These are times of change for retailers, but if you watch the sector closely, as is the case with a group of experts who participated earlier this year in a Business Record roundtable, that really is nothing new. 

The agent forcing change this go round is e-commerce, which accounts for slightly less than 10 percent of all retail spending, but muscles its way to remarkable growth year after year.

Storefronts are not going away, our experts agreed; retailers from street-level stalwarts such as Hy-Vee Inc. to online startups such as Warby Parker are reading the data on shopping habits and making changes necessary to their survival.

National retailer West Elm factored into a lot of the discussion with panelists Jake Christensen of Christensen Development, Tyler Dingel of CBRE|Hubbell Commercial, Tim Leach of the Downtown Community Alliance and Christopher Stafford of Cushman & Wakefield Iowa Commercial Advisors.

The home furnishings company opened a store last year in the East Village. Heads turned. It was a big deal. Maybe what is most interesting, though, is what happens behind the scenes as the Brooklyn, N.Y.-based company collects data from its storefronts and its online orders to help make decisions on where to locate.

“I think the retailers that are set up to succeed are the ones that are really looking at both streams to reach their customers, figuring out how to utilize both of those,” said Jake Christensen, who was a co-developer of the mixed-use building where West Elm resides.

Creating an experience around the shopping experience is important to success, even if you shop the omnichannel aisles with your smartphone from inside the store.

“Going out and buying a bar of soap or container of Tide, that becomes a commodity, it’s a repeat order,” Leach said. “If you put those on the Amazons of the world and they’re just having it delivered to your door, how do you create the experience for the consumer? I think, in turn, you’re going to see a shift to those experiences, and retail will have a different definition of that.”
For retail, there are more changes ahead, and that will be something new.

Watch the roundtable video in its entirety here. Watch the other four videos at businessrecord.com/arem.

 

We usually start these with a question about the upcoming year, but I’m curious to know whether there were any retail surprises in 2017.

Tim Leach
I don’t think there were any surprises necessarily. I think the marketplace might have looked up when West Elm announced; that was a great addition to downtown and taking advantage of the growth and the momentum of the East Village. I don’t think anybody was really surprised at all, to my way of thinking, anyway. I think that the momentum that we have with the residential land kind of lended itself to a West Elm location.

Tyler Dingel
I think one of the surprises was holiday sales, how strong they were. I think retailers fared pretty well, from what they were anticipating, anyway. I think there was a lot of concern going in as to how well sales would perform, and they beat expectations. Quite frankly they needed to; there are a lot of groups out there that were struggling and needed that strong sales.


Was that from brick-and-mortar stores, online, or both?

Dingel Both brick-and-mortar and online. The online sales are still a pretty small percentage of overall sales during that time period, throughout the year even. What’s interesting is the growth, the increase of what that percentage, that percentage gain has been pretty drastic over the last few years. Really, we see that kind of continuing for the next few years until it stabilizes.

Christopher Stafford
I think surprise was not necessarily in retail as much. I think the Apple announcement in Waukee was off a lot of people’s radar, including mine. To Tyler’s point about bricks and mortar and retail online sales, I think a little bit of those numbers are skewed because holiday sales always go up and you start to see the store closures in the first quarter, and we’re starting to see that. Just yesterday, we saw Bon-Ton Stores Inc. announce two closures of Younkers stores in Iowa. You have Babies R Us, Toys R Us closings in Des Moines. We’re starting to see those sales, but at the same time we’re starting to see the natural downsizing. I don’t know if that’s a shock, but to Tyler’s point, the sales were strong, which is definitely showing consumer spending is still there; it’s just how they’re spending it and where they’re spending it.

Jake Christensen
I don’t think I have any surprises, but to tie down to Tyler’s point about the bricks and mortar versus the online. In the conversations with West Elm, it was interesting how they were going to track their online sales from Des Moines-area ZIP codes after they had bricks and mortar in place. I think the retailers that are set up to succeed are the ones that are really looking at both streams to reach their customers, figuring out how 
to utilize both of those.


When Five Guys opened in West Des Moines, didn’t I hear that that they did more sales on their opening than they have in any other part of country?

Christensen
I think they opened very strong. They have some kind of demand in the market. It just means that us Iowans like a hamburger. West Elm had that happen. It was the No. 1 opening in terms of attendance for an opening in the last year, and there were 13. It opened last year. Then they also had the highest sales for an opening day in any of those 13 of last year. I think Iowans show up for that kind of stuff.

