The FTSE 350 Index of General Retailers fell by 12% before a slight recovery, and is now down by around 9%. There’s little question the retail industry post-Brexit will have to be more agile, digital, capital-intensive and more responsive to change than ever before. Aside from sales numbers, there’s the human cost to consider. The retail sector is an important part of Britain’s economy, responsible for 11% of output and 4.5 million jobs in shops, ecommerce and physical distribution. One fear is the status of EU citizens currently employed by the industry that are living in the UK on work visas. With the nearly 2 million EU citizens employed in the UK’s retail sector, concerns have risen about changes to their visa requirements and whether they will be allowed to remain in the country sponsored by their employers.

 Fallout of the referendum is showing mixed results thus far, and it’s far too soon to predict long-term effects. British department store chain John Lewis reported lower than normal sales in the week following the referendum, but regardless of sales declines across industry, major investment banks like Goldman Sachs said they would work to keep London the epicenter of global finance and commerce.  Especially since it could take at least two years for the UK to extricate itself from EU structures and regulations.

 Two of the biggest international retailers that could be affected from the Brexit market fluctuation are H&M and TJX Co, the parent company of TJ Maxx, Marshall’s and HomeGoods. H&M’s share prices fell 10% in the days following the vote. Michael Kors, Tiffany and Ralph Lauren were also hit with declining sales.

 According to Lesley Batchelor at the Institute of Export, the Brexit vote will deliver changes in rules and regulations for online retailers. However, UK-based online retailers will be able to sell a lot more goods abroad priced in sterling, as their prices are much cheaper now compared to overseas rivals. “The negative effect of Brexit in terms of currency fluctuations is very real,” says designer Thomas Cridland, owner of sustainable fashion brand, Tom Cridland. On the flip side, some say the pound weakening has made expensive products more attractive to international buyers, especially from Asia, increasing projected sales potential.

 The EU is widely considered one of the most successful partnerships in recent history, therefore it’s not surprising that there would be an intense reaction to the idea of destabilization that comes with the separation from one of its strongest countries. Surveys of manufacturers and services firms in recent weeks suggested the economy was shrinking at the fastest pace since 2009.

Regardless, many analysts feel the hand-wringing over the EU referendum is overblown. The UK vote to leave is just one in a series of previous decisions that have blocked progressive policies that would allow other member countries greater economic flexibility. If anything, their vote to leave has freed up Germany, France and Spain to move forward on economic opportunities that would unify other participating countries. So while the number of people visiting British retail shops fell 3.4% in the days following the referendum, CBI’s chief economist Rain Newton-Smith says we should be cautious about reading too much into the vote’s economic outcome too soon. 

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The Stable Economy Favors Growth: The five year-long bull market in the United States gives impetus to the notion that commercial real estate (CRE) offers strong investment advantages – especially in markets where supply is limited and the book value of projects has been growing incrementally.  In December, the Federal Reserve encouraged CRE investors with predictions of long-term stability in the markets and very limited inflation. Employment gains across the country also augur good things for CRE as demand for office (principally creative office) has grown apace.

 Urbanization and The Millennial/Boomer Effect: An explosion of milennials into the workforce and their preference for inner city life has fueled expanded development for office, residential and retail in core markets across the country. Added to this trend, a stream of boomers leaving suburbia behind for “downsized” urban dwellings, has strengthened and made more competitive the growth of city neighborhoods that offer a range of amenities and transportation options.  This demographic shift is predicted to continue into the next decade or more – and will reward investors and developers who can leverage demand with appealing and well-priced supply.

Ecommerce Shaping Retail Development: The growing impact of ecommerce on bricks and mortar stores will be felt even more strongly in 2016 and in the years ahead.  Shifting shopper preferences and space pressures in urban core markets will lead to an expanding palette of mini-shops (City Target) and quick trip store formats that cater to office workers with limited time and micro-unit residences.  At the same time, retailers will be investing ever more heavily in technology solutions that can compete with the convenience of ecommerce and experiential scenarios such as cocktail receptions, in-store fashion shows and pop up stores that make a shopping trip “fun and fierce.”

Increasing Foreign Investment in U.S. Real Estate: Despite some hiccups in the Chinese economy and the economic pressures felt by Europe because of the migrant crisis, foreign investment in U.S. real estate will remain strong. The passage of FIRPTA reform in December, 2015, has been a factor in expanding investment by foreign pension funds – including Canadian and Asian funds.  The Association of Foreign Investors in Real Estate (AFIRE) reported recently that its members expect 2016 to be a growth year.

