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Yaromir Steiner: Urban Planner, Icon, and Iconoclast

Columbus, Ohio is the 32nd largest metro area in the U.S. ranked by population and known, primarily, for its Ohio State NCAA Big 10 football team. But according to one of Placer.ai’s geolocation benchmarks, Columbus is also home to America’s #1 trafficked open-air shopping center, Easton Town Center. Easton thrives despite these contradictions: It’s an outdoor mall in the wintry Midwest and a New Urbanist development nestled in the suburbs. It counts Gucci, Tiffany, Louis Vuitton, Apple and RH Gallery as thriving tenants and paradoxically, Macy’s outperforms Nordstrom. The lesson here? Don’t make any assumptions. The true insight is understanding why people buy.”

Decline and Fall

To put Easton’s success into perspective, let’s review some history. U.S. malls were once a huge driver of the retail economy, numbering around 1,200 at their peak. Their ascent began in the 1970s, fueled by the rapid growth of highways, the suburbs and the middle class. And then what happened? The decline and fall of the American mall are evident in the sad, sorry deserted shopping centers that were once community and retail hubs. Today there are roughly 800 viable retail shopping malls and large-scale lifestyle centers remaining, and the numbers continue to fall.

The reasons are many, as readers of TRR know. As a refresher, here are a few key factors that drove malls into the ground, some literally.

  • Ecommerce and the smartphone created increasingly compelling alternatives to in-person mall shopping, especially for younger generations infusing them with different shopping habits and preferences.
  • The middle class, once the core economic engine of the mall, is declining. The share of adults living in middle class households fell from 61 percent in 1971 to 50 percent in 2021, according to Pew Research Center’s analysis of government data.
  • A shift in income distribution spawned the growth of discount, outlet, dollar and off-price sectors that became more compelling to the large population of needs-based, utilitarian shoppers.
  • The trend in discretionary spending is shifting from products to services and experiences.

Visionary Icon and Iconoclast

So, what is a mall owner to do? We went to a grand master who works at the center of mall development and culture. Yaromir Steiner, born in Turkey and educated in France, is the master planner of Easton Town Center and helped develop the CocoWalk open-air shopping mall in Miami. He has a studied interest in urban planning and design and regularly teaches a continuing education seminar at Harvard’s School of Design.

His company, Steiner + Associates, has developed a total of 7 million square feet of mixed-use real estate in Florida, Ohio, Wisconsin, Missouri, and Virginia. These projects, according to one source, “represent some of the most iconic, innovative and influential retail and mixed-use environments in the United States.”

Steiner has a good grasp of systems thinking and viewing problems holistically. He’s the first to admit that America’s malls are at risk and offers a lucid analysis of the problems plus proposes some novel solutions.

Origins

Steiner adds two other factors eroding the mall economy to our list. First, the enclosed mall has fallen out of favor with consumers as an experiential shopping environment. That formulaic design – a windowless behemoth surrounded by heartbreaking acres of car parking asphalt – started with the Southdale Center in Edina, Minnesota, which opened in 1956. It was a stunning innovation at the time.

However, architect Victor Gruen’s original vision was to mimic the pedestrian arcades of his native Europe, with their mix of retail, residential, office, restaurants, bars, entertainment, and parks. But the Dayton Company, the department store chain that financed the project, had another idea. It wanted its department stores to be the main attractions, so it flipped the model with indoor streetscapes, placing parking out of sight around the outside perimeter. Entry was available primarily through the star of the show – the department stores. It was exclusively shopping and the other retailers along the corridors had no exterior signs. There were few, if any, restaurants and cinemas.

As malls evolved, they played a central role in customer acquisition for retail brands, delivering remarkable experiences, and handling returns and other post-sale issues. Fast forward two+ decades and the New Urbanism movement gained currency in the 1980s, promoting open-air, pedestrian-friendly, mixed-use projects. In a back-to-the-future moment, Steiner notes the shift was more along the lines of Gruen’s original vision. Ten years later, open-air malls, or lifestyle/experience centers, had in fact become the predominant new mall model.

Mall Understory

The second reason Steiner cites for mall erosion is more controversial: REIT ownership. He notes that malls elsewhere in the world are resilient and thriving unlike the vast majority of failed and failing malls in the U.S. There were 1000+ REIT-owned malls in 2005, but now, the number is down to around 400. Why?  Steiner explains that REITs are required by law to distribute at least 90 percent of their taxable income each year to shareholders, obviously limiting how much they can reinvest into the properties.

