Brixmor’s Brian Finnegan Talks Retail Strategy Heading Into 2022
Top executive at the open-air shopping center giant sees a lot of potential in curbside pickup and brand partnerships
Brian Finnegan was promoted to Brixmor Property Group’s executive vice president and chief revenue officer in February 2020 just before the COVID-19 pandemic threw an unexpected curveball into the real estate investment trust’s retail holdings.
Nearly two years later Finnegan has positioned Brixmor to weather uncertainty unleashed by the global health crisis with strong tenant demand at the REIT’s 389 open-air shopping centers. Brixmor has seen foot traffic approaching, and at times exceeding, 2019 levels this year even with an increased demand for “buy online pick up in-store.”
Finnegan spoke with Commercial Observer in December about how the holiday season is shaping up, the evolution of retail this year, and where the sector is headed in 2022 amid continued challenges posed by the pandemic.
His comments have been edited for clarity and length.
Commercial Observer: What is your general expectation for the holiday season this year compared to 2020?
Brian Finnegan: What we’ve seen so far has been very encouraging. Reported traffic levels across the board are up significantly from 2020 across a broad range of categories, and I think you will continue to hear that the physical store is going to be even more important this holiday season. With some of the supply chain issues that could be out there, people are going to be less confident in some of those online deliveries and want to make sure that they can get their hands on the product.
And, so, whether it’s shopping within the store, or the fact that consumers have become much more comfortable with curbside pickup and ordering online and picking up in-store, I think both of those trends are going to be really positive for physical retail and, particularly, open-air shopping centers this holiday season.
What areas of retail have shown the most growth in 2021?
What’s been particularly encouraging for us is that the core categories that we see in open-air retail have all been doing very well and have significant demand for store openings next year. In particular, the grocer activity across the board has been very exciting. We’ve signed 13 grocers since the start of 2020. We’ve added those to the portfolio. Our grocery-anchored percentage of our portfolio is just over 70 percent. And for us, that creates daily traffic that really helps our other tenants in the shopping center.
In addition, the value apparel segment continues to perform very well — the T.J.Maxxes, Burlingtons, Rosses of the world … From a general merchandise perspective, operators like Five Below continue to have large openings planned for next year. And, then, in addition to the quick-service restaurants, particularly those that are located on an out-parcel, like on a pad in front of a shopping center — like the Chipotles, Starbucks of the world — have been incredibly active and it’s a huge part of our reinvestment plan to be able to create some of those out-parcel opportunities.
And, then, lastly, what we’ve seen in terms of new entrants to our portfolio has been particularly exciting and within that the acceleration of mall-based retailers to open-air — the Bath & Body Works, Foot Lockers, Sephoras, Sleep Numbers of the world; Skechers is another one. They continue to look to open-air shopping centers as opportunities for growth.
With regards to tenant demand at your open-air shopping centers, what kind of stores are being sought out in these locations?
What we’ve found is the reinvestment that we’ve done in our portfolio, and landlords that generally reinvest, we’re going to be able to attract best-in-class tenants. So, I went through a number of the categories and retailers that are looking for space and it’s fairly broad within that off-price value apparel sector, within general merchandise, grocers particularly — specialty grocers — and then in terms of the type of space that they’re looking for. What retailers are looking for is good visibility, good access, a flexible format to be able to test things out like curbside pickup, to be able to quickly innovate within their stores, to be able to do more ship from store and, an open-air footprint. What we allow for in our shopping centers really allows them to be able to do that.
So, I’d say visibility, access and a flexible format have really been key to what retailers are looking for today.
I’d say from a size perspective it’s fairly broad within that junior anchor box, which we would call a net 18,000 to 25,000 square feet. You do see a lot of demand within that size range from those off-price retailers like T.J.Maxx, Burlington, Ross; from retailers in the home category, like Home Goods; and from many of those specialty grocers like Aldi and the Sprouts of the world.
And, then, lastly, demand for out-parcel space is as strong as it’s ever been. And that’s pads on the front of a shopping center. So, in addition to quick-serve restaurants — like I mentioned with Starbucks and Chipotle — operators like Chick-fil-A and Whataburger continue to have a lot of demand for new stores as we head into next year.
What kinds of properties of yours have seen the most foot traffic this year and why?
Well, again, I think the best way to drive value in this business is to invest in existing shopping centers. So, we have invested broadly across our portfolio, close to $400 million the last few years, and that has allowed us to attract really best-in-class tenants. So, I’d say grocery foot traffic is particularly important to us, that daily-needs customer. Again, I mentioned 70 percent of our portfolio is grocery-anchored, so that provides daily consistent traffic to our other retailers. Where we’ve done a larger reinvestment project we’ve certainly seen those traffic trends pick up.
