PERFECTING THE TENANT MIX
Bold New Visions For Entertainment RatailingNew Strategies, Surprising Predictions, and Secrets of Success
from Two Pioneer Developers
by Keith Alan Deutsch
| With the emergence of the entertainment specialty retail real project as a major focus of real estate development in America, it might be said that great concepts make great entertainment retail projects. But anyone who has designed, developed, brokered, or tried to finance such a project knows that great tenants make great projects. Even more so, great tenant mixes make great projects work even better. |
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By a great tenant mix, we do not mean merely an
exciting list of tenant offerings. According to the experts we polled for this article,
perfecting the clustering strategy of tenants for each project is as important as
acquiring those tenants. "The first principle, the primary question that we always
ask of a project is ‘Who are we?’ ” says Nick Bashkiroff, ESP Brain Trustee
and president of Kansas City's trendsetting Power & Light District project. “
'Who are our customers? How is our entertainment retail offering responsive to the needs
of our customers? What is our primary promise to the buying public?’ That's where all
tenant strategy should start.”
Activities that involve the audience in real experiences on site are
central to Bashkiroff's tenant mix strategy. “We program our activities to create a
constantly changing excitement in order to get people to keep coming back. Repeat business
is key.” He adds that as much as 25 percent of the tenant mix should be in a state of
change to keep visitor interest at peak. At the Power & Light District, tenant spaces
are designed to be semi-permanent.
“The changing tenancy factor is particularly volatile in the food
and beverage area. There are essentially two types of food tenants - finer dining, which
is a lifestyle and entertainment offering and is often themed by cuisine or concept, and
the fast-food, fill-the-hunger tenants. Fast-food styles seem to run in cycles. You have
to anticipate trend changes. In fast-food tenants, we look for what our customers look
for: choice, value, and quality. Theme is not important.”
Bashkiroff says it is important to offer to patrons strategies to
enable them to make efficient use of their time. “We have a high tenant count,”
he says. “More tenants with smaller spaces means more offerings that can be accessed
in a shorter time.” By efficient use of leisure time, Bashkiroff also means that a
variety of related entertainment, lifestyle, and retail experiences are grouped next to
one another. “We make it easier for a visitor with core interests to access offerings
that appeal to those interests,” he explains.
“A primary strategy is to bundle related co-tenants to support
their related lifestyle offerings. So we might put a NikeTown next to a golf shop, near a
sports bar. These “adjacencies” enhance one another and give different areas of
the project their own sense of place.”
Why is all this “programming” necessary? “Shopping malls
per se are passe,” says Bashkiroff. “Visits to traditional malls by length of
stay are way down. It is more convenient to use e-commerce to do utility and price
comparison shopping. But people are gregarious by nature and they want to get out of the
home to visit interesting places of interaction. We believe themed retail projects,
whether suburban or urban, must be community-centered to satisfy these social needs.
“Technology is great, but digital information leads to a cocoon
experience. The same technology must be used by entertainment retail real estate
developers to create places where patrons experience a higher level of personalization,
service, and more interesting shopping experiences.”
Bashkiroff believes that as e-commerce becomes the common vehicle for
price and utility shopping, entertainment retail tenants must become ever more the
showcase where shoppers can experience new products.
“Sales per sq.ft. may have to be rethought as the primary formula
for analysis,” he feels. “As retail tenants become product showcase platforms,
rather than point of purchase product stock houses, tenant spaces will become smaller and
rents will become higher. Who wants to go shopping and lug all those packages around when
you also plan to go out for fine dining and concerts and clubbing and to take advantage of
all the other experiences the new entertainment retail centers offer?”
Buyers will have to be tagged, Bashkiroff predicts. The retail tenant
will give the customer an electronic marker so that when a purchase is made later on the
Web Site, a discount will be granted based on the patron's visit to the retail tenant's
showcase store. “One of the beauties of e-commerce is that individualized customer
profiles based on consumer and retailer interaction are so easy to produce. The model
already exists on some websites. The customer is notified on the site at the computer when
a sale of merchandise or services that fits his or her profile is taking place. Event
scheduling becomes interactive. Based on the customer's activities and interests shown at
the retail real estate center, and by the purchases made on the related e-commerce sites,
information and notices about new events and sales and products are efficiently exchanged
between retailer, entertainment retail center, and customer. It is an interactive,
personal and customized exchange.”
According to Bashkiroff, Power & Light already has a “neural
network” up and running that provides out-of-town visitors with advance information,
directions, and discounts for concerts, dining reservations, hotel accommodations, special
events, and retail sales and services. “We can bundle whole experiences for our
customers based on their special and unique preferences. The interactive feedback of our
‘neural network' also allows us to better target what events to schedule for our
shifting audience's tastes. It is a very efficient, cybernetic system that allows patrons
to maximize their leisure time.”