This model works well for utilitarian “needs-based” mall shopping, say, a Walmart or supermarket anchor where demand and capex are relatively stable. But for trend-driven “wants-based” shopping, where properties need to continually adapt to changing consumer fashion and lifestyle preferences, the REIT model can be a death knell.

Steiner Solutions

  • Ramp up the experience. Steiner’s original vision for Easton was to deliver experiences. This was informed by his childhood growing up in Istanbul and France where marketplaces and bazaars were embedded into street and consumer culture. Digital-first brands such as Purple, Marine Layer, Untuckit, Warby Parker, and Allbirds have all chosen to open stores at Easton. As Steiner says, “If Easton did not exist, where else would they go?” The Center is inspired by the eclectic mix of the Grand Bazaar of Istanbul, built in the 1500s. Proof of concept? Easton was recognized by Chain Store Age as the #1 consumer shopping experience for three years straight (2020-22).
  • Create a new department store model. At the crux of today’s Grand Bazaars, Steiner advocates for a new iteration of the department store model with a focus on showcasing primarily third-party brands. He was a great admirer of Ron Johnson’s vision for JCPenney. Logically, he says, it makes no sense for some brands to design, build, operate and pay rent on their own stores when they could operate under the broader tent pole with dedicated space, sales, and visual support enhanced by upgraded food and beverage brands and other lifestyle-based experiences. Following that holistic vision, imagine a Levi’s denim bar with dedicated service and an interactive Lego department for the kids to keep them safe and busy.

Bridging Theory to Practice

Steiner’s two ideas aren’t just idle speculation. The Hunt family is currently putting together a fund in the $300-$400 million range to acquire failed malls and then reposition them into mixed used properties. “Demolish the buildings, maybe get a department store, put in some specialty retailers, restaurants and offices. Make Easton’s out of them,” says Steiner. Likewise, he foresees cities and townships leading efforts to repurpose depressed/underleveraged commercial districts and rebuilding them into serious traffic-driving experience centers.

The Future of Easton

Taking a step back, in 1999, Steiner teamed up with Limited Brands and The Georgetown Company to develop Easton’s first phase and then the second phase two years later. Today Easton is 1.8 million square feet, featuring 300 stores, 48 restaurants, cinemas, offices and residences. While Steiner can’t stop philosophizing about retail and urban development, he continues to work tirelessly to ensure the future of his own Easton development.

Based on his European sensibility, he’s convinced that environmental sustainability will eventually become second nature to Americans. In the meantime, he’s focused on converting the entire Easton project to renewable energy and aims to implement more effective recycling and composting programs and donate more food from its restaurants to pantries.

Moreover, Steiner wants to see Easton Town Center become a true village. “We cannot be solely a commercial project. There must be art galleries. There should be dry cleaners, a childcare center, and senior living homes. We need to think more holistically about how people live their lives – what they want and need.”

He concludes, “We still have 150 unbuilt acres. I don’t know if I’ll be alive to see it, but 20 to 25 years from now, Easton could be transformed from a mall to a village. That’s my idea.”

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An Argument for Neighborhood Stores

Specialty retailers – from legacy brands and DTCs to startups – are all facing the same challenge: Declining mall traffic and higher downtown office vacancy rates are making traditional store location decisions far riskier. Brands are wondering if neighborhood stores are the next frontier. If Target, Macy’s, Starbucks, Faherty, Lululemon, Vineyard Vines and others can do it, why can’t we?

Local Incubators

In fact, neighborhood locations have always played an important role as incubators of new specialty retail concepts. Notable brands, including The Limited, Gap, Anthropologie, and Lululemon all began as neighborhood locals. To grow fast and scale, however, they chose regional malls as their primary channel.

The rationale was that mall stores, with their larger trade areas and “cookie cutter” formulas, were generally more productive and less risky. Neighborhood stores, with their smaller trade areas, had lower revenue potential, didn’t fit the cookie cutter size and assortment models that drove mall store operations. They also often required a different store design due to local architectural standards, odd space configurations and a different customer journey. The mall prototype model did not work for neighborhood stores and vice versa. Traditional wisdom believed there were too few opportunities to be worth the effort required to build a different financial and operating model for small, local stores.

That calculus, however, may be shifting.