 Core Market Appeal: Urban gateway markets (New York, Boston, Washington, D.C., Los Angeles, San Francisco and Seattle as examples) will continue to feel strong demand for office and residential space.  This trend rests on demographics (see trend 2 above) and on limited options for development or redevelopment because of geographic boundaries and pre-existing density.  Developers with expertise in adaptive re-use of properties in key urban locations will fare well and are seen to be active in these high in-demand locations.

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More than just showing up: Experiential marketing is a two-way relationship between consumer and brand. Shopping malls know first-hand that engaging customers takes more than just showing up. In today’s competitive retail environment, it is vital that marketers give customers an invaluable experience that surpasses their initial purchase. Building “brand love” is more than creating foot traffic in your center. It necessitates a true commitment to crafting memories that are not only treasured, but ones that will capture the consumers’ attention so they come back for more. For example, lululemon doesn’t want shoppers walking out the door because their size or color choice is not in store. Consistent in any lululemon store, lululemon has stationed iPads throughout the shop so a lululemon sales associate can search for sizes and colors to order directly from the website and have it shipped to the customer’s home or office.

Consumer Choice: Retailers are forcing the consumer to make choices between the convenience of online shopping and truly experiencing the brand in a brick and mortar setting. The main challenges facing shopping centers includes; the potential for information overload, streamlining their messaging and learning how to add another layer of experience. Consumers are becoming more selective in the brands they buy and the shopping environments in which they make those purchases. What marketers are beginning to realize is that malls have an “in” on what will become a sought-after trend – new fall fashions, window displays, hot cuisine trends.  More and more, mall marketing teams are “hacking” their own social pages and using them to capture shopper interest via Instagram or Pinterest. Another area for enticing and keeping the customer’s attention is by creating an environment that makes the shopping experience unique and fun. Trendsetting Urban Outfitters recently acquired The Vetri Family’s Italian restaurants. The retailer offers its customers pizza for snacking on, which has been successful in satiating both the customer’s hunger for food and fashion.

Customer Interface: Customer interaction is key to creating that personalized encounter. More and more, retailers are bringing back “customer service” through vehicles that make consumers feel good about their retail shopping choices. For example, personal stylists curating fashions for customers, such as Trunk Club, which was recently bought by Nordstrom, have generated a luxury-inspired service that feels exclusive, but caters to all consumer budgets. Restoration Hardware offers a membership program, where customers pay a $100 fee to receive “member” discounts, and have access to personal design consultants who can help them decorate an entire home. Shopping Centers have also capitalized on this model as they continue to make shopping a more convenient and pleasurable experience with VIP perks such as parking, charging stations for electronics, free Wi-Fi, shopping bag storage and same-day delivery.

Pay It Forward: Shopping Center marketing teams often struggle with not being in complete control over the customer’s experience. Today, communication has become transparent with social media re-posting, re-gramming and re-tweeting, and marketers know that showing customers that they place a high value on their choice to shop at their center is key to creating brand loyalty. By “paying it forward,” malls can express their appreciation so shoppers feel pampered and rewarded. It pays to be kind, and with that in mind, Shopping Centers can take that meaning literal by thanking their customers through humble gestures, which leave a lasting impression. This can be demonstrated by something as simple as offering to carry shopping bags to their car or an Uber-type car service to drive them to their hotel, office or next destination. Retailers are paying it forward to, for example, if it’s raining, the Dry Bar, known in the beauty industry as the premier blow dry specialists, gives complimentary umbrellas with the retailer’s logo.

When used to its fullest capacity, experiential marketing can produce endless possibilities and successes for shopping malls. By creating meaningful experiences, the marketing strategy goes beyond the shopping center entrance and can influence and inspire customers. Honing in on targeted experiential marketing tactics will ultimately translate to increased foot traffic, “brand love,” and retailer leasing opportunities.

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Report after report has shown that the modern consumer, especially millennials, values experiences over material goods. Smaller homes, fewer cars, and closer proximity to urban environs are all definitive of a growing trend toward less consumption and more experiences. According to John Gerzema and Michael D’Antonio, authors of the book Spend Shift: How the Post-Crisis Values Revolution is Changing the Way We Buy, Sell, and Live, 77% of the American population values how they spend their time over how much money they make. Their research also found that more than “two-thirds of the U.S. population preferred a reduction in consumer goods, with less emphasis on displays of wealth.”