So, for instance, we’ve done around 15 or 16 Kmart boxes. We have reinvested and redeveloped those over the past five years where we’ve taken an old Kmart box and we’ve devised it for a grocer and a Burlington or a Home Goods, and been able to develop an out-parcel as part of that. When you’re able to take a space like that, that has been underutilized for so long, and bring in thriving retailers you’re going to significantly increase traffic. So we’ve certainly seen that across the portfolio over the last year for sure.
How are brick-and-mortars devising their real estate strategies to go with the increased focus on e-commerce?
The one thing that the pandemic showed was the need for a physical store and the value in being close to the consumer. So, from a retailer perspective, the store has become more integral into how they interact with their consumer — whether they interact with them in the store, whether they interact with them online from a buy online/pickup perspective, or whether they deliver goods from the store, which is inevitably a lot cheaper than it is to deliver them from a distribution facility. So, the store has become much more integral in terms of engaging with the consumer. And, for us, being close to where consumers live has been incredibly encouraging in terms of seeing how retailers are utilizing their space.
What do you see as the future for the buy online and pick up in-store trend that has taken off during COVID and whether this trend will be long-lasting?
We started to see a lot prior to the pandemic primarily from a grocery and a large-format retailer perspective. And what the pandemic showed was not only the need for a much broader range of retailers to be able to utilize buy online pick up in-store. It also became more, I guess, acceptable and comfortable for the general public to utilize buy online and pick up in-store. It was a small percentage that was forced to do it prior to the pandemic. And, when people realized the convenience of it, when people realized how they could make easier trips to the shopping center, I think it just became much more prevalent; and retailers frankly got better at it in terms of their ability to quickly process orders and make that online or that curbside pick up much more seamless.
So, it’s definitely here to stay. The benefit for open-air shopping center owners, particularly an operator like Brixmor, is we have large parking fields. We can dedicate a few spaces to retailers at really no cost to us. And it’s allowing for more trips than otherwise would have been made to a shopping center in a given week. So, it’s definitely a trend that is here to stay. It’s a broad range of categories now that are looking to add that component to their shopping experience.
The omicron variant is very new and it will take time to learn more about it, but any sense of how that might impact the retail sector and particularly your properties?
Well, what I would say is the pandemic’s already revealed the durability of the asset class. We’ve been through now close to two years of working within a kind of COVID environment. And what has been really encouraging to us is to see how our retail partners have innovated, have looked to stay ahead of the curve, and have put things in place that are great business strategies, pandemic or no pandemic, whether it’s curbside pickup, whether it’s being able to engage with their customers from an online perspective, omni-channel platforms. So, retailers definitely have a playbook.
And, then, from a landlord’s perspective, one of the things that we’ve done over the past two years has really been much more focused on how we integrate gathering places that are shopping centers, how we integrate outdoor seating areas, increase signage, really across the board. So many of the things that we were doing at the start of the pandemic to help our retailers have become best practices across a number of our reinvestment projects, which have allowed for restaurants to do almost double the volumes when people came back to indoor dining. They now had indoor dining and they had exterior patios which may have been more of a challenge had they not been forced to do it.
So, I would say, overall, the pandemic has shown the strength and durability of physical retail, the need to be close to the consumer. It’s also highlighted the flexibility, where you can add a lot of these initiatives to be able to facilitate foot traffic to retailers despite the challenges that may be there.
What innovations have worked throughout the year in retail that you expect to continue in 2022?
A lot of what I mentioned, whether it’s more outdoor seating for restaurants or more curbside pickup for both restaurants and retail. The other piece that we touched on a little bit was just the innovation within the store and being able to utilize the sales floor differently from a ship-from-store perspective. So, within the store, you have the ability to greet consumers there, they can shop in the store, they can pick up goods outside, or you can ship from the location. I think you’re going to continue to see more and more of that and, again, with a flexible format we’re well-positioned as many of those initiatives change.
One of the things that’s been interesting, I think from a larger-format perspective, is some of the partnerships you’re seeing with retailers, whether it’s Sephora within Kohl’s or whether it’s Ulta Beauty’s announcement with Target, I think retailers or sellers are seeing some of the synergy between each other and the additional foot traffic that each can bring. So that’s been really interesting to see.
And, then, just how retailers are continuing to change their footprint and offering multiple concepts, like Dick’s Sporting Goods opening their new Public Lands, — their outdoor concept — their House of Sport, which has rock-climbing walls and all different areas within the store. These concepts engage the customer in more ways than just buying goods. So, I think there’s a ton of innovation in the space. I think those are just a few of the trends that I think will stick as we head into 2022.
Andrew Coen can be reached at email@example.com.