Think Local

With 20+ percent of a brand’s revenue now coming from ecommerce, neighborhood stores can play an important role as ship-from, pick-up and return-to depots. Having these services much closer to home adds huge value for customers. It increases in-store visits, which increases conversion. Data confirm that physical stores in a market can improve the brand’s ecommerce sales by 25 percent or more.

And there’s more in favor of local stores. The insights from mobility data and AI can significantly improve the predictability of local site selection, with related improvement in productivity. Merchandise assortments can be matched to neighborhood customers using data analytics. From a practical perspective, the normalization of WFH and hybrid work have created a renaissance in neighborhood store traffic and access to local talent as a workforce that represents the community.

In many markets, the neighborhood center/district can beat the mall on occupancy costs by offsetting the higher capital cost of customized store design. Such local centers can also give the retailer more flexibility on operating hours, reducing labor costs.

Lastly, local stores can bring intensity and intimacy to the brand’s value proposition. They strengthen community bonds and can develop longer-term customer relationships. As part of a unified commerce strategy, going local brings the brand into the neighborhood in a valuable way, increasing customer lifetime value (CLV) and total market profitability.

Location, Location, Location

Strategically, building a fleet of stores has always been the art and science of identifying, on a market-by-market basis, the right number of stores to efficiently serve all potential customers in that market. Physical retail stores are expensive to build and operate, and mistakes are costly. Spacing is important – attractive opportunities may lie in the shadow of more current or future productive locations. Geo-analytics can help optimize markets. The investment against return can be daunting if you get the basics wrong.

Regional shopping centers, as the name implies were developed to reach a broad swath of the [population. There are more than a few markets where shopping center developers literally built centers called Northland, Eastland, Westland, and Southland, explicitly and geographically describing market coverage. But by whatever naming convention, by the mid-1990s the regional mall coverage map was becoming overbuilt.

For the last two decades the regional mall market share has been in a steep decline. Today, roughly half of the once 1,100 regional enclosed mall shopping centers have closed or are the walking dead. Let’s face it, the U.S. has been over-stored for several decades and declining mall locations have more than replaced the growth of outlet centers, big box power centers, specialty, and hybrid lifestyle centers, and by the rebirth of metro neighborhood strip centers and street districts.

While these local locations may not have the trade area draw of the large regional malls they replaced, they may well have a higher concentration of core customers. These are locations that are destinations, not accidental retail. When customers come to a center intentionally, the chances are good that their expectations will be met with purchases that matter.

A Unique Role in the Portfolio

Mature specialty retailers sell across multiple real estate channels — workhorse mall stores, high-street flagships, outlet stores, and online. What role do neighborhood stores play?

Mall stores may continue to dominate for some time, but the neighborhood channel has inherent advantages of its own: convenience, novelty, intimacy, personal connection, and being part of the community. The timing could not be better to play into the hands of local retailers. In a fractious world, consumers value these qualities more than ever.

Here’s a playbook to maximize going local:

  • Originality and intimacy of the store environment, including visual merchandising.
  • Product displays that are novel and diverse.
  • A high level of personal service, combined with full-service, omni-capable tech.
  • Engagement with the local community.

Field Reports

There is a P4 formula to getting the big-picture playbook right.

Place

  • Create an engaging sub-brand, e.g., Nordstrom Local, Market by Macy’s, Express Edit, Starbuck’s Roastery, etc.
  • Embody a warmer, more accessible interior design.
  • Make the décor authentic, relevant, and contextual to the neighborhood.
  • Revitalize the local area with an infusion of energy and promise.

Product

  • Showcase more variety with style/color choices in tune with local customers.
  • Create demand through merchandise scarcity rather than inventory depth with lookalike merchandise.
  • Focus on the “sizzle” (quickens the pulse) and not so much the “steak” (fulfills a utilitarian need).
  • Curate an assortment tailored to the local trade area and maybe sprinkle in local-themed merchandise and local artists/designers/artisans/craftspeople.
  • Focus more on services (e.g., sales, styling, alterations, and omni — the Nordstrom Local model)

People and Tech

  • Build a staffing model that allows for high-quality, one-on-one service.
  • Hire influential local residents with a service orientation and personal connections in the community.
  • Make sure the systems delivering omni options are integrated.
  • Empower the store manager to act as store owner (P&L), who will:
    • Play a direct role in product selection and ordering.
    • Lead or direct the store’s visual merchandising.
    • Manage the P&L of controllable items.

