Dive Brief:
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As physical retailers struggle with sales in stores, landlords in New York City are trying to keep them around by giving merchants cash for improvements and moving expenses, Bloomberg reports.
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Monetary incentives are becoming especially common in key NYC shopping areas like Madison Avenue and Fifth Avenue, Cushman & Wakefield Executive Director Steve Soutendijk told Bloomberg.
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Other cities are mulling similar incentives: Denver’s city council early this month approved a transfer of $4 million to encourage Target to develop one of its smaller format urban stores in a downtown building that has been vacant for years.
Dive Insight:
Retail rents in the New York City area fell 18% last year compared to 2015, hitting $2,104 per square foot, according to numbers from commercial real estate services firm Cushman & Wakefield. With Times Square’s third quarter property availability rate increasing 11 percentage points year over year to 22%, landlords there have been seeking out tenants who can provide “experiential retail" because such businesses tend to generate higher sales than traditional retailers do, according to a report last year from real estate development company Witkoff.
“Shopping should be an experience, and the history of shopping suggests it can be,” retail futurist Doug Stephens told Retail Dive last year. “I recently visited the Spice Bazaar in Istanbul and you see instantly how shopping evolved from being a completely immersive and sensory experience. The sights, sounds, smells and social interactions were incredible. Even the grand department stores of the mid-1800’s were a spectacle and an aesthetic delight.”
Now landlords are hoping to preserve their rents and boost that experiential approach even further by giving stacks of money to retailers that agree to make changes — everything from tweaks to complete overhauls — in an effort to kickstart foot traffic in the age of Amazon, which has made buying online painless and fast, that’s become even more crucial. Compounding that is the emerging consumer priority of experiences over the accumulation of goods.
Moreover, the U.S. is widely seen as over-stored, especially with big box retailers in suburban areas. There’s a correction going on, as many retailers shutter underperforming stores while others go bankrupt. Macy’s is on track to close some 100 stores (or more), and The Limited, Wet Seal, American Apparel and Sports Authority, among others, have closed all their stores amid bankruptcies that have left only e-commerce operations, at most, intact.
There’s been yet another effect: As suburban stores, malls and their parking lots have proliferated, much of the fun of shopping has been drained, Stephens says. “Unfortunately, as retail scaled through the 70’s, 80’s and 90’s, we lost that experiential nature,” Stephens said. “Retail became more about the acquisition of material goods and less about the enjoyment we could have in shopping for them. Stores became concrete boxes, devoid of any beauty or soul. Thankfully, I think we’re heading into a new era where how things are sold will be as important as what is being sold.”
Despite the challenges facing brick and mortar, some retailers, including many dollar stores, are expanding their physical footprints. And Target is opening more stores in urban areas, like the one it’s considering in Denver. Target should move assertively in that direction, says Nick Egelanian, president of retail development consultants SiteWorks International. “If they want to open stores in cities, [they should] open 100 a year,” he told Retail Dive. “Make a real statement — go after market share in a part of business that’s growing.”