Tag Archives: CRE

What Xceligent’s Bankruptcy Says About the Property Data Business
Some in the sector lamented the loss of another competitor in an increasingly narrow field.

In the wake of commercial real estate data firm Xceligent filing for bankruptcy protection, the property data industry was not surprised—it’s an expensive field to be in. Still, some in the sector lamented the loss of another competitor in an increasingly narrow field.

Before it filed for Chapter 7 liquidation, the firm was embroiled in a lawsuit with real estate data giant CoStar Group Inc. The lawsuit will now fall under the jurisdiction of the bankruptcy court in Delaware, where Xceligent filed its case—a move that puts more knots in an already thorny case. “It complicates things even further. It delays things even further,” says Carl W. Hittinger, partner in the Philadelphia office of law firm BakerHostetler.

Last year, CoStar sued Xceligent in federal court in Missouri, where Xceligent is headquartered, alleging the company had stolen copyrighted commercial property information, which CoStar sells for a subscription fee, and re-sold the information for a lower price. In June 2017, Xceligent denied the allegations and in turn alleged that CoStar engages in anti-competitive practices to raise competitor prices, drive competitors out of business and keep its “monopoly” on the commercial real estate information industry. Last week, Xceligent, owned by the London-based Daily Mail and General Trust PLC (DMGT), filed for Chapter 7 bankruptcy and will seek liquidation. It immediately shut down its website and laid off hundreds of employees.

“DMGT had fully impaired Xceligent at the end of [fiscal year 2017], following weaker than expected revenues from its NYC rollout and other challenges, including lower renewal rates,” wrote Alex Moorhouse, head of communications at DMGT, in an email. “Ultimately, in light of these challenges, the Xceligent management team was unable to identify a way for it to operate on a sustainable basis and recommended filing for Chapter 7 liquidation. The CoStar litigation was not a direct factor, but of course did create additional cost for the business.”

Moorhouse declined to respond to CoStar’s comments.

Meanwhile, the firm’s exit from the field has opened up new business opportunities for its competitors. A google search for Xceligent brings up ads from firms including Property Shark and CrediFi offering themselves as alternative service providers to Xceligent’s clients. Employees from CoStar and 42Floors, a San Francisco-based website that also has a national database of commercial property listings, have reached out to brokers, so transactions could continue without interruption. An executive with RealMassive, a listings marketplace, said it reached out to former Xceligent employees for support.

“No one wants to see a good company—even a competitor—go down like that, because there are so many people’s lives affected,” says Jason Freedman, CEO of 42Floors, which was formed in 2011.

Unable to compete?

While antitrust claims are difficult cases to prove, filing for bankruptcy may lend some credence to Xceligent’s claim that it was unable to compete, says Andre P. Barlow, partner in the Washington, D.C. office of law firm Doyle, Barlow & Mazard PLLC. “Clearly the damages are much larger now, because now we’re talking about the loss of the business,” Barlow says. CoStar’s dominance in the sector was compounded by its 2012 acquisition of marketing platform LoopNet.com, which was approved by the Federal Trade Commission (FTC) as long as CoStar spun off Xceligent from LoopNet and adhered to a set of conditions that would allow competition to thrive. “The behavioral solutions that the FTC required in allowing that merger didn’t appear to work here,” Barlow adds. Moorhouse declined to comment on the litigation, as DMGT is not involved.

However, bankruptcies happen, even in light of the FTC’s review, according to Hittinger. “That’s just the competitive world we live in. There are casualties,” Hittinger says. However, while antitrust laws are not designed to prop up inefficient businesses, these laws still protect against anti-competitive practices that could lead to bankruptcies, he notes.

Still, Xceligent’s liquidation could put a chill on others trying to compete with CoStar, which has a history of litigation against other commercial property data companies, including LoopNet, Barlow says. “It certainly makes it difficult for all these smaller competitors to exist and to grow,” he notes.

According to Linnington, though CoStar is dominant in its field, it embraces competition and will continue to innovate. Accusations that the company is anti-competitive are “fictional,” he says.

Competition is good for the industry as it creates an incentive for innovation and more options for the brokers, says Kevin Green, vice president of marketing for Austin, Texas-based RealMassive, which also settled a lawsuit filed by CoStar in 2016. “Now there’s one less choice for brokers in the marketplace,” he notes. While it may be too soon to tell how the case with Xceligent—and its subsequent bankruptcy—will affect the industry overall, Green says there is still room for players with different value propositions. “The market is made up of different brokers and people who have different needs.”

