the parking industry.

What are some of the biggest trends you’re seeing in the parking business right now?

We work with several large US retail owners. Primary ownership concerns include the quality of the parking experience, the ability for shoppers to quickly know how many spaces are available upon entering, and the ability to quickly navigate to those spaces. Mall parking lots are often large and it’s often hard to figure out how far you have to go at the outset to find an available space.

Outside the U.S., mall owners have been ahead of the curve for a while now, both in Western Europe and Australia. They’ve provided a solid and successful model at airports and shopping malls for U.S mall owners to parallel. One technology being adopted by centers today is technology-enabled way finding. When a car enters a section of the parking facility it trips a sensor, which adjusts the count accordingly. A digital sign tells the driver the current space availability in that section of the facility. These systems have been on the market for a number of years, and legacy systems have been prone to inaccuracies, which can be frustrating for drivers when they think a space is available but the count is inaccurate. Newer technologies provide more accurate space counts. For example, several companies in the U.S. offer solutions with individual sensors in every space in the pavement or overhead, which can sense the presence of the vehicle. A red or green light display guides drivers down the parking lane and toward a readily available spot. These provide more accurate counts in each section of the garage because there’s a sensor in every space – so it becomes a much more reliable solution and the process has become more streamlined. As accuracy has improved, the per-space costs have come down. As a result, you’re seeing more and more of these individual current generation systems in large shopping malls.

Another technology that has become available is a License Plate Recognition (LPR) camera in every space that takes a picture of a license plate. As you park your car the LPR camera reads and recognized the license plate number. Using a phone app or pay station, you can type in your license plate number and it will tell you exactly where you parked.

There’s also a big emphasis on making sure parking spaces are clean, well-lit, brighter, owners are improving signage and focusing on a lot of these basic elements that have been overlooked in the past.

Are shopping centers using this technology to mine data?

In many locales there are privacy laws limiting what you can do with customer data, including license plate numbers – so right now the technology is all about customer convenience. Another program becoming more widely used is the ability to recognize frequent customers. For example, at a large mall where there are regular patrons, utilize LPR cameras that recognize frequent visitors and allow them the advantage of entering and exiting the parking garage more quickly based on the facility tracking their license plate.

What’s happening with parking apps?

One of the big trends in the industry is the ability to go onto a website or app, identity parking and pre-purchase a spot, or use personal credentials to enter a parking facility. There are several companies that offer this service across the country – they are aggregators similar to Hotels.com in the hotel industry. While they are convenient to parkers, there is a concern about the misalignment between customer and property owner benefits. Parking owners and operators are highly frustrated with the high commissions and transaction fees charged by these online resellers. We see a coming trend toward lower fee or no fee solutions that will provide a higher level of customer service.

A lot of the larger parking facilities have parking operators who can answer questions and provide hands-on troubleshooting, but the companies that will succeed are ones that are not just there to provide a financial service but to offer inbox technology for ease of use and efficiency.

What does all this mean for valet parking? Do you think some of these new digital trends will fade out valet? 

Valet in retail centers is still a necessary factor in the equation. For example, we have a client who owns a suburban mall outside a major city. The restaurants are all clustered into one area with a high volume of car traffic on Thursday, Friday and Saturday. Not everyone can park close to the restaurant’s front door, so valet parking is essential for this purpose, although it is true that a lot of people don’t like to valet their cars.

What we have seen work is the technology involved in checking in the vehicle, calculating the fee, retrieving the vehicle and the ability for a customer to text ahead when the car is ready. There are some really great solutions out there for that. We’re really excited about all the new applications streamlining our industry.

The post The Future of Parking Technology Q&A appeared first on PLACES.

Investment trends by market depend on the type of institutional investors involved. Asian capital investors are still quite risk averse compared to other investor groups, and due to the fact that a lot of Asian institutions are still fairly new to the U.S. market, it’s not surprising that they are still focusing on the top tier gateway cities, ones that they are familiar with and comfortable with. However, as this group of investors start to gain some experience in and knowledge of the US CRE market and see that their expected return in these top tier markets is being squeezed beyond their comfort zone, I believe they will quickly start to look at secondary markets much more seriously. They already know this, but are often prevented by their own internal investment criteria and risk control policies, which usually tend to lag behind the realities of the foreign investment markets.

