AYGOREN: What about the effect of
e-commerce on the retail landscape?
TANZ: Within the grocery-anchored sector, e-commerce has not had an adverse
impact. In fact, many of our tenants have
benefitted from it, ranging from the local
mom and pop stores that have grown their
businesses through marketing their services via the internet, to larger regional
and national retailers that have developed
successful omnichannel marketing strategies. Additionally, in terms of grocers, we
are now seeing a new wave of enthusiasm
regarding streamlining the ordering and
pick-up process, utilizing the Internet.
McGUINNESS: There is no denying that
e-commerce is changing the retail landscape for some retailers and a cause of certain store closings, but the negative perception is overblown. We are confident that
brick-and-mortar stores will continue to be
integral to the retail industry. Physical
stores help retailers build their brands and
drive online sales, as evidenced by the strategy of popular online retailers, such as
Amazon and Bonobos, opening physical
stores to further enhance their brand presence. The future of retail is bricks and
clicks, not bricks or clicks. With that said,
70% of our retail assets are anchored or
shadow-anchored by grocers, which are
more resistant to internet competition.
AYGOREN: In terms of food and grocery
stores, are we talking middle market?
What about fast, casual restaurants?
TANZ: On the West Coast, all formats—
from the regional specialty grocers catering
to a specific demographic, high-end organic
grocers, to the much larger, traditional
national grocers—are performing well. All
are generating solid year-over-year sales and
many are seeking to expand, particularly in
the Pacific Northwest. Casual restaurants
are also performing well and expanding on
the West Coast, largely driven by a growing
number of new food concepts providing
organic, fresh and unique menus in a casual
setting and at an affordable price point.
McGUINNESS: We view groceries and
restaurants as “foot traffic” drivers for our
centers. We look to invest in strip centers
with the number one or two grocer in a
particular market and/or a popular food
concept to bring people to the center. As
the center becomes a must-visit property
by the community, other retailers will
aggressively pursue space in that center.
That demand leads to rent growth.
As far as the Internet’s impact on the grocery space, we don’t see it yet. The grocery
business is very competitive, with thin margins. We don’t believe these emerging
Internet concepts have solved the “last mile”
issue. In fact, the top grocers we talk to are
more concerned about the other brick-and-mortar competition, like Wal-Mart, than an
unproven Internet concept.
It’s really a market-by-market analysis. In
our target SunBelt markets, we’re seeing
population and job growth and better performing economies than in some of our
other tertiary markets. We see a lot of uncertainty in the market due to potential legislative changes in the next six to 12 months.
AYGOREN: A lot of major metropolitan
areas were pushing for minimum wage
increases. Are you worried about that?
McNELLIS: In Northern California, fast
food retailers are pulling away from deals
because of the minimum wage increases. As
long as a given retailer insists on a given
rate of return, if the minimum wage goes
up, the only solution is for the rent to go
down. So it’s not something that our industry is going to welcome as a whole.
IFSHIN: In states where the potential for a
meaningful increase in the minimum wage
is real—like New York, California and
Washingtonretailers consistently tell us
they’re worried about labor cost inflation
that they can’t control. A lot of retailers
don’t think they can take materially more
labor out of the channel. A lot of these
groups during the recession lowered the
amount of labor in the store, and they don’t
think they can go any further.
AYGOREN: Let’s talk about how the proposed Border Adjustment Tax may
impact retailers and the overall sector.
IFSHIN: It would be a disaster on a million
levels for American retail and the impact
would be highly negative to the economy.
BAT would move construction pricing to
the point where a lot of things won’t make
sense because so much of what goes into
the construction of a store is imported.
McNELLIS: Our construction costs are
already through the roof. They’re up 25%
As long as a retailer
insists on a given rate of
return, if the minimum
wage goes up, then rents
will go down. That is not
something our industry
is going to welcome.”
JOHN E. MCNELLIS
The Border Adjustment
Tax would be a disaster for
retail. Construction pricing
would move to the point
where it won’t make sense
because so much of what
goes into the construction
of a store is imported.”
DLC Management Corp.