Competing with E-Commerce: Lessons Learned from a Retail Developer

Imagine walking into your nearest sporting goods store to buy a new pair of running shoes. You find the pair you like, but there are none in your size. What do you do? Standing in the aisle of the store, you pull out your smart phone and scan the bar code. Within seconds you have ordered the shoes you want. Later that day, while sitting in traffic, you buy the rest of your running gear on your phone. We no longer have a reason to leave our computers or mobile devices to shop. So, how do those of us who make our living in retail real estate combat this phenomenon? In short — we must create a reason to visit our stores.  

The combination of the boom in e-commerce and the proliferation of The Experience Economy, first described in Jim Gilmore’s 1999 book of the same name, is driving the experiential retail trend, which has fundamentally changed the way retailers, landlords and developers must think. Athleta is a great example of a retailer that has fully embraced experiential retail.  Formerly an online-only retailer, it now offers in-store boot camps, outdoor yoga and running groups through local track club partnerships. 

The e-commerce boom is being driven by Gen Y, which now makes up one-third of the U.S. population. Retailers must appeal to Gen Y on its terms. The first generation of digital natives, Gen Y looks to social media and the Internet for recommendations and information but seeks out in-person interactions….experiences. 

Long considered an industry leader, Rick Caruso is one of the early pioneers in experiential retail, long before the phrase was coined. When you visit The Grove in Los Angeles, you immediately sense something is different, you feel like you are no longer simply shopping but have been transported by the experience to a different “place”.  We have studied the Caruso model and have incorporated many principles into North American Properties’ projects. First and foremost, we have acknowledged that we are in the hospitality business.  We must craft the experience, much the same way a restaurateur or hotelier does, to manage energy throughout the day, merchandising our properties with retailers who recognize that this is the future of retail.

Two years ago NREI wrote a story about our team’s plan to turn around Atlantic Station, an ailing property in midtown Atlanta. As the NREI writer noted, we focused on providing unique experiences to the large Gen Y creative class in Midtown. We gathered recommendations via social media, re-merchandised the property with retailers and restaurants that resonated with our target audiences, planned a non-stop calendar of events and increased customer service to create … you guessed it … an experience.

We are now seeing the results. In the last two years, sales have increased by $135 per square foot, and we have signed 18 new leases. Several national retailers at Atlantic Station are outperforming sister stores by 2.5 times or more. Holiday sales in 2012 were up 14 percent, compared to a national average of 4 percent. And across the property, we have consistently seen double-digit sales growth. 

The future of retail is quickly shifting. Experiential retail is here to stay.  From it’s beginnings with children’s retailers like the Disney Store and Build-a-Bear, it has evolved to be embraced by virtually every brand in the business. Now, successful operators of retail properties are jumping into the game. 

As retail landlords, we have always been more retailer than landlord.  We are in business with our tenants, taking on the responsibility for assuring their health.  Now, more than ever, we must follow their lead, extending the experience they are creating in their stores to the property level, driving sales and ensuring the value of our properties.

Mark Toro is the managing director of North American Properties.Toro is known in the real estate industry as a social media leader. An industry veteran, Toro has led the acquisition, development and redevelopment of more than 19 million square feet.