Leach
There’s a lot of pent-up demand. Most people in this market have seen Five Guys in another market. We finally get one here in these medium-market cities like Des Moines, and I think it’s a good thing. Even the sports events, the Solheim Cup kind of placed a record for that event. It was an amazing event, and I think the same thing goes for the Principal Charity Classic. This is a great market for people who really like those things.

Dingel Retailers that are performing well really lean on data and analytics to drive their decision-making. A group like West Elm is probably, not only are they monitoring online sales after that store opened, they’re monitoring those online sales to figure out where they should focus for that next store. If they see a large amount of shipments or orders coming from Central Iowa, for them it makes sense to then put that physical location here.
We’re seeing that across all retailers. They’re figuring out they need to have — even a group like Amazon that has started online and has been the biggest online giant has figured out we need a physical presence as well.

Christensen
You’re seeing that in the marketplace, this same phenomena with online retailers like Warby Parker, Oliver Wicks. Those that were strictly online sales are now opening stores. You don’t leave a Warby Parker store with a pair of glasses but you can pick them out, try them on, and then go online and purchase them. You’ll see a lot more of that. They are using that data to help stock what people are buying in the stores as well. The data set is a good way to set it. They’re really using that to guide those online sales and products mixes.

Leach
To that point, today’s modern consumer we see really favoring “experiential” real estate. We’ll use the word a lot, experiential, in terms of over physical goods or commodities. I think we’ve seen it shifting all over the place, to the point of online sales. Going out and buying a bar of soap or container of Tide, that becomes a commodity, it’s a repeat order. If you put those on the Amazons of the world and they’re just having it delivered to your door, how do you create the experience for the consumer? I think, in turn, you’re going to see a shift to those experiences, and retail will have a different definition of that.

There are places where you can’t do it online. Fitness. Places where you can go to a movie theater, a go-kart track, a beer hall. These sorts of experiences that you can’t buy on Amazon. I think those will be successful.

Stafford Every retailer out there is trying to figure out where they take their brand and whether they can be successful.

Christensen
I think that they’re definitely trying to do that for the districts like the East Village. When West Elm flew their team in, I think you were talking about experiential retail. I think that experience is not only inside the door and in the store, but also everything you do to get to that store.
One of our weaknesses in downtown specifically is that our one, three and five [demographics radius in miles] doesn’t really indicate the economic strength of what’s going on down there. We were in an uphill battle with West Elm, but when they came into the meeting, there were nine of them. I saw three Raygun bags, an AllSpice bag, two or three other things that were clearly from the East Village. I thought we had a real shot of our team being able to negotiate with them because they were experiencing what the district had to offer and wanted to participate in that. In their review of the market, it worked. The East Village sold itself as such.


What retailer would be a big get for the area? Do you have one that’s on your wish list for Central Iowa?

Dinge
l One I hear a lot is Topgolf. It’s more on the experience side. The closest location would be [Overland Park, Kan.] but people really enjoy that experience. It’s not just for folks who play golf. The folks who rarely played golf were more into it for the social package. They can go out there and feel comfortable that they’re not playing 18 holes. It’s more about experience, the food, the beverages, the social aspect around it. I hear that one a lot. The other one that I would look at would be Nordstrom. They have the Nordstrom Rack, which was an opportunity for Nordstrom to dip their toe in the water and figure out how the market responds to that product. It will be interesting to see if they ever make a move.

Stafford To Tyler’s point, when you hear a Dave & Busters or Main Event concept, more from the entertainment side, we know those types of groups have looked at Des Moines. That’s a void today. You start talking about experiential, those are the types of groups that, I think, there’s potential for here.


What is happening with occupancies in the malls?

Dingel
Every mall’s a little different. If you look at Jordan Creek, I think the occupancy is still there but I think the type of mix has changed a little bit. I think they’re going to be able to keep tenants in there, but maybe the quality of the tenants has changed a little bit. I think Valley West has struggled a little bit more with keeping lights on in some of those locations. To be honest, I haven’t been in Merle Hay for a while. I know they did a great job with their remodel and bringing some of the retailers to the forefront and having storefronts. I think Valley West is probably going to have to look at getting creative with some of that as well.


Are the strip shopping centers offering the services that you can’t get online?