For other foreign investors who may be more familiar with the U.S. market, we are already seeing increased investment activities in what would generally be considered as secondary markets like Austin, Raleigh-Durham, and Denver, but they still look for high-quality assets or well-located assets with an upside with some repositioning or lease-up work. As technology hubs increase in their size and number in various sub-markets around the country (think Apple, Facebook, Google, et al), more job opportunities are created, more millennials are attracted to those cities, and naturally demand for offices, retail, and other real estate will go up, creating new opportunities for investors.

The popularity of secondary cities have a lot to do with the shift and trends in the labor force. Millennials and young professionals in cities like Tampa and Denver tend to stay and work in these cities, instead of relocating. The amount of salary they make, paired with low cost of living, quality of living and access to a broad array of amenities all contribute to their decision to make these cities their home.  Tech firms in these secondary city markets especially, have benefited from their ability to recruit and conserve an important employee base and, as a result, more and more tech firms are setting up headquarters in these cities, taking advantage not only of this key labor force but also of still relatively low office rents.

Investors are also increasingly considering the appeal of cities like Nashville, Charlotte, Indianapolis, Louisville, Portland, Austin and Raleigh-Durham. These cities are showing strong population gains – and are popular with the all-important millennial demographic. These urban centers provide manageable environments with a better value proposition. However, people are not turning to these housing markets solely because they are attractive. Some of the largest markets in the country have become so highly valued that the average domestic investor is better off looking elsewhere – and that elsewhere is these cities that were previously undervalued and overlooked. 

With employment on the rise, has the office sector shown healthy signs of growth AND how has “creative office” impacted office sector robustness? 

There certainly is impact on the traditional office sector from these creative office trends. However, the impact has not been very significant. There’s still a very decent amount of demand for traditional office spaces especially from the financial and professional services sectors – including from banks, accounting and law – and from the government. That being said, many interesting new office designs are emerging with a focus on attracting firms with a younger labor force. Offices like Google, Facebook and many other tech companies have pushed the creative office concept to the front page, and the kind of relaxed and user-friendly collaborative design approach favored by these companies is a magnet for millennials and other younger workers.

Demand for creative office space by tech companies is strong on both coasts as well as in secondary cities across the country. As the tech industry labor force grows – filled with millennials who will soon represent almost 40% of the total workforce in the U.S, – the appetite for creative workspace will grow with it. Tech firms seek spaces that foster more open communication and a relaxed feel-at-home environment combined with the unique design elements that speak to the firms’ culture. Ultimately, this means more and more companies will start to look for flexible space hat can accommodate the specific needs and aspirations of a young workforce – a trend that will impact the leasing market and potentially, office building valuation.

Has the recent volatility in the Chinese economy led to increased Chinese investment in U.S. real estate as wealthy Chinese (and other Asians) seek to move their funds overseas?

Yes it has. And volatility or uncertainty isn’t the only reason that these investors have increased their investment activity in U.S. real estate.

Here are some additional key factors:

• There has been some positive policy shifts from Beijing. The government has increased the limit of investment in overseas real estate. In 2015, the Chinese government took steps to streamline the complex set of approvals necessary for all outbound investment. For a country that usually has the most complex procedures, the change is hugely welcomed. Some recent transactions have showed that the transaction and approval time has been decreased by as much as 5 months.
• The overall economy slowdown has pushed everyone to think of other ways to invest
• The low interest rate environment especially has encouraged firms and wealthy individuals to find new opportunities to increase their wealth and returns.
• Pension funds and mutual funds have to look for new ways to meet their return obligation for their investors. Real estate has always been a type of investment that Chinese people feel more familiar and comfortable with, compared to other financial instruments or other high risk investments.
• The increasing popularity of EB 5 among Chinese people- particularly young parents who are looking for ways to advance their children’s future by enabling a U.S.-based education and the opportunity for their children to live in the U.S.