Although Bashkiroff agrees that 60 percent of all tenants continue to
be credit tenants, he notes that this leaves 40 percent of the tenant mix for the
developer to tweak for the local market. “Kansas City is blessed and cursed,”
Bashkiroff says. “The Midwest is not the primary market for first-time national
tenants, and the tastes and expectations of the market may be different than the Northeast
and the West Coast. Some operators are struggling. Tenants must be flexible. The developer
may have to reach into the tenant's box and tweak his offerings and presentation.”
One strategy that Bashkiroff feels will become more widespread, even
among national chains, is a limitation of product line by market. Bashkiroff admits that
conveying these ideas to tenants is a difficult task. But commencing the dialogue is an
important first step in perfecting the tenant mix in a project.
Yaromir Steiner, ESP Brain Trustee and president of Steiner +
Associates, appears to have had an easier time tweaking his tenants. Steiner, who helped
develop Miami's CocoWalk and Streets of Mayfair, Ohio's Town Center At Easton, and Tampa's
Centro Ybor, among other entertainment retail projects, told us that except for product
retailers, all tenants have been responsive to his suggestions.
“The easiest way to position a tenant is to create signage,”
Steiner told us. “There are times when it is necessary to do more than influence the
presentation of the concept, however. Sometimes changing the layout of the venue is
critical to success.” For the Easton project, Steiner's team spent a day or two
brainstorming with representatives of a national chain. Although we cannot reveal the name
of the venue, adjustments were made so that the space would work more effectively as
“a meeting place” or, as Steiner also put it, “an internal hunting
ground.”
The architecture and design of the retail environment are critical. But
“the uniqueness of the product offerings is not as important as the quality of the
products offered. For example, Nine West works especially well in this context.”
According to Steiner, great depth of merchandise works best in a pure shopping context,
like shopping for men's suits at a traditional department store. “But when the
primary motivation in visiting the destination is to get out of the house, to relax and
have fun in a pleasant environment that makes you feel good, acquisitions happen in a
casual manner. And we have found that you don't need unusual products to stimulate these
casual sales if the environment and the grouping of the tenants are right.”
Like Bashkiroff, Steiner believes that bundling of tenants is a very
important element for success. “If you have a Steve Madden shoe store, it is better
to have Pacific Sunwear and other sport lifestyle tenants nearby to create a coherent
magnet effect.” The key to clustering, according to Steiner, is simple. “We like
to group similarities. We don't like to mix different kinds of offerings. Old traditional
shopping mall wisdom said to keep all the shoe stores as far apart as possible so that a
shoe shopper would have to cross as many other kinds of stores as possible. We think most
patrons find this layout annoying. “
How do Steiner and his team scout out new tenants? Steiner has had
particular success finding and creating new restaurants, cafes, and night club properties.
“It is easy with restaurants and clubs and theaters. We scout major cities for ideas
and menus. Then we create a concept using local restauranteurs.” According to
Steiner, that's how Cafe TuTu Tango got started in Florida. That's how the nightclub
Speakeasy originated below street level at the Town Center At Easton. That's how the
two-story Shadowbox Cafe was created at Easton. Steiner and his team actually sit down and
discuss how a national chain concept will work at one of his projects. Steiner +
Associates has had strategy sessions with top management of companies like Jillian's, AMC
Cinemas, and GameWorks, to name a few. Steiner speaks of “team input” and
believes brainstorming tenant concepts is an important tool for developing the right
tenant mix.
Other tools Steiner uses to perfect tenant mixes include ESP Magazine,
Restaurant News, and Women's Wear Daily. Although he would not reveal the names of his
contacts, Steiner says that over the years he has developed an important network of
contacts and informants who are always scouting new and interesting retail, dining, and
entertainment concepts.
Steiner pointed out that some regional malls were doing well, but that
the department store anchors accounted for most of those good figures. “But you must
remember that with a leisure and entertainment destination, like the Town Center at
Easton, the depth of merchandise is not that important. In a leisure and entertainment
retail setting, shopping is a casual activity. A customer may see something on one visit
and not buy until a subsequent visit. Purchases in the entertainment and leisure context
are neither price nor utility driven. They happen because shopping can be fun. That's
where traditional malls are slipping. They are not as much fun as they should be.”
Steiner believes that e-commerce will make significant inroads into
traditional shopping projects. “E-commerce works best with brands the consumer knows
and trusts, and with certain items, like books, where price counts. E-commerce will hurt
traditional retail malls, but it will not affect entertainment retail specialty projects.
Leisure time destinations and urban pedestrian destinations offer positive, social
experiences that people will always want and need. I think you will see more new ideas in
tenants to make shopping fun. A farmer's market cannot work as an e-mall. High-tech movies
prove that people need to get out of the house for visceral and social experiences they
cannot satisfy at home. As long as we entertainment retail developers remember that our
primary goal must be to make the whole experience and the shopping fun, our industry will
stay on track.”
For more information, contact Nick Bashkiroff, president, Power &
Light District, 1221 Baltimore Avenue # 800, Kansas City, MO 64105, 816-474-6900, Fax
474-6904; Yaromir Steiner, president, Steiner + Associates, Inc., Two Easton Oval, Suite
550, Columbus, OH 43219,
614-414-7300, Fax 414-7311.