Dingel
Those centers are much more convenience-based. You can look at the users going into there, a lot of food. You mentioned nails, a lot of service. Whether that’s hair, nails, chiropractor, the things that are convenient to either your work or your home. We have seen quite a few go up. I know there was quite a few more that had been planned that are in the planning stages. Waukee has seen some great growth. Ankeny, a few different areas. We’re probably running about 10 percent vacancy across the board on those. The ones that are newer and better located 
are obviously performing better.

Stafford Hy-Vee is trying to be very innovative right now. I call them an active retailer. Are they convenience store right now, are they an online grocery store? I think they’re trying to figure out who they want to be and what works and what doesn’t. You look at these Hy-vee, I think they’re calling them Fast and Fresh, which are taking two or three acres on prominent corners. Being aggressive in these rates for the land, but they’re locating in Jordan Creek, Altoona. You find some other mixed pieces but that’s changing the landscape of our potential shopping experience. I think for one group that I’m pretty interested to watch is how they work. Are they more gas station? Compete more with the Kum & Go and Casey’s? Are they more pick up your groceries, grab a cup of coffee? It’s a different type of experience.

Christensen I think it’s going to be interesting to see this play out. I do think you’ve got two separate grocery shopping experiences. You’re either popping in to just grab dinner for the night or you’re going for the big haul and you’re going to spend an hour, you’re going to go to a large grocery store, a traditional grocery store. I actually think if you look at the success that Kum & Go has had in the evolution of their stores from 1,800 feet to now over 5,000 feet, it’s a mini quick-service restaurant essentially, with gas. It seems like Hy-vee is playing off of that idea of owning a grocery store concept where it’s a smaller version of what they did before but offers quite a bit of grab and go. I think it’s going to work. I wish we could get one.

Leach
The whole grocery industry has constantly been changing from when I was a kid sacking groceries in the stores. The glimpse that I have and the bandwidth of their business model now from flower stations and this free-standing, and clothing. Their delis and everything just keep changing, they keep shifting. I think that’s what retail has been doing. It’s been under constant change since the first shingle was ever put out. It is interesting, to Jake’s point, to see where all of that Whole Food thing’s going to go. Because you cannot eat the internet. People are still going to go out. The internet with Blue Apron and some of the things, they’re getting into that now. When I want to cook something, they’ll send me everything I need, and the right proportions and the recipe, and I can go for it.
 

Is that a millennial thing?

Leach
I think probably some of it is, but I know a lot of people who just enjoy cooking. How many people now use the grocery store as a convenience store? I can show you the receipts from my Hy-Vee; it’s like, you seriously went there the last four days in a row? It’s just changing. I can’t tell you the last time we went for a two-week stock-up. A lot of things have been commoditized. You go online and buy them. Everything from maybe your dog food to your Tide and those things. When it comes to the grocery experience it’s “What are we going to do tonight? Is it going to be quick?” It’s a lot of trips. I know that parking lot inside and out, that’s how my family’s changing. It’s interesting, every time you go there’s something new.
 

Is retail going healthier, too?


Leach Yes. It’s interesting. At Hy-Vee, they have the nutritionists, they have the NuVal score. My son just had a diet assessment with a nutritionist at Hy-Vee, and they helped set up those menus. There is that trend. You can eat healthy and then go out to Five Guys, then stay and work it off. There’s even a fitness center next to the Hy-Vee. It runs the full range.

I go back to a question that you had earlier about whether the malls can get into some of this. I think the short answer is yes. I think men’s clothiers, for example, could do that model where if you look at a suit on the rack, I’ll take your measurements, I’ll find in the store chain where they have them, but if I have the measurements on file, then the next time you’re in, I’m going to pick this suit or market to you directly through their online. All the major retailers have apps now that you can put your card on there and you never carry your card anymore, they’ve got your information. I think it’s how they’re going to capture the data and how they’re going to use it.


How many breweries and brewpubs can downtown support? Jake?

Christensen
I think there’s room for a lot. I think it goes to the experience. You talked about the grocery store and wanting to know where your food is from. In the beer culture there’s definitely the connection with meeting the people who have made the beer. It’s kind of like going to the wineries. It tastes so much better when you’re actually at the winery, talking to the person who somehow participated in the process of making it. The same thing now is now happening with the beer culture. If you look at the market share the craft breweries have taken, the InBevs of the world are feeling that because you’re seeing them buy into that idea. There’s still like 80-some percent market share that’s Bud Light, Miller light, Coors light. There’s a lot, I think, left. I think there’s still a lot of room in that space.

