Experience-Based Retail Driving Outperformance of High-Quality Malls

Posted on June 30, 2016

Millennials at Forefront of Shift Toward Lifestyle Spending

Forget e-commerce as being the root cause for the widening gap between weak and strong shopping centers. MetLife, a major buyer recently of high profile retail centers, said the millennial generation is heavily influencing the fortunes of commercial real estate and the retail sector and will continue to do so for the next half century.

Millennials’ preference for experiences and memories over material goods will play a significant role in determining which retail formats will outperform in the future, according to The Age of Experience-Based Retail, a new study by the research arm of MetLife Investment Management (MIM).

Millennials’ consumption through e-commerce has less to do with declines in product sales than it an overall shift in the types of goods and services they are consuming, the report notes.

Where past generations were concerned primarily with the acquisition of such things as furniture, electronics, and apparel well into middle age, MetLife believes millennials prefer spending on travel, dining, movie attendance, sporting events and concerts.

Millennials not only spend a majority of their disposable income on experiences, they do so at a higher rate than generations past did at the same age.

What it Means for Retail Real Estate

MetLife’s study concludes that high-quality malls and lifestyle centers are best positioned to capitalize on this shift toward experience-based spending, which it says emphasize a mix of apparel, personal care and electronics retailers with high levels of customer service and unique product offerings. They also offer dining options, like bars and restaurants, and entertainment options, like movie theaters and concert venues.

A retail location’s format and tenant mix remain among the most important factors in its success, the report claims. Well managed retailers with unique product offerings, high levels of service and quick delivery times will appeal to the millennial generation most.

The study also asserts that e-commerce retailers with strong distribution networks represent the strongest competitors many brick-and-mortar retailers now face. According to the study, brick-and-mortar retailers that adopt an omni-channel sales strategy and construct highly-efficient supply chains will be best positioned to compete.

High-quality malls and lifestyle centers also benefit from their defensive positioning against e-commerce, as the experienced-based nature of the goods and services their tenants offer are difficult to replicate online, MetLife concluded.

Recent MetLife Mall Buys

MetLife has been a frequent buyer of the types of malls it describes. Last August, Gart Properties, in a joint venture equity partnership with MetLife Real Estate Investors, completed a $110 million recapitalization of Denver Pavilions, a 351,347-square-foot, open-air, regional shopping mall located in downtown Denver.

The 95% leased mall is home to a flagship H&M store – Colorado’s first H&M location – in addition to a newly-renovated United Artists theater, Lucky Strike Lanes, Banana Republic, Forever 21, BareMinerals, Hard Rock Café, Coyote Ugly Saloon, Barnes and Noble and more.

A year ago, MetLife paid $71.5 million ($759.63/square foot) for One Westside Place at 2200-2224 Sawtelle Blvd. in Los Angeles. The 94,125 square-foot One Westside is a two story shopping center in the heart of West Los Angeles.