What lies ahead

Xceligent’s fall points to what some in the industry—not affiliated with CoStar—say is a fundamental business issue: It is difficult to have enough human and capital resources to match CoStar’s database, one the company has constructed over three decades, and finding new ways to create such information more efficiently.

“People underestimate what it takes to build a property database, and all the research that goes into building a database like that,” says Andrew Bermudez, CEO of Digsy AI, a commercial property interface which is based in Fullerton, Calif. and was founded two-and-a-half years ago. Even if a company were to match CoStar’s reach—as Xceligent was attempting to do—many brokers would be prone to stick with whatever service they were using, Freedman notes. Commercial brokerages are not required to use CoStar—unlike the MLS on the residential side—but many do, sometimes in addition to internal databases.

While Bermudez does not fault CoStar for filing a lawsuit against Xceligent—“It would be irresponsible to them to not try to protect its asset,” he notes—he says the industry itself is in need of disruption. Similarly to how crowdfunding has shifted the fundraising industry, “The paradigm needs to change all together, taking economics and process and human resources into account,” he says.

Mary Diduch | Dec 22, 2017

Original article published by National Real Estate Investor at NREIOnline.com

Meet The Commercial Real Estate Industry’s Military Veterans

Many of the skills needed to excel in the commercial real estate industry parallel those learned while serving in the United States military: Discipline. Preparedness. The ability to stay calm and think rationally in heated situations. Integrity.  Bisnow spoke with nearly two dozen military veterans from across the country ahead of Veterans Day on Nov. 11 to gain insight into their experiences in the military and how those years of service have influenced their careers in real estate. 

See below for information on a few of these remarkable professionals in our industry, and check out the full article for the complete listings and photos!


St. Croix Capital Advisors Senior Vice President Stephen DePizzo

City: Austin

Military Rank: Army, Engineer Officer – Captain

Years Served: Six

Military Memories: The greatest memories during my time in the military [were from] being able to lead young men and women. The time we spent was priceless. I also had the opportunity to be an Aide de Camp to a two-star general. Being mentored by a high-ranking officer was one of the best experiences I have ever had. 

How has your military service shaped your life and career? The military shaped the way I look at all situations in my life and in business. It taught me to be patient, to analyze all situations from different perspectives and to pay attention to all the details. I’ve been able to use my skills and military experience in all aspects of commercial real estate.  

Newmark Knight Frank Executive Managing Director Jeff Castleton


City: Denver

Military Rank: Navy Lieutenant Commander

Years Served: May 1981-February 1991

Military Memories: Castleton graduated with honors from the United States Naval Academy, where he earned his bachelor of science in mechanical engineering.

What lessons from your military service carried over into real estate? Leadership skills to focus on the team and ensure all members are enabled and motivated to succeed. 

CBRE Advisory & Transaction Services associate John Bernatz


City: Portland

Military Rank: Army; E6, Staff Sergeant

Years Served: Six years, from 1995 to 2001

Military Memories: I highly enjoyed my years of service in the U.S. Army. I was stationed out of Fort Bragg, North Carolina, and had a lot of great experiences. My job while in the Army was combat medic, and one of my fondest memories was during initial basic training. Growing up, I was involved in Boy Scouts and attained the rank of Eagle, so camping and backpacking were an important part of my life. During our sixth week of training, it was time for the 15-mile ruck to camp and we spent several days in the woods learning how to be better soldiers. I always backpacked trying to carry as little as possible, but in the Army it’s about carrying as much as possible. About halfway into the hike, a few of my battle buddies started falling out due to their back weight, and so instead of getting in trouble with our drill sergeant I started carrying some of their gear. By the time we got to camp I had more than doubled my weight and thought that I was going to crumble. Hoping that we would have some time to rest, I dropped gear and reached for a snack. To my dismay in my efforts to help my friends, it brought attention to the one person we were trying not to alert, Drill Sergeant Cambell. Once he saw how well we did during the march and that I was just ‘sitting around’ snacking, he felt it would be a good time to do some additional training. We were then put through the ringer for the next three hours doing physical training in the rain and mud. The next three days were torture. And to top it off, since I was such a great help on the march there, he decided to let me carry their gear on the way back, too. Soldiers do the stupidest things. As a medic we have to spend time in the hospital emergency room treating soldiers and families when we are not deployed or in the field. It was a little after midnight (I always seemed to be stuck with that shift) on a Sunday night, and the ER was silent. We were all dozing on the beds, recovering from a rough Saturday night when all of a sudden, a soldier barges into the ER screaming for help. The guy looked oddly familiar, but I couldn’t quite place the face. The group of us went into solution treatment mode and got him on a bed and started shearing off his uniform. We begin to cut off his underclothes, when suddenly four snakes fall to the floor. His body is covered in little bites, and now there are four loose snakes in the ER. We found out that he and his buddies had been playing a drinking game, which he was losing. Every time he lost a round, they put another snake in his uniform, keeping it buttoned up and the snakes tucked under his clothes. We gave him some medication to calm down, dropped an IV on him to sober him up and then spent the rest of the night catching snakes in the ER. Needless to say, he and his buddies were in deep with their commanding officer, and we only recovered one snake that night.