According to RCA, as of May 2016, Chinese companies have purchased or are buying 47 U.S. properties worth $9.3 billion. That makes the Chinese the most active foreign buyers in the U.S., with more than double Canada’s $4.2 billion worth of deals. By contrast, for all of last year Chinese investors did 71 U.S. deals worth $6 billion. We can now clearly see the upward trend of inflow capital to U.S. Real Estate market from China.

Chinese investment abroad has soared as the Chinese economy has slumped over the past year. Investors are looking at foreign markets to protect their wealth against the volatility at home.The recent low interest environment in East Asia has also contributed to the increase in volume and size of capital outflow to foreign real estate investments. And, as previously noted, the Chinese government has loosened the restriction of foreign investment limit for many Chinese institutional and individual investors, which helped ease the way for increased investment in the U.S.

Even as the U.S. market slows down, buyers from Asia, the Middle East and other parts of the world often are more motivated than domestic U.S. investors. Many are eager to diversify. Others are concerned about risk in their own countries. (Source: WSJ)

Where are private equity investors – including global ones – looking to invest?

The answer to this depends on what type of Private Equity firms are being looked at and what their investment goal is.

• There’s a group of new PE funds that has just started to invest in real estate since these assets that previously were not a focus – are now being seen as a secure return option.
• Diversification needs also play a role – especially for foreign funds such as is the case with Asian PE firms. These funds are looking to hedge the risk from other investments in the fund, allocating certain percentages of their capital in Real Estate. Also keep in mind that until recently, Chinese Private Equity was prohibited from making investments in foreign real estate markets, so again the positive policy change is pushing even more capital out of China.
• Large Real Estate PE firms like Blackstone have always been active, in any kind of market environment. For example, Blackstone is about to close another multi-family deal in NYC, for $620m, an 894-unit complex less than a mile from Stuyvesant Town (its landmark 2015 purchase)

– And, many domestic PE funds are also investing overseas, CalPERS has just invested over $250m to JP Morgan’s Asian Fund, which started fundraising earlier this year focusing on real estate investment across Asia. From this we can see that cross border activities are in play in both directions.

Private real estate funds have more money to spend than ever before, but that’s not necessarily good news for the real estate market.

As of March, private real estate investment funds worldwide had $231 billion in aggregate dry powder – or capital commitments from fund investors ready to be spent. In one sense this is great news for the global real estate market universe.  Most private real estate funds have fixed investment periods, meaning they are contractually required to spend their investors’ money by a fixed date (typically within five years). However the reason the dry powder is at a very high level is also because fund managers are having an increasingly difficult time finding profitable investments.

In 2015, there was notable activity that occurred in buying existing limited partner positions in private equity funds. Some very sizable funds have been raised, which coupled with some investors’ desire to consolidate or streamline the number of managers they have, has led to more buying and selling of existing interests in limited partner positions. Those types of transactions are expected to continue in 2016. That activity is a positive for the broader private equity market as it brings more liquidity to a segment of the market that has typically been considered a niche business.

How will the retail sector continue to transform itself in urban infill locations?

The future of retail is obviously a big topic. Retail transformation is inevitable right now, and we’ve seen continuous transformation already in this sector year over year, it’s just going to change even more over time.

There are a few obvious drivers of the transformation:

• Online retail giants like Amazon obviously have changed the way people shop. However what’s interesting is the fact that Amazon is opening its own brick and mortar stores, not only for books but also for merchandise typically carried by Walmart and Target. It will be interesting to see how this move plays out for them.
• Millennials occupy leadership buying positions. Millennials have now become the main workforce and therefore also represent first-rank consumer power. Their purchase and shopping behavior differ largely from their parent’s generation. Online shopping is obviously their preferred shopping methodology, however the physical store is not completely losing its appeal either. Younger generations look for the “experiential” side of in-store shopping. And this is not only true for what is available to them in stores like Samsung, Apple or Microsoft for technology gadgets, but also what they can find in more traditional retail settings such as apparel and clothing stores.  Retailers of all dimensions are actively seeking new ways to attract shoppers by creating a different and immersive experience for them.
• Shopping centers (not malls) must focus on what makes provides the greatest return on investment and these days those returns are increasingly being derived from restaurants and other entertainment components, like platinum-level dine-in theatres.
• Many popular Instagram users have become the target for clothing brands where they are paid to wear the clothes and post on the account. Instagram users can directly find the piece online by clicking on sponsored links, etc. All of these modalities are aimed at encouraging even more impulse buys.

