The retail industry is under siege with news of store closures and bankruptcies dominating headlines every day. Simultaneously, a shift is underway. The days of the traditional shopping mall are behind us, making way for lifestyle and entertainment options where traditional big-box anchor tenants once stood.
The redevelopment of 100 percent retail shopping centers into mixed-use, experiential environments isn’t a new thing; in fact, one developer was ahead of his time and has been busy creating mixed-use town center shopping destinations for 30 years.
Yaromir Steiner developed his first experiential shopping center in the Coconut Grove neighborhood of Miami in 1990. Since then he has built, leased and managed numerous top-performing retail projects in the U.S.; from ground-up developments to renovations and redevelopments, his projects target the power of the consumer experience.
Today, Steiner + Associates’ portfolio comprises retail, residential and mixed-use developments, including the 1.7 million-square-foot Easton Town Center in Columbus, Ohio—one of the top 30 performing malls in the country—and Liberty Town Center in Cincinnati. His latest project is planning the retail, leasing and development of Lake Nona Town Center in Orlando, Fla. with developer partner Tavistock Development Company: an 11,000-acre, 17-square-mile site comprising 10 million square feet of residential and commercial space.
Steiner called CO from his office in Columbus, Ohio and described the challenges that firms such as his are grappling with—most prominently, trying to predict the direction that the retail industry is heading, minus a crystal ball.
Commercial Observer: You grew up in Istanbul: What brought you to the U.S.?
Steiner: Yes, I grew up in Turkey and went to college in Toulouse, France. I had my first job there, and the company sent me to the U.S. to start its American affiliate, Amega Corporation. That company’s business was building industrial parks, so I arrived in Houston, and those developments were my first foray into real estate. During the savings-and-loan crisis, we decided to stop the business, but I stayed in the U.S., and five years later I started my own company, Steiner + Associates, with my wife and $1,000 [Steiner’s wife, Patricia, is the company’s chief administrative officer today].
How did your focus switch from industrial to retail?
During the crisis I got into the property workout business, fixing problems for others. During that process, I was exposed to office, hotels and retail; of all those assets, retail was what I thought was the most interesting. We spearheaded a project in Coconut Grove in Miami that was called CocoWalk—30 years ago—and that project opened my eyes to the possibilities of retail. I said to myself, “I’d like to get into that business somehow,” and I started the company.
What spoke to you about CocoWalk?
CocoWalk was a revolutionary project, but I didn’t know it at the time. We did what we thought was right for the project, but what we thought was “right” was very different from what everyone else was doing.
Basically, it was one of the very first leisure and entertainment-driven centers with cinemas, restaurants and bars mixed with traditional retail. There weren’t many projects in America like that back then—that was one of the first.
The idea was not to innovate; the idea was just to solve the problem that we had, and the project ended up being very successful. Clearly, it had something to do with people’s lifestyles and how they wanted to spend their time; the importance of food, open air, all the things that we take for granted. From its success I learned this was something that we should be focusing on.
Similarly, 10 years later we worked on Easton Town Center in Columbus. These were two benchmark projects that pushed the envelope because they were regional mixed-use projects that combined offices, hotels, retail and other uses. Now, 30 years after we did the first project, the whole industry is changing, and we need to reinvent ourselves again.
What are the biggest changes you’ve seen?
The biggest changes we’ve seen are the reduction of department stores, the growth of specialty retailers, the increased importance on having cinemas, dining and entertaining in the mix, and a move toward open-air environments.
There seems to be a negative headline every day. Is the press overdramatizing what’s happening in the retail sector?
Well, the press is taking account of the major changes happening in our business, and we need to respond to them.
So, what is your view on the future of retail?
In my opinion, between now and 2040 the two extremes of retail are going to be disproven. Those who claim that our brick-and-mortar retail model can be slightly tweaked and continue are wrong. There are going to be significant transformations in our industry, and frankly I think there will be a significant reduction in the per-capita of retail space that will be on the market. I think we’ll find that the per-capita reduction is going to accelerate, and we will see demolitions, clearances and a simplification of the retail environment at a magnitude of 25 or 30 percent. So, for those that claim that retail can stay the same, it won’t; there’s going to be significant changes, and the retail that emerges will be different.
Then, there is other extreme. Those who claim that online and digital retail will entirely replace the brick-and-mortar operations are wrong as well, I think. I believe that you’ll see a continuation of the growth in online purchasing—it will more than double what it is today, but once it doubles I think it will stabilize at around one-quarter of the retail business, with the remainder still being brick-and-mortar.
So brick-and-mortar retail isn’t going anywhere anytime soon.
The full death of brick-and-mortar retail is exaggerated, just as everything turning to home delivery by drones is exaggerated. But during this adjustment period, both sides will have to adjust their models; the pure online retailers will need to rethink how they operate and how they are more responsive to the customer, and the brick-and-mortar retailers will need to adjust to a new model of doing business as well.
What do you see retail evolving into?
We’re in a period of change and we need to figure out how to go from where we are today to where we need to be. Frankly, every quarter we are discovering new things about the industry. I cannot tell you exactly what the outcome is going to be, but clearly the brick-and-mortar environments are becoming more experiential, and the retailers need to be more integrated with cyber retail. The reason why it’s especially difficult for me to predict the outcome is that I am a second degree person; it’s up to the retailers to figure this new world out.