I think the theories behind it [can be seen in] East Village. It started with the Iowa Taproom. They wanted Peace Tree Brewing Co. They introduced them to us. They said, “We’d love to have them close to us.” Peace Tree loved the idea of being close. Now we have a third brewery that’s going to be in the same vicinity. That is 1717 Brewery. We’re creating a district now where people can go to one place for a little while and then move on to the next.

Leach
When I asked Jake that question about how many breweries, taprooms, his answer was, “I don’t think beer’s going to go out of style here anytime soon.” Well, it hasn’t over the years. It’s been a pretty good idea. People are just getting better at it.
 

What works on the west side of the river?

Leach
I think that the corporate side offers its own unique set of challenges and opportunities more than things that we’ve talked about. The question you had was, what would you like to see? I think I would love to see an Apple Store. I think it would fit very well without cannibalizing their existing stores. I think that’s where a lot of people that have Apples and particularly some of the accessories that would be available and you don’t get out to the big store very often. I think that trying to duplicate a retail village like the East Village in downtown is a mistake. Every street can’t be that, and I don’t think every neighborhood lends itself to that.

I think another mistake that can be made is to hearken back to a time where there was a Younkers store and the Kresge and those things, and that time has changed so it’s time to reinvent it for what is in that neighborhood. From not just a residential and business perspective is trying to find the right thing for the right neighborhood. The market has kind of directed larger restaurants, for example, in the Western Gateway. Finding something to bring life to Walnut Street. I still think it needs to be the right size for the neighborhood in them and businesses that are going to take care of service, day care, dry cleaner, that type of thing.

Stafford I find myself talking about Des Moines retail, it includes East Village, it includes parts of Ingersoll, it includes things that are along MLK and the ballpark, even to the north and Wells Fargo. When I’m talking about downtown retail with out-of-state clients, I don’t get so narrow-minded that it’s just Walnut Street or Court Avenue. We’re starting to paint a picture that we do have retail downtown; it’s just not maybe on the streets where some might expect all that retail to happen.

Dingel
I think the challenges that I go to quite often when I’m talking to national groups about downtown, and Jake alluded to this earlier with West Elm, when you look at the demographics in a [one, three or five-mile radius], there is just not enough population density for the nationals to drop a store in downtown. The other challenge that they have, and I don’t know the solution to it, for the national local retailers, is parking. People in Iowa still drive cars, they still need a place to park, they still need a spot for their employees to park.

I have a fitness group that I’ve been actively working with right now that the biggest hurdle is finding parking spaces. We found great spaces, but where are my clients going to park? Everybody’s coming in early in the morning and at lunch and after work, they need a place to park. We talked a lot about convenience. I understand the idea of coming here to work out. You can walk a few blocks to get there, but we’re a convenience-driven society. People like to be able to park at front of the door, run inside, do their workout, run back out and 
get back on their journey.

Christensen I think a part of the thing, there’s a couple of components. There is a combination of the perception of the lack of parking and there’s also an issue where our street grid is currently outlined with one-ways and is confusing for people, and some people are hesitant to parallel park. If you look at the downtown retail success stories, every single one of those streets is a two-way street. None of them are one. Changing the way we use downtown is the best way to encourage the success of retailers. It’s going to take a really long time, and I know a lot of people work hard on Walnut Street, but we trained people for over 35 years to not drive on that street. So they didn’t go there. We have thousands if not a couple hundred thousand citizens in the metro who have never been on Walnut Street.


What type of retail works in different parts of the metro? What works north? What works in Altoona? Do retailers look at this area that way?

Leach Absolutely, yes. The savvy retailer, whether it’s a local, regional, or national, if they’re doing their due diligence, knows exactly where the competition is, the price point, where the customer is. You go back to this data and they can track to the street address where the customers are coming from. It’s no mistake that Hy-Vee or Casey’s had these rewards programs that give you 2 to 3 cents off. If they know your home address, they know your shopping patterns.

Retailers have to be savvy; they know where they are going and who else is there and the opportunity. The real estate committees from a national standpoint are asking questions and have to have data to prove that before they ever start.

Dingel
The real estate committees are a big piece of this. Every site that any of these major retailers approves goes through a pretty extensive real estate process. There’s a lot of data that goes behind it and it’s a lot easier for a major retailers to say, “OK, I know my competitors and they’re located on this street and I know their sales and I know what they’re doing.” It becomes a much safer decision and a justifiable decision that can get approved that they can put a store in that they know with some sense of confidence is going to at least perform decently well.