These are some of the trends that are transforming the way people shop, but that also have significant impact on real estate. Many shopping malls will need to reinvent themselves – substituting entertainment, healthcare, education and adventure for what were once traditional anchor tenants. So when looking at retail, we have to be on top of the most recent trends in shopping and recreation – something that demands that we add experiential, boutique and lifestyle stores to our retail spaces if we are to achieve success.

The post Investment Trends: Interview with Peter Jun appeared first on PLACES.

Aside from reconciliation work, preparing a project budget is often seen as one of the most challenging assignments for a property manager – going above and beyond his/her daily responsibilities. Despite the lengthy budget creation process, which can take 30-60 days, effectively and comprehensively managing line items is the best way to get to know a property and what is most likely to impact value.

A primary pitfall to avoid is simply applying a % increase to prior year expenses. It’s important to independently assess all possible cost changes with respect to vendors, tenants, mechanical and maintenance issues, architectural and landscaping needs that are called for in a new yearly budget and adjust accordingly. The budgeting process is also the perfect time to explore any cause to re-negotiate contracts and/or to identify poorly performing tenants.

What are some strategic tips for re-positioning a project?

When re-positioning a major development, it’s important to meet with vendors pro-actively to discuss targeted goals, ensuring that the proposals they provide are in keeping with all parties’ expectations. Staying within budget and on design message is critical to a successful implementation. The general manager, project manager and owner must convene to understand the timeframe for repositioning all aspects of design and architecture from landscape to exterior repairs, agreeing on vendors and schedules. Another important consideration for re-positioning is conserving project elements that carry warranties. 

What should professionals avoid when attempting to stay within budget?

Some property managers avoid making safety repairs in order to cut costs without recognizing the risk factors at play.  Sometimes it’s necessary to go over and above budget forecasts to correct lighting, security, and/or mechanical issues at a property, and ownership ultimately has the final say in those decisions. A manager’s overarching responsibility is to create a safe environment – even if it means adjusting spending in other investment areas.

What are some common problems that can send a project over budget?

One of the biggest components of the budget to look out for is utility costs, which get billed in arrears. If there is a water leak, you won’t know until after the fact, therefore managers should always keep a close eye on utility consumption, including gas, electricity and water.

Another common problem that can be avoided is ensuring that vendors don’t exceed a proposal basis. When negotiating a time and materials contract, property managers should include a “not to exceed” allowance.  This prevents surprises when scope creep impacts budget by requiring the vendor to effectively manage their time against contract requirements. Architectural and legal fees are two areas where a “not to exceed” contract is essential, because if you’re not checking in with your vendor on a monthly basis, you can go overboard very quickly. When hiring someone on an hourly basis it may seem inexpensive, but having an hourly “not to exceed” contract maintains the scope, timeline and the expectations, so that everyone understands the budget and the agreed -upon fees. 

What are five things to consider when budgeting

1. Coding Invoices – When coding an invoice, think about what has been spent and where the project lies in the timeline. Every time an invoice is coded, its a great opportunity to assess the cost and effectiveness of a service.
2. Consider your Variances –When considering an optional expenditure, a general manager can look to the YTD Variance report to see if there are bottom line savings that can be used.  This is only effective if they understand the extent to which the positive variance is a timing issue (a budgeted project was pushed to a later date) or a permanent issue (a project was cancelled).
3. Safety and Maintenance is Paramount – All properties must maximize quality within a budget with regard to lighting, safe parking and common areas. Work with vendors to discuss value-engineering options customized to your property.
4. Be Aware of Market Conditions – Be attuned to marketing and economic changes that could impact leasing, retention and profitability. Allocating resources for the unexpected is a realistic step toward preparing for inevitable costs like an elevator repair.
5. Educate your Team – The facilities manager should have a particularly strong understanding of the property’s budget because they are often the ones who are in control of expenditure. Always prepare concise objectives on growth and expense control for your team.

