Why Warren Buffet Might be Wrong About Retail
Entrepreneur's New Year’s Guide
Did Amazon kill retail? Warren Buffet seems to think so. After watching a 21 percent decline in Wal-Mart stock since 2014, Berkshire Hathaway sold off nearly all its $900 million stock in the company. By contrast, Amazon has seen a 119 percent increase in that same period, with $107 billion in ecommerce sales during 2015 alone. Amazon "is a big, big force, and it has already disrupted plenty of people -- and it will disrupt more," Buffett said at his most recent annual shareholders' meeting.
Still, some developers are betting big in retail. They acknowledge that convenient online shopping is a reality for most people, but they also know physical stores can give customers they can't find online: an experience.
The era of brick-and-mortar retail is far from dead. Rather, there's a paradigm shift taking place around what it takes for these stores to remain relevant in a digital world. Retail developments used to rely on anchor stores, but they're now dependent on a sense of place.
I recently sat down with executive leaders from CenterCal Properties in El Segundo, Calif., to learn how developers are thinking strategically about these niche communities. CEO Fred Bruning and President Jean Paul Wardy shared three best practices for others who want to make their mark in the industry.
1. Know your community.
It probably wouldn’t be a sound financial decision to house your new tattoo parlor in the middle of a retirement community. You wouldn’t want to put your antique shop in the heart of a college campus, either. Your store’s street address matters. Take a look at what your business offers and ask yourself who might benefit the most from a convenient location for your particular goods.
You can learn a lot about a community by immersing yourself in it. One way to get to know an area and its people is through the use of technology. Today, any given customer is bound to have a fairly significant digital trail. Shopping histories and social media activity often are easily accessible and can provide great insight into your potential buyer-sphere.
Another great way to get an "in" with your target community: Take an interest in their interests. For example, many smaller coffee shops often offer local artists a platform to present their work. The shop provides a service to the community, and the community provides the coffee shop entertainment and an inviting atmosphere. The two-way benefit fosters a relationship between both parties.
“Create a space that is special enough to stand on its own,” CenterCal President Wardy says. “Then develop a level of trust with the community, stick with what you say you’re going to do, and make the final outcome nicer than what you originally planned. The consumer is getting more and more accustomed to convenience, so developers who create places for people to experience memories with their families and shop in a convenient way will be successful.”
2. Find the underserved niche.
Fewer than 10 years ago, communities on the east side of Austin, Texas, were in serious decline. Run-down buildings, failing businesses and scarce amenities were just a few of the issues plaguing the deteriorating area.
This is far from the case today. The east side now is one of Austin's fastest-growing communities. Restaurants, clothing boutiques and entertainment venues have reinvigorated the area’s commerce, breathing life back into a business district once perceived as irreparably broken. And it’s all because a few thoughtful entrepreneurs found a place their services were needed.
In your journey to establish a business, you may be tempted set up shop in an area with a saturated population in order to gain exposure. Breaking into a developed market, however, can be difficult. You might actually find more luck in underserved neighborhoods. Retailers recently have been encouraged to "follow the rooftops" -- seeking retail space in developing areas that might lack resources. This can be a huge risk, but the potential rewards can make the bold move well worth it. In addition to the profits in an untapped market, you could position yourself as a pioneer who exhibits business prowess in a whole new area.
3. Talk to experts.
You must understand a product before you can properly market it. The same applies to choosing a business space. Property consultants often are deeply rooted in the communities they serve and can provide information you need to establish your company. They're in tune with the most current local trends, needs and demographics. Seek their guidance, and listen. They'll help you understand which spaces will benefit you and your customer the most.
CenterCal, for example, develops its properties strategically around the concept of community. Developments such as its Station Park property in Farmington, Utah, are created as “special enough to stand on their own.”
CenterCal's team begins by creating a place where community members can gather -- somewhere people don’t feel as if they have to spend money. Free amenities might include face painting, parks and colored fountains. CenterCal places these perks in a forum-like setting where people of any age will want to congregate. Next, the CenterCal team selects restaurants that will appeal to the future development's target community. Today, people dine out five times more frequently than they shop. Only after they're in the neighborhood do they think about the retail stores. This process creates the community-like feel of a small town. People naturally gravitate toward these areas. They linger, and then they shop.
“It’s wonderful when you look around and don’t see one person looking down at their phones,” CEO Bruning says. “That’s the magic of a gathering place. It’s just people interacting -- neighbors with neighbors, generations with generations.”
When you give customers an environment they can enjoy, you’ve already taken the most important step toward winning their business. If you’re interested in creating profitable retail developments, seek knowledge about your customers. Learn where they live and what they need. Then, provide a memorable and valuable experience. Literally and figuratively, it's all about building the community you envision.