Retail's predicament at the end of 2017 could be likened to that of a motorist suddenly stranded on a remote highway: Something went wrong, the fix is not obvious but likely expensive, and the ultimate destination may be different than anticipated or out of reach.
At a conference in New York, Dean Adler of the real estate investment firm Lubert-Adler Partners, gave a sweeping account of the challenges that brick-and-mortar retailers and their landlords face in a time of "really, really transformational" change that has thrown off even the most accomplished executive suites.
"Most management teams of retailers don't get it, or they're getting it and it's ... too late," Adler said in an address at RealInsight's Real Estate Private Equity Summit.
Adler, a longtime retail real estate investor who sits on the board of the domestic merchandise chain Bed Bath & Beyond, said a new mantra of "customer, customer, customer" has effectively replaced the old one of "location, location, location" in the estimation of value. Those retailers that own the customer relationship are the ones that will prosper going forward, irrespective of the locations of their stores.
Adler argued that many retailers will have to invest huge sums of capital in the next three years to survive — a problem compounded by the fact that it is not clear where the capital should be spent, and will likely be different for each retailer and landlord. For some, leverage will be a priority, but right-sizing it will come at the expense of enhancing physical stores and online platforms, which also may be necessary.
The "experience" dimension of physical locations needs to be improved in many cases, but people disagree on what experience means, and it is not yet clear what strategies in that realm are effective long-term. There is no established playbook today to combat Amazon.com Inc., he said.
"You're now at a point where you've got to really decide what your priority is and put your chips on it," he said. "And you don't know whether you're going to be right or wrong."
Industry experience is no longer the predictor of success it once was, and in some cases, it might be a drawback, Adler added. On the other hand, while radical thinking is needed, a radical solution will not be the best solution in all cases.
"Who do you turn to, to run your companies? ... You can walk in and say, 'I'm an innovator.' But what does that mean? J.C. Penney brought [former Apple Inc. executive] Ron Johnson in, and they blew up that company," he said.
On a retail-focused panel, Joshua Weinkranz, Kimco Realty Corp.'s president for the Northeast region, gave a withering assessment of department stores' efforts to-date to meet current challenges. They are still competing only at the level of price, he said.
"They're sitting there doing the same old thing over and over again, and they're going to go away," he said. "They're not going to be around in 10 years."
Weinkranz singled out Kohl's Corp. for praise, however, citing the department store chain's partnership with Amazon, through which an Amazon customer can return an Amazon product bought online at a Kohl's store for free. He applauded the inventiveness of the arrangement, even though it is unclear if it will have any positive impact on Kohl's business.
"I don't think anybody is quite sure exactly how to approach it, how to attack it, and what the answer is," he said of brick-and-mortar retailers' identity crisis. "But they're all experimenting with different things to see what really sticks."