The post Avoiding Budgeting Pitfalls: Q and A with Lori Coleman appeared first on PLACES.

Both Shilpa and I shared a love of fashion, but felt unfulfilled by the way the industry was pushing us to consume in an unthoughtful way. Fashion should be empowering and when it came to a woman’s go-to essentials, there was a lack of quality available in the middle range, between fast fashion and luxury goods. So, we set out to fill that gap. We believe you can have amazing quality and beautiful design, and it can still be accessible.

2) You have established storefronts in Washington, D.C., San Francisco, Chicago and Los Angeles – do you expect to grow further?

We want to bring our retail experience to as many of our customers as possible and continue growing our presence in cities around the country, and eventually the world. Cuyana’s showrooms are designed to reflect the same level of detail that makes up our product designs. They embody our fewer, better philosophy with a clean aesthetic filled with curated corners and beautiful product moments. We will be opening a pop-up in New York City in the weeks to come, and also plan on bringing our collections to Chicago and beyond before the end of the year.

3) Is there a typical Cuyana customer?  If so, could you describe him/her?

We design for a modern woman who has set out to accomplish so many things, and wants a beautifully curated wardrobe that will not only keep up with her, but will last a lifetime. Our woman is very intentional about what she invests in. She cares for the pieces in her closet, she is thoughtful about the fabrics and the countries they were crafted in. Each customer styles our essentials with their own personal touch.

4) Would you recommend retail entrepreneurship to young people pursuing a business career?

Retail is an exciting space to be in right now. It is changing and evolving with the digital fashion age, and currently allows for more creativity and innovation than ever. Those who are passionate about innovating the fashion landscape will find it to be both challenging and exciting.

The post Retail Spotlight with Karla Gallardo, CEO and CoFounder of Cuyana appeared first on PLACES.

The Goodlatte plan won early plaudits from House Speaker Paul Ryan and Amazon.com, the online retailing behemoth, which already collects sales tax from customers in 28 states. But other retailers remain lukewarm, and their support likely will be crucial to completing work on a measure this year. Of the House Republican’s proposal, the Marketplace Fairness Coalition, the umbrella group for brick-and-mortar retailers and other supporters of an online sales tax, has said only that it was “pleased to see engagement in the legislative process on an important issue” and looked forward to reviewing the bill’s details.

Since the rise of e-commerce, the failure of federal policymakers to enable states to collect sales taxes from online retailers has placed brick-and-mortar operators at a competitive disadvantage. A 1992 ruling by the Supreme Court found states can only force a company to collect sales tax if it has a significant presence in the state where the sale occurred. Consumers still owe the tax otherwise, but the state government has no way to compel its payment.

Under Goodlatte’s proposal, an online retailer would use the rules of the state in which it’s based to collect sales tax at a rate set by the buyer’s state. The Senate version that Goodlatte shunned adopted a simpler system. Under it, a state could force an online retailer based elsewhere to use both its rules and rates to collect taxes on sales there.

Ryan is expected to try to force a vote on Goodlatte’s bill during the Congressional work period preceding the election. But it’s so far unclear whether it has the support to pass, since conservative House Republicans remain skittish about embracing anything that could be construed as a tax hike. And even if it does, it isn’t immediately evident whether the measure has a path forward in the Senate before the end of the year. Failing to secure passage of a harmonized package in both chambers by the end of the year would mean supporters of an online sale tax would need to start again next year with a new Congress.

Goodlatte’s bill tries to address some concerns that conservatives raised about the Senate approach. One complaint they lodged: The Senate bill violated state sovereignty by empowering states to collect levies beyond their borders. In allowing the seller’s state to choose what gets taxed, the Goodlatte version aims to hand companies more authority to determine the taxes they face, as opposed to subjecting them to the whims of lawmakers in other states. (Since unlike many major online retailers, Amazon.com already claims significant physical presences across the map thanks to its distribution network, the company simply wants to see the imposition of a uniform national standard.)

