3. THE COMMON
DATA HEADLINES
E-COMMERCEAS A % OF TOTAL RETAIL SALES
2.5%
2.9%
3.4%3.6%
4.1%
4.5%
4.9%
5.3%
5.9%
6.4%
7.3%
8.2%
-20%
-10%
0%
10%
20%
E-COMMERCE VS. IN-STORE SALES GROWTH
YOY %
30%
Source: U.S. Census Bureau, Q1 2017
IN-STORE
4%
E-COMMERCE
15%
4. FOOT TRAFFIC CONTINUES TO DROP IN STORES
-6.6%
-8.5%
-10.0%
February March April May June July August September October
US Foot Traffic Growth, Feb-Oct 2016
Every month showed a decline in foot
traffic over the year prior, with losses
in March, May, June and
Source: RetailNext, Aug 2016
5. ANOTHER VIEW OF THE SAME DATA…
E-COMMERCE VS. IN-STORE RETAIL SALES
$0
$500
$1,000
$1,500
$
BILLIONS
E-COMMERCE IN-
STORE
>90%
ESTIMATED
E-COMMERCE SALES
THAT ACTUALLY GOTO
BRICK-AND-MORTAR
RETAILERS
<5%
Source: U.S. Census Bureau, Q1 2017
OF RETAIL SALES
STILL OCCUR IN-
STORE
50%
OF TOTAL RETAIL
SALES GO TO “PURE-
PLAY” E-COMMERCE
PLAYERS
8. 8.1%
12.6%
2016 2017 2018 2019 2020
US Retail Ecommerce Sales as a Percent of
Total Retail Sales, 2016-2020
ECOMMERCE'S SHARE OF TOTAL US RETAIL PASSED
8% IN 2016–LESS THAN HALF THE RATE IN CHINA
1.7%
2.5%
3.0%
6.7%
7.3%
8.1%
12.2%
13.9%
17.0%
19.0%
India
Brazil
Italy
Japan
Germany
US
Denmark
South Korea
UK
China
Ecommerce Sales as Percentage of Total Retail, 2016Ecommerce Sales as Percent of Total Retail, by Country, 2016
19.0%
37.5%
2016 2017 2018 2019 2020
Retail Ecommerce Sales as a Percent of Total
Retail Sales in China, 2016-2020
10. CONSUMERS LOVE SHOPPING ONLINE…
INTERNET USAGE AMONG USADULTS
Source: Pew Research Center
OF USADULTS
BUY ITEMS
ONLINE
79%
51%
OF US ADULTSBUY
ITEMS USING A
CELLPHONE
11. …BUT THEY LOVE OMNICHANNEL EVEN MORE
BROWSE ONLINE
TRY ON IN-STORE
PURCHASE ON PHONE
OMNICHANNEL CHALLENGES:
• NEW (HIGHER) CONSUMER
EXPECTATIONS
• LACK OF TRANSPARENCY IN
“CHANNEL SURFING”
12. APPAREL AND ACCESSORIES WILL CONTINUE TO BE THE
LEADING PRODUCT BOUGHT VIA ECOMMERCE
$63.93
$129.49
$36.32
$74.23
$28.77
$57.82$53.84
$114.25
$8.33
$17.38
$24.52
$50.27
$14.71
$30.81
$76.40
$145.41
2015 2016 2017 2018 2019 2020
US Retail Ecommerce Sales, by Product Category, 2015-2020 (billions)
Other
Apparel &
accessories
Computer/
consumer
electronics
Auto & parts
Books/music/video
Health/personal care
Toys & hobbies
Food & beverage
15. WITHIN RETAIL, VIDEO GAMES, CONSOLES AND
ACCESSORIES LEAD AS MOBILE PURCHASES
94%
89%
89%
76%
72%
54%
49%
41%
6%
11%
11%
24%
28%
46%
51%
59%
0% 100%Desktop Mobile
Computers/peripherals/PDAs
Consumer electronics
US Ecommerce Sales, by Device, Q3 2016
Home & garden
Apparel & accessories
CPG
Jewelry & watches
Toys & hobbies
Video games/consoles/
accessories
Source: comScore, eCommerce and Mcommerce Measurement, Nov 2016
16. THE
BIGGEST
OMNICHA
NNEL
CHALLEN
GE IS
PROFIT
e-commerce is expensive STORES GENERATE PROFIT
• SPEND PER TRANSACTION IS
HIGHER IN-STORE
• UPSELL OPPORTUNITIES WITH IN-
STORE RETURNS
• THE ROLE OF A STORE IN ONLINE
SALES
SOURCE: NRF; JDA & PWC, “THE OMNICHANNEL FULFILLMENT IMPERATIVE”, DECEMBER 2014
$260 BN
IN LOST REVENUE IN 2014
2 MILLION TONS
(4 BN LBS) OF RETAIL RETURNS
SENT TO LANDFILLS EACH YEAR
• MAINTAINING AN OMNICHANNEL
PLATFORM
• THE HIGH COST OF FREE DELIVERY
• THE EVEN HIGHER COST OF
RETURNS…
19%
OF THE TOP 250 RETAILERS SAY
THEY CAN FULFILL
OMNICHANNEL DEMAND
PROFITABLY
THE BIGGEST OMNICHANNEL CHALLENGE IS PROFIT
17. THERE IS STILL A PLACE FOR PHYSICAL
RETAIL, BUT ITS ROLE HAS CHANGED
TIME
CONVENIENCE
LOCATION
CHOICE
CONSUMER
EXPECTATIONS
HAVE SHIFTED
THE STORE IS NOW A
CHOICE
OMNICHANNEL
19. WHY WE THINK
STORES WILL
SHRINK…
• STORES WILL TURN
INTO SHOWROOM
SPACES
• AS SHOWROOMS,
THEY’LL NEED LESS
SHELF AND STOCKING
SPACE
• AND EVENTUALLY
ROBOTS WILL TAKE
OVER EVERYTHING…
20. THE BIG BOX IS
FAR FROM DEAD
…BUT THE BIG BOX
LANDSCAPE IS
SHIFTING TOWARDS
OFF-PRICE AND
DISCOUNT
21. ANNOUNCED RETAILER EXPANSION PLANS
Retaile
r
Planned
Openings
Commentary Avg Store Sq
Ft
DollarGeneral
TJ Maxx
Lidl
Ulta
Ros
s
Five Below
Dick's Sporting
Goods Burlington
Stores Costco
Nordstrom
Target
SteinMart
Forever 21 (F21
Red) Zara
1,000 Includes 150 to160 small-format stores (average of 6,000 sq ft) 9,100
197
Sees potential for +1,300 TJ Maxx stores and +1,000 Home Goods stores in North America.
