Should Online Shopping Change How We Approach Mixed Use Development?

[Shawn]

Originally Posted by ChargerCarl

I disagree. Retail isn't going anywhere, but it'll be less about offering low prices on everyday commodities and more about providing boutique services and experiences.

Completely agree. Especially for higher-end and luxury brands. We had the Global Head of Marketing for the LVMH group visit Tokyo last week, and she made it clear that high street retail is a loss-leader throughout APAC and in most EMEA / NA markets as well. These retail PoSs hardly ever break even; they instead act as brand affinity building locations. Online sales via direct, via resellers, and select physical retail such as DFS in major airports provide the lion's share of sales.

PoS retail is already segmenting into two distinct pillars: volume-driven commodity retail (which, frankly, there is less and less incentive to partake in as a shopper; Amazon wins here) and experience-driven niche / luxury retail. Online cannot replicate the later, but in many cases makes the former obsolete.

[RCDC]

Originally Posted by ChargerCarl

This is a regulatory failure...

How are businesses in gentrified ares "regulated" differently than ones in non-gentrified areas?

[ChargerCarl]

Originally Posted by RCDC

How are businesses in gentrified ares "regulated" differently than ones in non-gentrified areas?

The point is supply restrictions are binding which leads to rising rent as the demand curve shifts out.

Although typically wealthy neighborhoods are more successful in blocking development so we'd expect to see tighter restrictions in them as well.

[LosAngelesSportsFan]

I think there is just too much retail space and most of it is too large.. If I had my way, I would mandate smaller retail spaces and more ground floor live work spaces on secondary streets

[Pedestrian]

Originally Posted by Shawn

Completely agree. Especially for higher-end and luxury brands. We had the Global Head of Marketing for the LVMH group visit Tokyo last week, and she made it clear that high street retail is a loss-leader throughout APAC and in most EMEA / NA markets as well. These retail PoSs hardly ever break even; they instead act as brand affinity building locations. Online sales via direct, via resellers, and select physical retail such as DFS in major airports provide the lion's share of sales.

PoS retail is already segmenting into two distinct pillars: volume-driven commodity retail (which, frankly, there is less and less incentive to partake in as a shopper; Amazon wins here) and experience-driven niche / luxury retail. Online cannot replicate the later, but in many cases makes the former obsolete.

In the US, niche/luxury retail only fits in small neighborhoods of a limited number of cities and works best in those with lots of tourists, preferably foreign. This isn't Japan or Hong Kong or even Bangkok. We don't have large numbers of prestige logo-shoppers. You may be right that global brands will always want to have outlets in Midtown Manhattan, Chicago's Miracle Mile, Rodeo Drive, SF's Union Square and maybe even Orange County's Fashion Island.

But this thread started off being about mixed use development in cities which means all over cities, well beyond those limited neighborhoods and it has to depend largely on people meeting their daily needs. Because San Francisco bans "formula retail" in much of the city and has done for years now, we may be "the city of the future" in the sense of competing more on service than price--boutique shopping gone near universal. Most local retailers couldn't possibly compete with Amazon on price and don't try. That's why if I want a bag of cat litter I can pay $18 for 8 lbs locally or about $9 from Walmart.com. I don't much care if my cat has a boutique experience when she pees so guess where I buy it. And that's why increasingly the mandated first floor retail in new developments in the residential neighborhoods away from Union Square often sits empty for considerable periods or goes to the kind of establishment that doesn't have to compete with online like bar, restaurant, bank, dry cleaner and so on. But there's a finite need for that stuff and I think we are close to it. I once thought SF had no limit to the restaurants it could support but the turnover in those too--many last less than a year--indicates I was wrong.

[10023]

Originally Posted by Shawn

Completely agree. Especially for higher-end and luxury brands. We had the Global Head of Marketing for the LVMH group visit Tokyo last week, and she made it clear that high street retail is a loss-leader throughout APAC and in most EMEA / NA markets as well. These retail PoSs hardly ever break even; they instead act as brand affinity building locations. Online sales via direct, via resellers, and select physical retail such as DFS in major airports provide the lion's share of sales.

PoS retail is already segmenting into two distinct pillars: volume-driven commodity retail (which, frankly, there is less and less incentive to partake in as a shopper; Amazon wins here) and experience-driven niche / luxury retail. Online cannot replicate the later, but in many cases makes the former obsolete.

This is especially true in markets like China where the taxes on luxury goods are high. The boutiques basically act as showrooms. Actual purchases are made in Europe/NA (or in massive airport outlets in Hong Kong, Singapore, etc), where people load up on items for themselves, family and friends who have all picked things out and tried them on in the local boutiques. The highest average ticket at big London retailers by far is from customers using UnionPay.

[Crawford]

Originally Posted by Shawn

We had the Global Head of Marketing for the LVMH group visit Tokyo last week, and she made it clear that high street retail is a loss-leader throughout APAC and in most EMEA / NA markets as well. These retail PoSs hardly ever break even; they instead act as brand affinity building locations. Online sales via direct, via resellers, and select physical retail such as DFS in major airports provide the lion's share of sales.

Yes, but this is a bit misleading. It's true that flagship retail in high street locations are loss-leaders and play major branding roles, but they also, at least outside of mainland China, are critical sales outlets.

