How to new mall in New York City is hoping to reverse the 'retail apocalypse'

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By setting up his first physical store in the same building as big names like Coach, Kate Spade and H&M, Brian Berger, the co-founder of online menswear brand Mack Weldon, he knew he was facing a major challenge.

"It's like showing up for the first game," said Berger, as he toured the company's location inside the Hudson Yards development in New York City.

The new West Side neighborhood features office towers, a hotel and a seven-storey shopping mall with more than 100 stores. The feature is the Vessel, a 16-storey, walkable, Instagram-friendly public art structure.

Inside the mall, Mack Weldon isn't alone as it makes its first foray into bricks and mortar retail. While the first floor is dedicated to luxury brands such as Cartier and Fendi, making the leap offline.

To target shoppers in the midst of what some describe as to "retail apocalypse."

Mack Weldon CEO and co-founder Brian Berger talks to customers at the company's first bricks and mortar store. He says as he is valuable as online sales can be, you can't replicate the customer experience that comes with seeing and touching a product. (Steven D'Souza / CBC News)

Vice-president Webber Hudson says the idea to attract new shoppers by bringing online retailers into the mall. The online traffic will be translated to increased foot traffic in the stores.

With malls hollowing out across America and closing signs increasingly popping up in storefronts, they needed to get creative to attract shoppers, he said.

"The whole revolution of what was happening online and how aggressive online buying was becoming, was at a reasonable price."

Hudson says retailers that made it big online are not bound by the old conventions of in-store retail

Yet, he admits the strategy is calculated risk – and not every store will make it.

A bleak retail landscape

Among the brands that have set up shops alongside Mack Weldon are shoe company M. Gemi, men's clothier Rhone, home and lifestyle shop Batch, and b8ta, a store where shoppers can get their hands on. online.

They're swimming against a retail tsunami that's a record number of closures in recent years. Coresight Research, a global research firm, says so far in 2019, U.S. retailers have announced 6.130 store closures. That already exceeds the total of 5,864 for all of 2018.

Last year, it was large chains such as Sears, the U.S. chain of Toys "R" Us and Kmart at the crest of the wave. This year, Payless ShoeSource announced it is closing all 2,100 of its stores.

Meanwhile, other brands that aren't closing altogether are shrinking their retail footprints. Gap announced it would close about 200 Gap and Banana Republic stores in the next three years.

CoStar Group, which tracks commercial real estate, says 2018 was a record year for announced store closures in the U.S. It found that 155 million square feet of retail space was announced for closure, compared to 102 million square feet in 2017.

Home goods and lifestyle store Batch is one of the new tenants at Hudson Yards. The second floor of the retail store is opening their first physical space. (Steven D'Souza / CBC News)

Faced with this grim reality, landlords must find ways to keep shoppers coming out to their stores.

"I think landlords are really looking toward," How do we reverse this trend? How do we get ahead of our competitors and making more curated and experiential products? "Said Victor Rodriguez, a senior market analyst with CoStar Group.

This has led major landlords such as Related Companies and Brookfield Properties to reach out to digital brands, offering flexible leases to hopes they can translate the success they have found online to the storefront.

The money is still in stores

Russ Winer, a marketing professor at New York University, says Casper and eyeglass company Warby Parker was the first to start the trend. Casper announced last year it would open 200 stores, while Warby Parker opened its first store in 2013 and now aims to have close to 100 by the end of the year.

The latest version of the trend has bigger developers seeking smaller brands to help rejuvenate their retail offerings.

Winer says the move offline is also beneficial for the digital brands. When it comes to acquiring customers, it can actually be cheaper, he said. The banner ads and discounts used to attract online shoppers can be more expensive than a shopper discovering a storefront.

New York University marketing Professor Russ Winer says online brands can take advantage of the data they collect on their websites to create a better retail experience in stores. (Steven D'Souza / CBC)

Online shopping's success, people still buy most of their goods in stores.

"Still 90 per cent of retail sales take place in a physical store," Winer said. That number is even higher in Canada, where Statistics Canada says sales, while rising steadily, still only makes up about three per cent of overall retail sales.

Savior of retail?

Rodriguez says what's happening at Hudson Yards will be closely watched in the industry, especially in New York City, where malls typically struggle because people prefer shopping along streets like 5th Avenue or fashionable neighborhood like SoHo.

"This is going to be the proving ground," Rodriguez said. "Are those online retailers the way to go in the future and are landlords going to accommodate them?"

Marketing Professor Russ Winer says no matter what happens, don't expect these smaller digital brands to start filling up malls across suburban America. He says these kinds of stores need dense urban areas with lots of residents and tourists to succeed.

Malls still require large anchor tenants, he says, so landlords need those stores to adapt to the new retail environment. He said that.

"I think physical retail is here to stay. I think the pressure is on J. C. Penney and Macy's and other physical retailers to become more relevant in today's world."

Brian Berger at Mack Weldon says, "They won't plan on massive expansion across the United States, and instead will be opportunistic about where they open any future stores."

New kids, new data

Back at Hudson Yards, the shopping area has been open for almost two months. Across from Mack Weldon sits another born-online brand, Italian footwear company M. Gemi.

The company has done pop-up shops before, so brand director Heather Kaminetsky says they know the benefits of physical retail.

"We actually find that customers shop online and shop within our physical spaces will spend more over their lifetime."

M. Gemi's chief brand officer, Heather Kaminetsky, says they've done pop-up shops before and felt the right time for a permanent physical store. (Steven D'Souza / CBC News)

The key to success, she says, lies in the data they are both online and in the store. The store can be used to determine what to do in the store.

Rodriguez says that data may be the difference that allows the new kids on the retail block to thrive where legacy retailers are failing.

"I think they know how to use it better. They were born online. This is their bread and butter."

Berger says online brands typically see at 20 to 30 per cent uptick in web sales in areas where they have set up physical space.

"(Customers) as in, they have a three-dimensional experience – seeing, feeling, and touching the product. That can't be replicated and can't be undervalued."

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