28,200
Plans to open 15 Sierra Trading Post stores in 2017.
100
Plans to open approximately 100 stores by the summer of 2018, and up to 600 stores over the
30,000-36,000
longer-term
100
Announced plans to open 100 stores in 2017 with long-term plans to reach ~1,400 to 1,700
10,500
locations
90 Plans for 70 Ross stores and 20 dd’s stores in 2017 27,700
85-100 Announced accelerated expansion at start of 2017 7,500
60 Plans for 43 Dick’s Sporting Goods stores, 9 Golf Galaxy stores and 8 Field & Stream stores 49,300
25 Plans to open 25 to 30 new stores in 2017, according to a recent earnings call 75,700
15 Plans 15 additional location openings globally in FY2017 144,500
16 1 new full-line store and 15 new Rack stores
36,900 (Nordstrom
Rack)
14
14 openings (primarily smaller, 15,000 to 50,000 sq. ft. stores). Plans to quadruple current
15,000-50,000
footprint of 32 small-format urban concept stores
11 Planned 2017 openings 34,500
40 Announced openings for F21 low-price concept 15,000-40,000
5-10 Estimated U.S. store openings 12,000-20,000
Source: CBRE Research, Company filings, Creditntel, emarketer, May 2017.
23. AND THERE’S A BIGGER REASON WHY
STORES WON’T GO AWAY: PROFIT
E-COMMERCE IS EXPENSIVE STORES GENERATE PROFIT
• SPEND PER TRANSACTION IS HIGHER
IN- STORE
• UPSELL OPPORTUNITIES WITH IN-
STORE RETURNS
• THE ROLE OF A STORE IN ONLINE
SALES
• MAINTAINING AN OMNICHANNEL
PLATFORM
• THE HIGH COST OF FREE
DELIVERY
• THE EVEN HIGHER COST
OF RETURNS…
SOURCE: NRF; JDA & PWC, “THE OMNICHANNEL FULFILLMENT
IMPERATIVE”, DECEMBER 2014
IN LOST
REVENUE
IN 2014
(4B LBS) OF
RETAIL
RETURNS
SENT TO
LANDFILLS
EACH YEAR
20M
TONS $260B 19%
OF THE TOP 250
RETAILERS SAY
THEY CAN FULFILL
OMNICHANNEL
DEMAND
PROFITABLY
26. THE HAVES
• “A”MALLS
• OFTEN REIT- AND
INSTITUTIONALLY- OWNED
ASSETS
• PRIME DEMOGRAPHIC LOCATIONS
(HIGH INCOME, POPULATION
DENSITY, JOB GROWTH)
THE REALITY: A BIFURCATION
THE HAVE-NOTS
• “B” AND “C” MALLS
• CROWDED MARKETS
• DECLINING DEMOGRAPHIC
FAVOR
• HIGH RISK FOR DEPARTMENT
STORE VACANCY
27.
28. FOR STRUGGLING MALLS, THE OLD MODEL MUST CHANGE…
A NEED TO DIVERSIFY TENANT MIX
ENTERTAINMENTSERVICES
RESTAURANTS
OVERRELIANCE ON LOW-GROWTH, HIGH-E-
COMMS CATEGORIES
50% OF
REGIONAL MALL
SQ FT IS DEPT
STORES
58% OF IN-LINE
SQ FT IS
APPAREL
NEED TO DIVERSIFY
TENANT MIX AND
FOCUS ON HIGH-
GROWTH, LOW-E-
COMMS CATEGORIES
29. NEW PERFORMANCE MEASURES
FOR STRUGGLING MALLS, THE OLD MODEL MUST CHANGE…
NEW CREDIT AND LEASING TERMS
NEW FINANCIAL MODELS?
Measuring store performance:
From sales per sq ft to ?
Attracting new, “unique” tenants
that draw customers often
means more credit risk
32. CONSUMERS’ EXPECTATIONS ARE FOREVER ALTERED.
LANDLORDS AND RETAILERS MUST FOCUS ON
CONVENIENCE, CHOICE & EXPERIENCE
CONSUMER
S
33. THE PHYSICAL STORE WILL NOT DISAPPEAR.
BUT RETAILERS MUST RETHINK HOW THEY LEVERAGE THE
STORE TO DRIVE OVERALL REVENUE ACROSS CHANNELS
(AND THERE IS NO ONE-SIZE-FITS-ALL MODEL)
STORE
FORMATS
34. NOT ALL MALLS ARE IN TROUBLE.
BUT THE MALL OF THE FUTURE WILL LIKELY HAVE A
DIFFERENT TENANT MIX AND EVOLVED RELATIONSHIPS
BETWEEN TENANTS AND LANDLORD
THE
MALL