CBRE’s Laura Barr On the Misperceptions in Brick-and-Mortar Retail Leasing

Add to that landscape the pandemic and the e-commerce revolution, and it adds up to a bunch of troubles retail didn’t need. Suddenly stores had to wonder where their next customer was coming from, and how to compete with a bunch of consumers banging on their tablets from the comfort of their own couch. And even the couch itself was bought online.

Here we are toward the end of 2023 and not all of that has sorted itself out yet. There are a bunch of experts who will tell you retail is back, that consumers dearly needed to get out of their homes and shop, if only for the recreation of it. Yet there are signs not all is well, from the department store shells that remain unoccupied to the outlets left stranded by the Bed Bath & Beyond bankruptcy.

Into this breach steps Laura Barr. At the end of August, Barr was named the top retail leasing executive at CBRE (CBRE), the world’s largest real estate services firm. Her official title is Americas retail leader for advisory and transactional services. Before that, she was a top retail broker in the firm’s San Francisco office.

And, in another life as a researcher, she co-wrote a 2018 report on autonomous vehicles and how those things were going to affect real estate. At the time, she was quite positive that driverless cars were coming and that they would shake up the real estate market.

Barr spoke with Commercial Observer by phone a few weeks into her new position. 

This interview has been edited for length and clarity. 

Commercial Observer:  So e-commerce is here to stay and the pandemic has left us, thank God. Where do you see all that leaving retail?
Laura Barr: I’m about 30 days into this wonderful new role. To your question about the big-picture retail trend: It all comes back to the consumer. We are looking at a consumer who has been relatively gravity-defiant for a surprising period of time, even if we zero in on all the student-loan relief and pandemic-related checks.

In many prime markets, there has been so much upward pressure in the way of supply constraints, that we expect to see that just in the form of the deceleration of reduction in vacancy and a deceleration of increase in rents — a wholesale change in direction. So that’s something.

Interesting, too, is discretionary goods and essentials will be different, right? Discretionary spending will probably drop before essentials, and essentials have, unfortunately, lower margins. So we’ll have more of an impact there.

Weaving in your question about e-commerce and everything else, consumer brands are getting smarter about figuring out how best to get their product or service to the consumer. They’re finding their footing on the best way to balance all channels, including retail and e-commerce.

There are so many subcategories — urban, suburban, value, contemporary, luxury — and so many ways to break down retail that it’s dangerous and difficult to paint a broad brush over the whole, even when we speak about the consumer broadly.

My standard belief is that companies that have products to sell are pretty agnostic about how they sell them, whether by e-commerce or physical retail. They just want whatever sells, and if that means a little of this, a little of that, that’s what they’re going to do. Do you agree with that? Do you see that in practice?

That is why our team is so focused on retailing, in addition to real estate. We have to be focused on retailing before real estate — it’s what makes us good.

Two things I would say additionally to your question: There are very different margins. Flooring products sold for very different margins, e-com versus in-store. If you have to subsidize shipping, pack the box, dealing with the cost of reverse logistics — in the case of returns — those are all things that will diminish the margin. Depending, obviously, on your cost to operate a retail store, which can vary, many retailers can generate a higher margin for products sold in store. So that’s also an important consideration.

And it’s not an across-the-board rule, which is really important. It is often directionally the case because you could have a crazy rent on a given street or you could staff up like crazy. But the other piece to add to this is when consumers have the option — and actually can both shop online and in store for particular brands — a brand will do better overall. It’s been proven many times that a shopper who can shop in both directions — research before online and then walk into a store and buy, or spend time interacting with a product or service in store and then go and buy online. In either direction, they will consume more than they would have if they had only explored one channel.

Are we going to continue to see more impetus on the warehouse side and less on physical retail? Or is that over and things are going to trend back the other way?

I don’t think it’s possible for us to break it. It’s such a diverse industry, there will not be one total rule of thumb.