If Congress fails to act, the Supreme Court has signaled it could move to revisit its 1992 ruling. Last year, Justice Anthony Kennedy noted in an opinion on a related case that state coffers and retailers continue to suffer under the current system and that the Court should weigh in. The comments moved state lawmakers in several states to pass proposals with the aim of bringing a legal challenge to the high court.

In the months ahead, PLACES Magazine will continue to monitor progress on this  crucial issue for retailers all across the country.

The post Policy Report: The Outlook for Online Sales Tax Legislation appeared first on PLACES.

Over 90% of the time, the average individual researches a service or product online before making a purchase. Amazon, Uber, delivery innovation and smartphones have revolutionized consumer behavior across just about every category. As Pinterest and Instagram provide a platform for swoon worthy wardrobes, home décor and recipes for a year’s worth of family-friendly meal planning options, the physical retail space has taken a secondary role to merchandising goods and services.

In 2014, Deloitte reported that as a result, retailers were likely to downsize stores by 30-40% in the medium to long term, due to emerging mobile platforms and the fact that even consumers in rural zip codes who once had limited access to popular urban brands, now have equal access to retail offerings with the Internet.

Users check their smartphones more than 200 times every day, and it’s changing the way we discover, compare and purchase products and services. According to the Google Shopper Marketing Agency Council, 79% of smartphone users are smartphone shoppers, and the more a consumer uses their phone to research or compare products, the more apt they are to spend (up to 25% in store). This is indicative across consumer categories from groceries, to appliances and clothing, and is forcing retail brands to rethink merchandising, inventory and virtually every traditional aspect of the brick and mortar business model.

Clarifying how brick and mortar and digital merchandising can meld together successfully, Oliver Guy, retail industry director of Software AG says, “Mobile, cloud, analytics and social media will be fully integrated into a unified merchandising system designed to vastly improve customer engagement.” The evolution is happening round the clock with streamlining payment options, and same day delivery.

Mobile e-commerce also provides retailers an even more sophisticated and geo-targeted platform for market research on consumer trends and habits, further enabling shoppers to access and source desired products and services. An estimated 73% of in-store shoppers find waiting in line their least favorite aspect of shopping, making same-day delivery services all the more appealing. In a recent report by MobStac, (a cloud-based mobile commerce platform delivering apps for e-commerce sites) by 2017, nearly half of all in-store transactions will be completed via mobile point of sale or a self-checkout feature.

Clicks Are Only a Small Percentage of Retail Sales Now, But Have Exponential Growth Projections

Mass adoption of universal pay options will make it increasingly easier to purchase everything from shoes to cat food through a quick click secure transaction on a smartphone. Still, while shopping online has become a popular pastime for some, Jonathan Alferness, VP/Product Management at Google Shopping claims that, “while 87 percent of shopping research happens online, 92 percent of goods are still sold in retail stores.” And according to Women’s Wear Daily, mobile is still just a small part of most companies’ top lines.

Retailers are downsizing physical locations to devote more mindshare to digital sales points. A telling indicator of the changed psychology behind new retail development comes from a comment Denver-based developer John Frew made in the Wall Street Journal recently when referring to the new Westdale development in Cedar Rapids, IA. “The new project will include a hotel and offices…and when complete, there will be about a third less retail space than there was before. We think it fits the market.”

While online sales made up only about 7.7 percent of personal consumption expenditures for apparel, home and accessories categories in 2014, according to Goldman Sachs, that number is expected to nearly quadruple to 26.6 percent of sales by 2018, which could correlate to a further decline in brick and mortar foot traffic and in-store sales figures. Software AG’s disruptive digital trends predictions for 2016 include predictive analytics that enable stores to know what customers are going to want and when, as well as real-time monitoring capabilities that will sense, correlate and automate processes from staffing to inventory. With the precision of the metrics, excess store locations will get eliminated in the process.

