NYC Retail Marketing Woes: Sign of the Times or Catalyst for Growth?

By William H. Jennings  |  July 27, 2018

In the not-too-distant past, most people shopped in their local stores in New York City – dealing with weather, limited choices, out-of-stock items and sometimes rude salespeople. At the dawn of online shopping, many people continued to feel safer patronizing brick-and-mortar stores than using their credit cards and sharing their personal information online.

And here we are now, with online retail sales worldwide projected to double between 2016 and 2020 from $1.8 trillion to $4.1 trillion[1]– and with plenty of vacant NYC storefronts to prove it.

Contributing to this rapid growth of e-commerce are mobile device sales, special online discounts, and the continued rise of social media platforms for reviews, advice and recommendations. Even big-box retailers have moved aggressively into the online shopping fray, driven by strong consumer demand for an ever-increasing variety of goods. In fact, Walmart has the second most popular mobile shopping app in the U.S. – second only to Amazon. [2]

It’s clear that more and more consumers view online shopping as faster and cheaper, with a better selection of goods and instantaneous price and product comparisons – all from the comfort of their own homes. And in New York City, there’s a lot to be said about these types of conveniences.

WHAT ARE CRE PROFESSIONALS THINKING?

In the 2018 edition of the Gotham CRE Monitor survey sponsored by Marks Paneth, 75% of NYC industry professionals predicted that retail property values will decline more than other sectors. 81% of CRE professionals noted “buyers will have more power” – a clear reflection of the supply-and-demand shift in the retail CRE sector.

Many retailers are reacting to these challenging market conditions by closing or downsizing stores. Fung Global Retail & Technology projected 9,452 store closings in 2017, up 53 percent from the number of doors that went dark amidst the Great Recession in 2008. [3]

But what if there was another way? After all, New York City is an ultimate destination for shopping and tourism, with more than 8.5 million residents and 62.8 million tourists last year. As Cushman and Wakefield reported in their Retail Q1 2018 MarketBeat Manhattan: “The long term outlook for the Manhattan retail market continues to be cautiously optimistic however, with healthy consumer spending and bustling city streets driven by steady income growth as New York City continues to dominate in commerce, culture, and tourism.”

So the question becomes: How can retailers and landlords capitalize on this steady stream of buyers and shift the paradigm of consumer behavior in their favor?

1. Create unique experiences.Online retailers succeeded by reimagining the consumer shopping experience – perhaps it’s time for brick-and-mortar stores to do the same.

   It is a well-known fact that millennials value experiences as much, if not more, than using their money to buy “stuff.” The National Retail Federation released a list earlier this year of New York City’s most innovative retail spaces.[4]They all reflect a blurring of the lines between digital and physical retail through enhancing the customer experience in unique and ground-breaking ways, such as curated collections, creative meeting spaces, meditation studios, hands-on product sampling and more.

2. Embrace technology.Much of the “enhanced customer experience” these days comes in the form of technology. Customer self-service, high-speed internet access, personalization strategies and shopping apps are just a few worthwhile investments that can help retailers remain viable.

   At the same time, landlords should also consider implementing technology in their own companies to save costs and increase efficiencies. Automation, artificial intelligence and big data are some of the more popular technologies emerging in the real estate sector that monitor trends and improve bottom lines.

3. Think outside the box.  Consider the demise of the print encyclopedia. A fifty-year success story crashes in less than two years because the industry didn’t evolve along with online advancements. Retail is no different. The decision to close stores doesn’t always take into consideration the reasons why the business is failing or how these obstacles can be overcome.

   Thinking “outside the box” could include providing attractive amenities, such as a child care area, coffee shop, magazines, computers and books, or finding an issue in the community and bringing it into the retail space to draw shoppers in. The key is to address a need or desire of the consumer – preferably one that is currently unmet in the community.

4. Be Open to Foreign Investors. A bright spot in an otherwise gloomy forecast came with the observation in our 2017 Gotham CRE Monitor survey that 41% of the surveyed CRE professionals said that demand from foreign investors will increase for all NYC-area real estate sectors.

Even as rankings show London surpassing NYC as the top global destination targeted by foreign investors, CRE experts are still predicting 2018 will be the 10th year in a row when commercial real estate has led all asset classes in providing the strongest risk-adjusted returns and relatively high yields. [5]

Landlords looking to sell their properties among declining property values also have options to consider. For example, 60% of CRE executives surveyed in our 2017 Gotham CRE Monitor survey said refinancing when a property does not sell can be a better option than lowering the price or taking it off the market.

Investing for the long-term in these uncertain conditions will take patience, careful planning, mental fortitude and a relatively high tolerance for living with a relatively uncertain future when it comes to NYC retail CRE values. In other words, the characteristics that often describe many New York City business people. As Mark Twain once noted, “Make your mark in New York and you are a made man.”

About William H. Jennings