We’re working with companies that are looking to refine the way they’re handling logistics. For some of them, it makes more sense to invest more heavily on the supply chain side. For others, it makes more sense to invest more heavily elsewhere. One of the other impacting factors is the cost of customer acquisition. Mobile and social advertising has become impressively expensive. In many cases, there were brands saying, “Well, it’s so expensive for us to acquire new customers online, you might as well spend the money opening a store and acquiring new customers that way.” So that’s another consideration.

Different brands will vary. Within the grocery space, for example, we’re seeing a lot of innovation around optimization.

How do you explain the failure of Neiman Marcus at Hudson Yards? They were well aware of the challenge of e-commerce. 

You can’t paint with a broad brush across department stores when one department store doesn’t see it through. I would say in general, luxury has been impressively strong. One of the things I’m most curious about as we track consumers is how will the luxury consumer react to a shift in their spending power? I think there’ll be a significant set of the population for whom that shift is less than we might expect, and there’ll be a chunk of the population where that impact — negative impact — will be greater. 

I think we can make all the predictions we want. We’ll have to get a little further along in this to see.

You hear a lot of talk about experiential retail, which involves creating experiences you can’t replicate at home. Has experiential retail been the saving grace that a lot of people thought it would be?

I think experiential retail is no longer considered a special addition. Having a positive experience in retail is now table stakes. It’s not a nice to have, but a need to have.

Experience can mean different things for different brands or concepts. But a purely commodity retailer or brand has to have some other reason to get people in. And, often where you see that reason as price, experience might be less of a consideration. So what is the environment like in a store? That all plays in.

Do you think the department store is dead? Or is there a version of the department store that works in the current zeitgeist?

I think that the idea of a well-curated retail store where you can access goods for a variety of areas of your life is a great thing and a great idea. It can be challenging to operate. But there’s a lot of value in merchandising, both within an individual kind of brand or concept and within a multi-brand or concept environment. So there are a lot of different kinds of stores that we might categorize as department stores. 

And, just like everything else, we’re watching evolution in the department store space. I believe that there is room for multi-brand, well-merchandised stores. Absolutely.

Do you believe that America is over-stored? And, if so, what should landlords do about it?
So I’ve got some interesting stuff for you. Retail space per capita, over the last 10 to 15 years, has essentially been slightly down, while for that same period, retail sales per foot have risen 50 to 60 percent. Think about that for a second: We’ve not been increasing retail space per capita, but retail sales, the sales volumes generated by retailers, have risen considerably. So that should tell you something.

I’m going to go back to a comment I made earlier where I think it’s really difficult and dangerous to paint all retail with a broad brush. Strong suburban retail is doing very well. In many markets, there is no space. And there are many retailers competing for the few that come up. 

In urban markets, in markets where there’s a lot of residential density, or tourism, retail has done quite well. In some markets that are primarily office-driven, in markets where return to office has been slower, the retail has also been weaker. Retailers have not performed as well.

Some five years ago you wrote about autonomous vehicles and their potential impact on real estate. And here we are still waiting for autonomous vehicles to get here. What are your thoughts now versus your thoughts then?

A few things. We were very careful in our initial work on a timeline, because there are a number of factors that are not yet possible to fully predict. That’s because there’s so much hinging on government reaction, on societal reaction.

I’m here in San Francisco. I took a Waymo last night; there was no driver, just passengers. It may take more time than we believe. My personal guess: It will be as disruptive or as big of a shift as the advent of the automobile was to urban planning to begin with.  I think it will be one of the biggest shifts we will see.

So you still believe this is going to happen? That it’s inevitable?
I think that there will be variation among geographies because there’s such a different approach in terms of a regulatory environment. There’s no way to fully predict that because so much of that hinges on the general human climate that people are voting in.

If we have issues with major accidents, we could see huge delays. Not to mention getting factories up and approved, and getting cars produced in volume is no small feat. So I’m not telling you that it’s going to happen tomorrow. But looking at the impressive evolution of technology, I would be surprised if we don’t see some significant adoption.