BIZ REAL-RETAILFUTURE SD

With the U.S. having seven times more square feet of retail than the next closest country experts say mall owners face the prospect of filling empty buildings after retailers downsize and embrace e-commerce.

Francisco Leitao/Dreamstime

Imagine shopping in the future:

— Stores are showrooms, and your purchases are delivered to your home.

— Malls are places where you work out, eat, work and possibly even live.

— An autonomous car takes you to and from other shopping centers, and parking lots are repurposed for a higher and better use.

— Artificial intelligence makes it possible to order a piece of apparel without even trying it on or leaving the couch — but you still go out because you crave human interaction.

Such were the prospects offered recently by a panel of retail experts, gathered at a University of San Diego Burnham-Moores Center for Real Estate forum that peered into the near-term future.

“Of all the (real estate) product types, retail is perhaps the most dynamic,” said panel moderator Brad Geier, co-managing partner at Merlone Geier Partners, a retail-focused real estate investment company.

“It’s particularly topical right now,” he added. “Everybody’s got some direct experience with it, everyone’s an expert and so that makes it much more interesting for a group like this.”

With the U.S. having seven times more square feet of retail than the next closest country, mall owners face the prospect of filling empty buildings after retailers downsize and embrace e-commerce, said Jim Young, CEO of the Realcomm tech conference planning group.

“You feel the old model is becoming obsolete,” he said.

Ryan Perry, general manager of San Diego shopping center Westfield UTC, used the facility’s near-complete $600 million expansion as an example of many changes retail centers will likely see in coming years.

Food and beverage will play a much bigger role in mall activity, and the CBRE brokerage will open a 35,000-square-foot office.

“I think these big centers of plus-1 million square feet — that stool needs three legs,” Perry said. “They need to have food and fitness, office and residential. Those three components are critical to growing an asset.”

In a previous renovation, a department store became a gym and movie theater. The next phase at UTC will include a 300-unit luxury high-rise apartment. E-commerce companies, such as Amazon and Warby Parker eyeglasses have already opened brick-and-mortar outlets.

“Every single piece of clothing I have on I did not get at a physical store,” Perry said.

He visited the Bonobos men’s store, tried on a suit and ordered it for delivery to his home in two days. Such online retailers open up physical locations because they want to create an emotional connection with consumers.

But even online and in-store shopping may change further with advancements in artificial intelligence, said Stuart Tanz, president and CEO of ROIC, which owns neighborhood retail centers anchored by groceries and drug stores.

“That’s a whole other aspect of our business that no one is even focused on and the impact it could have on retailers,” Tanz said. “I know people are working on AI software where you put on a pair of glasses, go into (a virtual) Nordstrom and at the blink of an eye, you buy and don’t even have to leave your couch.”

Tanz said his centers will not be as radically altered because people still need to buy fresh produce and, because of legal issues, bring in their prescriptions in person.

Large stores may be subdivided into stores-within-stores and kiosks.

The middle aisles of supermarkets likely will change as packaged goods get delivered via Amazon and other such services. That space might then be repurposed to handle take-out meals.

Meanwhile, Tanz said, ethnic groceries have not yet attracted much attention from investors. But they represent a growing niche that is not yet online-driven.

Anjee Solanki, national retail director for the Colliers International brokerage, said for all the talk of e-commerce, it only represents 10 percent of all sales. And consumers still like to mingle with one another.

“We are humans, so we will constantly want interaction, though we may be using various devices,” she said.

With department stores losing business, landlords wonder what to put in their place. Solanki imagined more popup stores and “flash retail” outlets, where new products are briefly marketed.

She reported a more fundamental change in consumer habits. Women buy fewer items per year because they live in smaller homes.

In the 1990s, they typically bought 70 items of apparel per year. The latest surveys show they only buy 30 to 40.

In all this change, landlords have to rethink how their properties will be valued and what to charge tenants.

Traditionally, the benchmark has been sales per square foot — the higher sales, the more rent is charged and the more the property is worth.

Now, retailers book sales both in a store and online and aim to make the physical experience so pleasant, customers come back again and again.

“It’s no longer sales per square foot, it’s experience per square foot,” Solanki said.

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