The Rise of Same Day Delivery Services

What was once known as a business model for failure, same day delivery platforms have become increasingly the norm and expected for modern consumers. In 2015, Business Insider reported that same day delivery companies would partner with retailers to “grow e-commerce’s customer base, siphoning off one of brick and mortar retail’s last real competitive advantage.” According to their research, one in four shoppers said they would consider abandoning online shopping if same-day delivery was not an option, and the most common shopper demographics were urban-dwelling millennial males. However, 92% of consumers said they were willing to wait four days or longer for their purchase to arrive.

Inc. Magazine recently identified several companies that are defining the same day delivery option including, Instacart, Amazon’s same day grocery delivery platform, and Zookal, an Australian-based textbook delivery that plans to employ delivery drones using the flying-bot service called Flirtley. Most notably, San Francisco-based Postmates is positioning to compete with Uber’s market share to deliver everything from lunch to clothes and office supplies. Google Express is in on the game, launching a new grocery delivery service in 2016.

UberRush, launched in New York City, and now available in Chicago and San Francisco, is a local messenger service arm of the ridesharing company, allowing users to order local items for quick delivery. Deliv, based in San Francisco, allows retailers to offer same-day delivery to customers for as low as $6.25 per order within 15 miles. London-based Shutl, purchased by eBay in 2013, uses local courier services to deliver packages from retailers within a few hours. Amazon Prime’s same day delivery is now available in almost 30 cities nationwide, (more than double the locations available just two years ago) and has expanded delivery service to seven days a week. EBay now offers one- to two-hour delivery of products ordered from local stores to over 25 cities.

Ready to battle for part of Amazon’s customer base, Daphne Carmeli, the founder of Deliv has developed the company’s efficiency model on the idea that local businesses and retailers have inventory within a five-mile radius of their customers, which is the one thing Amazon doesn’t currently have. Potential venture partners in Silicon Valley have met her with skepticism, but she remains confident. “One way you know you are on to something is when you get polar opposite responses, that is a good sign you are on to something disruptive.”

If there’s one takeaway from the collective methodology emerging from big data, mobile access and same day service, it is that we are in an era of disruptive technology that is influencing and advancing the retail landscape at a rapid pace. Only brands that can fully employ the data on their customer demographics, streamline and automate purchasing and delivery, and develop customized, well-crafted goods and services will survive the pace of progress.

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A mega-trend that has shaped the retail industry over the last several years has been the successful growth of off-price retailers like TJMaxx, Nordstrom Rack and online flash sale sites like Gilt and Rue La La. H&M and Forever 21 are gaining more and more ground and backfilling anchor spaces, while American retail icons J.Crew, the Gap, and department store mainstays like Ralph Lauren and Michael Kors are flailing. According to the National Retail Federation, the turmoil in apparel retailing manifests itself in the negative year-over-year sales performances of clothing dependent retailers as Macy’s, Gap and Dillard’s, while even Target, Kohl’s (No. 24) and Ascena Retail Group (No. 87) saw gains of 1 percent or less.

Meanwhile, TJX Companies, Nordstrom Rack and Amazon are citing record sales numbers.

Revenues at department store chains Macy’s, Nordstrom and Kohl’s in 2015 were down $640 million from the prior year, while Amazon reported a $6.4 billion sales gain. So what exactly is accounting for this disruptive change in consumer buying habits from full-priced, well merchandised stores to off-price and online? Analysts say there are two major factors, starting with the fact that brands have conditioned shoppers to expect a sale of 30-40% the retail list price. Second, the demographic with the most buying and trend-setting influence is looking for something far different from prior generations.

The millennial mindset is interested in custom, curated, American-made quality products at affordable prices. If Baby Boomers and Gen X were label conscious with Gucci and Burberry logos, millennials want a pair of jeans from a micro-fashion start-up in L.A. that are produced in small and sustainably sourced quantities. Equally, they value experience over amassing product, despite still needing to make everyday personal and home product purchases. Enter Amazon, TJMaxx, and the proliferation of online flash sales and luxury consignment sites where the 25-44 year old crowd is likely to be found.