It may not hit their home run, but it’s not going to be a failure either. They know that. West Elm is going to bring more of that attraction to downtown, but it’s going to take a long time. Retailers and others are saying retailers are like sheep, they like to stay together. Another thing that I say about Jordan Creek, you mentioned versus East Village downtown or on the South side. Jordan Creek is always looked at as a regional place. They’re not looking at the Waukee, Clive residents, they’re looking at people from Mason City or Council Bluffs. It’s a two-hour trade area.

People are driving in. We mentioned the Apple Store [at Jordan Creek]), it’s the only Apple Store within a two-hour drive, so they’re going to make that trip. While they’re visiting Apple they’re going to hit Best Buy or some stores that they might not have in their more rural areas.
 

Is the area’s low unemployment rate a long-term challenge today?

Dingel We’ve talked a lot today about experience, and a big part of that experience is the interaction between your customer and your employee. It is incredibly difficult to find good employees right now. I could list a dozen companies that have opened in Des Moines over the past couple of years that had to delay opening because of not having jobs filled that they need to have filled. It’s definitely a challenge. When we have 2.4 percent of our population that doesn’t have a job, that’s fantastic but it has its challenges.

Stafford We’ll start to hear more about robots. I don’t think they’ll ever fully replace employees, but you are starting to see it even in Des Moines where you can go to McDonald’s, you can buy a soda and you never experience an employee. It’s all pushbutton. By doing that you start talking about needing fewer employees and things like that.

Dingel It’s become a product of necessity. If the store unemployment wasn’t so low, can we become more efficient by using the technology, can we save cost by embracing the technology? Now it’s become more of we can’t find the labor talent so we have to come up with a better way to serve our consumers.

Christensen
The Iowa Business Council has outlined it as one of the biggest challenges for Iowa until it’s solved. I think part of solving that is the — we’ve talked about experience today. Our goal in the metro is the selling point for the experience of choosing Des Moines.


What is the role of artificial intelligence?

Dingel
The buzzword in our industry is omnichannel retailing. What that essentially means is a collaborative effort between your storefront, your mobile device, your online sales and how do you bring that altogether? How do you market to the consumer? I think it’s going to continue to evolve. Tim, you mentioned about how you go in the store, they measure you, they figure out your size, and they send their product right through your front door. Technology is going to change that even further, so that when you walk in they already know that you prefer blue over gray. They have an app that will take a picture of you and measure you and have the made, measured product there. This technology that you have a smart fridge that when your milk gets down to a half a gallon or whatever that preset number is, it automatically orders a new product. You never even have to go online and type that order in; it’s happening automatically. There are a number of changes like in the technology side that are going to have an incredible, incredible impact on our industry.


Any final closing comments from anyone?

Stafford
I think bricks and mortar, which is obviously a lot of our businesses, is going to be there, it’s not going away. Developers and brokers have to adapt to these retailers. I think you are going to see a trend of being smaller with the right sized and I don’t actually think you are going to see all these vacancies just go away, you going to see a lot of shifting of parts. We as a development community have to adapt to that and try to stay in front of those and make sure we provide opportunities. I think smaller is going to be a trend that we definitely see.

Leach
Retailers have been changing forever and retail is constantly evolving. You have to adapt to that marketplace. It’s not going to stop. It hasn’t stopped since you can remember when you were a kid and went to the store with your parents. I think bricks and mortar are going to be there as long as the experience is there. The marketplace is going to have to adapt to it.

Dingel I think the landlord is going to have to adapt to it a little bit, not only on the downsizing or rightsizing but also with the lease terms. Historically you had a 10-year lease term, and you might have a five-year period, and these are going to start shortening up so the tenants are able to more quickly pivot or react to the changes in the market. I think they’re going to want more flexibility on some of those leases. One clause that I had is that I get asked a lot, what’s going happen to all these big boxes. I think beginning with the fulfillments side of the retail, there’s still retail happening, there’s still orders, there’s still purchasing, and one thing that we’re light on is the warehouse component of it. I could see some of these big boxes that are in areas that are really strong retail traders and becoming more fulfillment centers. We saw that actually with Hy-Vee after it bought the Kay Merchandise building. It’s 100 percent of online fulfillment space. 

Christensen I think what we’re doing is building inflexibility, so we can make our bay sizes smaller and we can have the grease interceptor service the entire space so we can put up a restaurant component in any part of the building.