At the same time we, as developers, need to guess what retailers are going to do in the future so that we don’t do stupid things today. I think we’re going to see a more extensive proliferation of restaurants, bars and clubs and bowling alleys. Retail environments will start looking more like the Georgetown area of D.C. There will be retail, but it will be more of a place to go out to—an urban parallel.
Do you think the consumer is changing, in terms of their shopping-experience demands?
The answer is yes—every generation has different ways of doing things, and that isn’t stopping. The only thing that is constant is change. As a developer we’re trying to play anthropologist to figure out where people are going so that we are ready for them. But, we’re seeing the differences. Gen X is different from the baby boomers, and Gen Y is different from Gen X. Now we see the emergence of Gen Z, which is different from Gen Y. We need to stay on our toes.
What does Gen Z want?
Gen Z is less brand-sensitive, but they are very interested in social interaction. It’s a very delicate game because while we are trying to be sensitive to what millennials expect, the big purchasing power still lies with the baby boomers, so we can’t do everything for the millennial. Clearly we are seeing that experiential environments, whether physical or uses—restaurants and entertainment venues—are critical in remaining responsive.
You once said that brick-and-mortar retailers shouldn’t try to “out-Amazon Amazon” and compete with online retailers.
The reason I said this is that I question the profitability of the online business of some of the retailers. If you compare Macy’s and Dillard’s, Macy’s has four times the percentage of Dillard’s in online merchandise sales, but if you compare margins, I am sure that Dillard’s has better margins. So, I don’t know what the solution is, but Amazon is a totally different platform. It is basically a worldwide marketplace, and retailers have to create their own way of dealing with this and not copy it. There are some aspects of Amazon worth copying but not everything.
Where should retailers place their focus?
The area where retailers are not focusing on enough right now is making the store more experiential. If there was a system whereby I could go to a store, see holograms or big video images of the clothes and see myself in those clothes then be able to purchase them in-store or touch the fabric before ordering…that’s a store I’d go to, because it gives me something different than sitting on my little 16-inch computer at home and trying to figure all of this out.
Victoria’s Secret is doing a remarkable job. It has online competitors but delivers an experience to the customer, and that makes them feel special because the store is a place of discovery and a place of wonder—and that is what we need to create. I think that we are going through a temporary period where the focus of the retailer has been mostly on technology and not enough on enhancing the customer experience. Many stores are very boring compared to what they could be.
A lot of the troubled retailers, such as Sears and J.C. Penney, are in secondary and tertiary markets. How do they survive in this evolution of the industry?
Here is the trend I am foreseeing, and it might be the wrong guess: Take a town in Texas, say 100,000 people. It typically has its mall on the outskirts on a main road that typically includes a Sears, J.C. Penney, Macy’s. Those malls are really suffering. I think what we are going to see is the resurgence of the downtowns with the placemaking qualities that is inherent to their original design. We are going to see—and it’s a bold guess—a return of the department store to the downtowns instead of the outskirts, and this will be encouraged by the public sector. The municipalities or the government will be the ones offering the retail mix. Essentially, I see a mall in a box that will come to downtown to complement the leisure time users.
What do you look for in a project to develop?
Location, access and the market are important, but we’re also looking at the competition—in a shrinking environment it’s very difficult to revive a No. 2 or No. 3 mall. From a retail standpoint, everything we consider is a mixed-use project with apartments or offices. We do not look to pure retail plays, or very few of them.
Tell us about your Lake Nona Town Center development in Orlando, Fla.
This is a project that is going to play the role of a town center in [an 11,000-acre] development. So, the problem to solve isn’t the distribution of goods but to create an environment that will be the commercial, civic and living-working hub of a large community. There is a retail component, but there are also other components around it. The emphasis is in placemaking to create an experiential environment that people want to come to.
We are not building malls anymore. Now we are creating mixed-use environments with some retail in them. In this case, what is remarkable is that the developers of Lake Nona, Tavistock, is a very visionary organization with a long-term perspective, and the main focus is to create a community with high levels of well-being for its residents and visitors.
Is this the most challenging market cycle that you’ve worked through?
The challenge in this cycle is not one where the banks are suddenly pulling our lines of credit, and we are wondering if we’re going to go bankrupt. It’s not that kind of challenge. That was the challenge during the savings-and-loans crisis, and then the 2008 crisis—those were existential crises that challenged us to our core. The challenge we face today isn’t something we can simply wait out and then it will go back to normal. The retail industry is going to change, and it’s almost like the changes of the 1950s and 60s, I would say. This is a fundamental change, and we’re trying to guess what that is and how do we transition from one form of retail to another.
How do the banks view retail lending right now?
The banks in general are more conservative right now, more prudent. But I think that the developers are more prudent too. Underwriting terms are tighter, but at the same time nobody is building crazy stuff, either. There are times when I want to do 10 projects simultaneously, and the banks are turning me down. Then, there are times when I’m not sure I even want to do a project, so I’m not going to the banks. It’s an industry that everyone is trying to figure out right now.