Department Stores vs. Their Off-Price Counterparts

Off-price conglomerates like Amazon and TJX Companies have become the go-to for consumers looking for a Calphalon skillet, new sheets or a pair of sneakers at half the price they would pay at Williams-Sonoma or Macy’s. By 2020, Nordstom Rack is positioning to add 120 more stores to their current 300 in operation. Part of the lure of a visit to TJMaxx or Saks Off Fifth is the treasure hunt; the magic of which is their constantly refreshed inventory. TJX Co. sources from more than 16,000 vendors in over 75 countries, allowing customers to experience constant surprise and discovery over what they may find.

The psychology behind what some consider the rising and steady popularity of the off-price retailer is that when the cost of goods appears to be less, shoppers end up buying more. The excitement of the find disrupts the rational decision making as to whether the item is a worthwhile or necessary purchase. Part of what constitutes the low prices at TJMaxx comes by way of a direct from manufacturer supply chain strategy employed by the company.

While the last several years have seen the demise of off-price stores like Daffy’s, Loehmann’s and Filene’s Basement, TJMaxx, Nordstrom Rack and European discount chains are soaring in popularity and sales numbers. TJX shares have risen over 200% since 2010.  Nordstrom Rack now has more stores than its full-price equivalent, and has opened 27 new stores in 2014 alone. Last year Macy’s launched its Backstage off-price store, with six brick and mortar locations, hoping to replicate some of the success seen with Nordstrom Rack.

Consider the number of off-price luxury brand outlets, compared to their full-price counterparts. Off Saks has 82 locations, compared to 31 full-priced department stores, while Neiman Marcus has 43 off-priced stores compared to 41 full-priced. Nordstrom Rack makes up 40% of overall sales for the company, a 10% increase from three years ago. According to Buzzfeed, Nordstrom Rack brought one million new customers to their full-priced stores and Nordstrom.com in the last year, and reported 26 straight quarters of double-digit gains; further cementing plans to add new Rack locations in the U.S. The news was not so good for the full-priced stores; with recent reports of a 5.4% drop in business, and less than predicted gains in online sales.

Another argument by retail analysts on the success of off-price retailers is that they are typically not located in traditional mall settings, but rather in strip mall, and urban centers where customers are likely to be shopping or running errands.  And the Economist reports that fast evolving trends and fickle consumers make it harder for brands to predict which clothes will sell, “leaving more inventory for TJX and Ross to buy at discount.”

Alternatives to Off-Price Department Store Brands

Online auction and flash sale sites specializing in both discounted designer ware and consignment have exponentially increased over the last five years. The rise of Tradesy, Gilt, Nordstrom’s HauteLook, Vestaire Collective, Yoox, FarFetch, the RealReal and ThreadFlip have lured shoppers toward the thrill of the hunt, as well as the thrill of the deal where a twice-worn $700 Isabel Marant jacket goes for $95 on Tradesy.

The news that off-price is king in America has made its way to Europe. Strong sales numbers for low price international chains like Primark, Aldi and Lidl have allowed them to expand further into the U.S. market. Irish apparel and home goods retailer Primark has announced 10 new stores in the U.S. for 2016 alone, and by 2018, Aldi and Lidl will each have 2000 new stores in the U.S. According to the Local Data Company and BBC, the UK’s Poundland, along with supermarket chains Aldi and Lidl have grown 48% over the last five years.

From the sales declines at Saks Fifth Avenue, Barney’s and Nordstrom, and the rise in reach and popularity of off-price retailers, one thing is markedly clear. Today’s consumers are keeping increasingly close tabs on their purse strings; they’re making online and mobile price comparisons an American sport, and are unwilling to pay full price for moderate quality. The brands that are able to compete in the 2016 marketplace are offering an experiential atmosphere in their brick-and-mortar locations and brand-name product for lower than market prices. They keep their inventory fresh and inventive; and have diverse, high quality products with fair and transparent pricing in exchange for the quality, curation and construction of goods. As the universe of national retailers continues to shrink, the next evolution of brands cannot totally fill that vacuum, so the question remains, will the retail footprint continue to contract or will there be enough new retailers that grow in size and customer base to fill the void?

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