It's just that high street retail rents have exploded, far faster than bricks-and-mortar sales, and luxury retailers have decided it makes sense to eat the costs. Rents in prime retail corners in Hong Kong and Manhattan are so high that it's almost impossible to sell enough, say, Louis Vuitton bags to make the rent, even if these are your leading global locations.

[Crawford]

Originally Posted by 10023

The highest average ticket at big London retailers by far is from customers using UnionPay.

Do Parisians even bother with Au Printemps anymore? I don't think it's an exaggeration to say that the mainland tour groups are the bread-and-butter of luxury retail in Western Europe. I still remember the Parisian salesperson complaining to us that they're only hiring Mandarin speakers now.

[ChargerCarl]

Originally Posted by Crawford

Do Parisians even bother with Au Printemps anymore? I don't think it's an exaggeration to say that the mainland tour groups are the bread-and-butter of luxury retail in Western Europe. I still remember the Parisian salesperson complaining to us that they're only hiring Mandarin speakers now.

Lol, been to South Ciast Plaza recently? Definitely true.

[M II A II R II K]

There'll always be retail for perishable items.

[Crawford]

Originally Posted by ChargerCarl

Lol, been to South Ciast Plaza recently? Definitely true.

Yup, seen the same thing in South Coast Plaza/Fashion Island, and increasingly in Manhattan and in surrounding suburban malls.

But Paris, to me, is on another level of Chinese-shopper hegemony. At least there are Californians in South Coast Plaza. Probably many of the Chinese are just locals from places like Irvine.

[llamaorama]

What about zoning requiring ground floor spaces to have the basic fixtures and layouts enabling potential conversion to commercial use, but otherwise allow property owners to choose to furnish them as residential apartments if the market supports that over retail? Then you'd probably see a natural balance.

I realize it would take a lot of effort and money to convert one to the other, but if you did the hardest parts like installing sprinkler systems and ADA accessible doors during construction then wouldn't it be mostly cosmetic(tear out walls, replace with window systems and doors, put up facades on exterior of building)

[ChargerCarl]

Something I'd like to see is more upper floor commercial space. Japan is filled with this but it's more or less non-existant in the US.

[Pedestrian]

Originally Posted by ChargerCarl

Something I'd like to see is more upper floor commercial space. Japan is filled with this but it's more or less non-existant in the US.

I am puzzled by this statement since I live in a building with it in San Francisco.

I do think, though, that it complicates things for condo owners, dilutes their interest and ability to control their fate and the management of their property since it usually means a competing interest whose goals may conflict with residential owners. Frankly, I wish we didn't have it.

[ChargerCarl]

It's rare though. Retail is almost exclusively limited to the first floor.

[ChargerCarl]

For example you never see anything like this, with a different store on every level.

[10023]

Ground floor retail at least makes life interesting for pedestrians. I hope we don't lose that.

[Pedestrian]

Originally Posted by ChargerCarl

It's rare though. Retail is almost exclusively limited to the first floor.

I didn't mean retail. You said "commercial". We have ground floor retail and above that, but below the residences, offices like for lawyers and doctors and so on.

Actually the project mentioned in the opening article--I posted an image--called 6x6 or Market Street Place is 6 floors of retail with a glass front curtain wall so you can see all 6 floors and, presumably when it's leased, appropriate display and signage (although I'm sure nothing as glaring as in Asia).

[eschaton]

Originally Posted by RCDC

How are businesses in gentrified ares "regulated" differently than ones in non-gentrified areas?

I think the argument is if zoning was freer involving mixes of uses, the commercial/residential mix would naturally meet its optimum.

Consider a very high-cost gentrified urban area. Retail space is limited, because much of the land is set aside for residential. Therefore, rents will be higher than even the property values would suggest, as the commercial base is even more restricted than the market in general. In turn, businesses which offer limited utility to local residents but which can make rent (say banks, high-end fashion stores, or jewelry boutiques) end up being over-supplied, whereas you might have to leave the neighborhood to go to a drug store or get your hair cut.

Allow for enough commercial space and the price per square foot for residential and commercial will reach something approaching parity, at which point it stops making economic sense to expand commercial offerings.

Another aspect of freeing up zoning is it's a lot cheaper to convert the first floor of a historic residential space into a small retail location than it is to build a large new commercial space. The local market might not have a high enough demand for the rents required to make the latter feasible, but home conversion could still be quite profitable.

[mhays]

Retrofitting residential space for retail would be extremely difficult.

Most apartments in the US involve secure entries. Letting retail in either throws that away (reducing rents throughout the building) or involve construction of new separations at huge cost.

Zoning is a huge issue. Some cities don't allow much flexibility between types. Mine would require a lengthy "change of use" process.

Building codes also differ. I don't know details but factors like types of walls (fire ratings etc.) could be prohibitive. Noise control would be another issue to deal with.

Floor-to-floor heights are different, with retail preferring at least a few feet more than most housing.

Creating flexibility in new construction is another topic. Seattle has a "live/work" type for areas where the City wants retail but developers don't want to build it. These are basically townhouses (often at the base of a six-story building) that can handle small areas in front for a desk or something. They rent at a discount due to lack of demand. Sometimes it ends up being an insurance salesman or massage therapist but usually they seem to be housing only. (But the discount is less than a vacant retail store or a nail salon paying half price)