Projection

  • Create robust local social media inviting customers to contribute.
  • Advertise to customers in digital and local media.
  • Host periodic store events, featuring locals, to draw in local traffic.
  • Participate in commercial district/association and events.
  • Celebrate employees and local customers with recognition.
  • Give back to the community.

Back to Basics

Neighborhood stores can more deeply connect with and “wow” customers, focusing less on product sales within the four walls and more on creating brand converts and loyalists. Think of it as a store where everyone knows your name. Deeply personal, relevant to local lifestyles and interests, and committed to improving the quality of life as a mantra, not a motto.

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The Covid Chronicles

Being declared nonessential during the Covid-19 pandemic lockdowns perfectly captures the literal truth about mall-based specialty retail.

In fact, specialty stores only exist in the first place because they are magic. They invite us into beautiful stage sets, create new aspirations and help cater to our most refined tastes. Les Wexner, the one-time owner of over a dozen specialty retail chains, frequently reminded his executives that they were in the “wants” business, not the “needs” business. His most scathing (and still printable) critique of his brands’ marketing or displays would be “this looks like JCPenney.” The more magic his stores created, the more margin. The…math…was…that…simple.

Over the past decade, we’ve witnessed a broad and steady decline in that magic, inflicted in part by the infectiousness of a handheld supercomputer that brings the world directly to us. During this pandemic, we worry whether a trip to the mall would be safe; but the journey had already become increasingly unnecessary and banal.

So, what’s next for the malls and their tenants?

The Covid Chronicles

There’s a group of retail executives in Columbus, Ohio who are still committed to perpetuating that magic. We call ourselves CBUS Retail, with the motto, “We love retail.” We are currently producing — supported by Klarna and other like-minded sponsors – a nine-episode, streamed video series entitled “Specialty Retail in Crisis: The Covid Chronicles.”  The series describes the massive disruption in this sector, paints a view of its future and suggests strategies for post-pandemic success. So far, we’ve interviewed 40 analysts, operators and founders from retail hubs across the country. Here is a synthesis of the series.

1. Pre-Covid

Of course, the mall economy was already troubled well before the pandemic, plagued by a persistent supply-demand imbalance, eroding margins and falling productivity. The dynamic duo, Michael Dart and Robin Lewis list several key reasons:

  • Oversupply
    • Persistent falling manufacturing costs.
    • Continued growth of non-mall options – discount, value, outlet and off-price; clubs and big boxes; everything digital.
  • Shrinking demand
    • The mall’s targeting of, and dependence on a shrinking middle class.
    • Consumers spending more on experiences and health & wellness, and less on physical products (aka “dematerialization”).

Other speakers highlighted two other distinct failures of the mall’s tenants:

  • A generation’s-long inability of department stores to increase mall traffic.
  • Specialty chains’ increasing lack of novelty, creativity and differentiation.

In short, too much product, too many stores, and not enough magic.

2. Direct Impacts of the Pandemic

If zombie malls with zombie stores filled with zombie product populated much of the retail landscape pre-pandemic, Covid-19 appears to be finally killing off many of these walking dead. Since March, retailers will have announced the closure of an estimated 25,000+ stores, and a net ~300 malls are projected to “repurpose” or succumb during the next three years. So far, over two dozen specialty and department store retailers have declared bankruptcies, with most emerging much slimmer, with new owners. We are told to expect more Chapter 7’s and 11’s this spring.

NPD’s Marshal Cohen describes “The Discretionary Divergence” in consumer spending.

Shows the categories diverging in spending

3. The Silver Lining

As the pandemic continues to wreck stores, profits, jobs and livelihoods, not to mention lives, our speakers see plenty of future upside for the sector. First, much of the structural oversupply will be gutted from the marketplace. BMO Capital Markets analyst Simeon Siegel argues that the current crisis allows public retailers to strategically downsize without incurring shareholder ire. Most agree that digital commerce is racing through puberty during the pandemic and now stands at least as tall as its offline parent. All in all, there’s a scramble to re-form and reform retail: The future of specialty retail is up for grabs.

4. The Future

A More Diversified and Dynamic Landscape, With Faster Lifecycles and Lower Peaks

With malls and legacy retailers hobbled, the barriers to entry for emerging retailers have never been lower. Traditional wholesalers and DTC brands are finding more mall vacancies with lower rents and more flexible terms, according to Steve Morris, Asset Strategy Group’s CEO. Ottawa-based Shopify provides inexpensive Retail-as-a-Service to over a million ecommerce merchants, who can also co-list their products on other shopping and social platforms including Amazon, eBay, Facebook and Instagram.