Paired with the growth of e-commerce, this consumer shift has malls across the country losing traditional department store anchors like Macy’s, Sears and J.C. Penney. Sears recently announced it would close another 78 stores by summer 2016 and according to research and consulting firm Customer Growth Partners, these stores have been losing market share year over year, leaving them with only 2.5 percent of the U.S. retail market in 2010. In the last few years, mall food court staples like Sbarro and Cinnabon, have filed for bankruptcy protection, along with several others in the same category. Consequently, developers are coming up with alternative mixed-use platforms like luxury high-tech movie theaters, bowling alleys, grocery anchors and outdoor programming like yoga and concerts to turn malls into more community driven “experience and lifestyle centers.”

From Department Stores to Whole Foods

In a recent New Republic article called “The Mall is Dead. Americans Shop at “Lifestyle Centers Now,” the author described these centers as a “21^st Century, community-oriented alternative to the soulless shopping mall.” The International Council of Shopping Centers (ICSC) describes them as “multi-purpose leisure-time destinations, including restaurants, entertainment, and design ambiance and amenities.” The Grove in Los Angeles, one of the highest grossing mall destinations in the country, is one such location; featuring a fourteen-screen Art Deco movie theater, live shows, and a popular farmer’s market—offering far more than the traditional mall model of the past.

Lifestyle centers have been cropping up in affluent zip codes for the last two decades, and feature a combination of mixed-use developments with surrounding apartments, restaurants, post offices, movie theaters and grocery stores. Whole Foods, Fresh Market and Trader Joe’s have replaced Safeway and Kroger for marketshare of consumers who want fresh ingredients, popular organic brands, artisanal cheese and craft beer. Williams Sonoma and Pottery Barn have replaced Macy’s and J.C. Penney for home furnishings, and movie theaters have become increasingly interactive with 3-D screenings, reclining seats and custom menus.

Large centers like the Mall of America and West Edmonton Center have always have large entertainment anchors, but more and more malls are moving toward the model of having equal parts retail and experiential to meet the demands of the consumer market. Today, one in four malls across the country features at least one non-traditional anchor tenant, according to research by Jones Jang LaSalle. And in order to maintain pace with competition, a mall can’t just plug in a traditional bowling alley or movie theater. In fact, White Hutchinson Leisure and Learning group, a consulting firm, recently reported that some centers are becoming responsible for both funding and operating their own entertainment values; a notion that runs counter to the traditional mall business model of managing and leasing individual brands and space.

The Rise of Mixed-Use Retail and Experiential Entertainment

 Vanity Fair recently reported that moviegoers are no longer interested in the greasy popcorn and boxed candy offerings at concessions stands of yore. They want dry rubbed pork belly and a handmade cocktail to accompany the latest installment of Captain America and the Hunger Games. Nitehawk, an indie theater in Brooklyn and Alamo Drafthouse in Austin are two such examples of theaters reinventing the movie going experience, with personal wine lockers, leather seats, thoughtful movie selections, and apps to pre-order food, tickets and seats in advance. At Harrisburg Mall in Harrisburg, Pa, Jones Lang LaSalle Retail brought in Broadway Classic Productions, a local theater company, as a replacement for the former Boscov’s department store.

Madison Marquette recently added Silverspot Cinema, a 13-screen luxury theater featuring a dine-in restaurant and bar to University Place in Chapel Hill, NC. A boutique movie theater chain boasting an “enhanced entertainment experience” Silverspot is a prime example of where the aesthetics of movie theaters are headed.   Inc. Magazine recently made several projections on what the movie theater of the future will encompass, and the results were interactive, 4-D and customized. Linking the technologies of Wi-Fi, NFC, RFID, Bluetooth and iBeacons, interactive advertising and voice activation will become more integrated into the movie theater experience.

With immersive sound systems, 4-D technology and virtual reality, as well as subscription services that mimic Netflix, where you pay a monthly fee for unlimited access to movie viewings, theater owners are combining tech and innovation to sell tickets. Theaters are also beginning to offer alternate programming to appeal to broader audiences, such as opera and premiere symphony screenings, and other limited performances viewings. If consumers can access any iteration of iTunes, Netflix, Amazon Prime, OnDemand and Hulu subscriptions from one high definition screen in their living room, movie theaters and other virtual and gaming experiences need to continue enhancing their physical environment with interactive dining and luxury seating to lure a new generation of movie goers.

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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 mobile to research or compare products, the more apt they are to spend more (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 pay 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 m commerce platform delivering mobile 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 soap to dog 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 palatable 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 Flirtley. Most notably, San Francisco-based Postmates is positioning to compete with Uber’s marketshare 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 clip. 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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