Forrester’s Sucharita Kodali foresees an intense battle over the next decade between legacy analog brands now adopting digital first mindsets vs. digital natives seeking heightened customer connection and growth through operating stores.

Whoever wins, the spoils will likely be smaller than before. Analog-first brands that took a generation or more to build tend to top out at $2-3 billion in the U.S. at retail, according to Siegel, with only NIKE swooshing beyond. The current generation of venture-fueled concepts – monied, impatient, and viral-when-successful – will peak faster, but at a level limited to consumers’ goldfish-sized attention spans.

Given the increasingly complex and integrated nature of the equation, analog + digital = sale, J.Crew’s Billy May believes we should focus mostly on market and customer profitability, not channel.

Oliver Chen of Cowen argues that community is the unlock for sustaining consumer loyalty in an attention-deficit world. Aerie and Glossier use social media especially well to foster engagement, according to Chen. Pre-pandemic, Revolve, a brand positioned to party, hosted big, fab, in-person parties instead of investing in brick and mortar.

A Re-Engineered Retail Value Chain

During the pandemic, the design and merchandising teams at the tween girls’ retailer Justice took the whole product development process virtual — from inspiration to concept to line — removing months from their calendar. The compressed timelines prioritized merchant conviction and improvisation ahead of test-read-react. Truly energized by the speed, efficiency and empowerment in the new process, VPs Kat Depizzo and Julia Hanna  are convinced these changes will largely be permanent.

More frequent and smaller buys closer to floorset/listing is a recurring theme. Lower markdowns will make up for slightly higher unit costs. Supply chains will be leaner, faster and more distributed, avoiding single points of failure. Inventory transparency is doubly important as omnichannel options proliferate. Good forecasts are the ultimate lubricant in a lean, forward-positioned supply chain. From a tech perspective, Karl Haller demonstrates how IBM projects demand to the store level.

In stores, all agree that we’ll move towards contactless customer service and payments post-pandemic. Kodali states, “a customer should never have to wait in line to talk to a person.” WD Partners’ Lee Peterson reports that Alibaba is way ahead on these and other innovations in his talk “Innovation, Alibaba Style.” There was widespread agreement that Chinese companies and consumers provide a good benchmark for what’s ahead.

A New Role for Physical Stores

Cathaleen Chen wrote a Business of Fashion article in August, both profound and so obvious (as in why-in-my-decades-in-this-business-hadn’t-I-thought-of-it kind of obvious). There are four roles for physical stores: brand, service, immersive experience and community. Think slow on this.

A future strategy for a market-based store “portfolio” makes sense. Some stores offer full brand presentation, high-touch service and interactive community building; at the other end of the spectrum, are dark stores that only fulfill pick-ups and deliveries.

Less Algorithm, More Imagination

Author of “Aesthetic Intelligence,” Pauline Brown, states that in business there should be a tension between analysis and aesthetics. But that the only way to beat the robots is through the uniquely human ability to create beauty, infuse joy, and surprise and delight customers.

Aaron Walters, CEO of Altar’d State, asserts that the larger a business gets, the more it needs to either simplify the model or empower its employees. He advocates bringing the “special” back to specialty retailing.

Former Google executive and arts student, Abigail Holtz, observes that ecommerce has not evolved for 20 years and now seems emotionless and flat, not effortless and fun; and stores have their own shortcomings. She created online shopping site The Lobby to merge the best of both channels, where they curate emerging brands “doing something special” and make shopping fun with an original, authentic and very human-centered interface.

Magic.

NOTE: This is just a small sample of the smart commentary in the series. Please visit https://cbusretail.org/covid-chronicles-season-one/ to stream for free and join our live Community Roundtable https://cbusretail.org/member-events/ on January 6 to discuss the series content with several of the speakers.

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Victoria’s Secret: On a Precipice or a Platform?

With its U.S. sales, earnings and customer affinity deteriorating, many analysts are questioning the future of Victoria’s Secret. In his Robin Report article “Behind the Curve,” Robin Lewis credits Les Wexner’s historic ability to predict big shifts in the market, but wonders whether the brand’s unmoving, sexy positioning – long an asset – might be the primary cause in the brand’s current troubles.

Continue reading “Victoria’s Secret: On a Precipice or a Platform?”