How has your military service shaped your life and career? Military experience has shaped every aspect of my professional career, but has come in extremely handy in commercial real estate. My experience has taught me to stay cool under pressure, think clearly and remain unemotional in stressful situations. Being able to dissect a situation in my head rapidly and make quick decisions has proved to be a valuable skill.

Original article posted November 9, 2017 on Bisnow.com

The Rise of Luxury Strip Malls

Outdoor shopping centers are drawing in customers who long ago wrote off the traditional mall experience through a modern mix of food, fashion and practicality.

ATLANTA, United States — Pull into the parking lot of the Westside Provisions District, the mixed-use development in Atlanta’s gentrified Westside neighborhood, and you might have to hand your keys over to a valet to help you find a spot — especially on a Saturday afternoon.

That’s because, unlike the downtrodden, two-penny outdoor shopping centres and abandoned enclosed malls weighing down the suburbs of the US, Westside Provisions is giving people a reason to swing by.

The two clusters of retailers and restaurants — divided by train tracks, but linked by a footbridge in 2008 — are a mix of the practical (wine shop, boutique law firm, barre studio), the discerning (Sid and Ann Mashburn, Steven Alan, Billy Reid) and the delicious (Taqueria Del Sol, Brash third-wave coffee, Little Star sundries shop). Woven in are a significant number of national chains, too: Lululemon for athleisure, Anthropologie for bohemian-inflected apparel and housewares, Design Within Reach for modern furniture.

Sure, it may be a glorified strip mall. But when Sid Mashburn was searching the country for a place to put his first-ever store in 2007, the former designer for Ralph LaurenTommy Hilfiger and J.Crew was drawn to the then-nascent development. The number one reason? The line out the door at Taqueria Del Sol.

“Part of our business plan and one of the reasons we’ve been successful is because we have a ‘good, better, best’ way of approaching business — we sell Levi’s jeans and handmade suits,” explains Mashburn, who now operates five stores across the US, many of which share space with Ann Mashburn, his wife’s newer concept. “There are like-minded [shop owners] in the centre, there’s a taco stand and a woman who won a James Beard Award [Star Provisions’ Anne Quatrano]. All ages come through, and it’s a great party. Really interesting people. It’s more fun that way.”

“Make shopping fun again” is no longer just a paraphrased tagline from an ancient Old Navy advertising campaign, it’s the mandate for developers across the country looking for solutions to retail’s greatest problems, many of which stem from the advent of e-commerce. While the majority of purchases are still made offline — only 8.4 percent of total retail sales in the US in the first quarter of 2017 were generated through e-commerce — the web plays a role in nearly every purchase. It’s easier for customers to comparison shop — thus driving down prices — and there are simply more choices across categories and price points. Consumers no longer need to visit a physical retailer to run errands and tick off a list in one fell swoop.

“Today’s pure play brands will take part in the physical future by creating brand experiences designed to connect with their customers from showrooms and galleries to restaurants and bars.”

“Today’s pure play brands will take part in the physical future by creating brand experiences designed to connect with their customers from showrooms and galleries to restaurants and bars,” Stuart Miller, director of investment management at QIC Global Real Estatewrote in an October 2016 op-ed for BoF. “Physical retail enhances e-commerce further by providing genuine connection and a tangible experience.”

Perhaps that’s why outdoor centres — and in particular, the smaller, more specifically arranged developments like Westside Provisions — have fared better overall in this troubled market than fully enclosed malls, of which there has been very little new construction since 2006. The indoor-outdoor malls at Miami’s Brickell City Centre and Manhattan’s Hudson Yards and Westfield One World Trade Center are notable, ambitious exceptions.

But generally, the shopping destinations that are creating the most buzz are those that are taking the old-school strip mall concept — which originated in California in the 1920s with the advent of the automobile — and modernising it through a sharply defined high-low mix of retail and food. Unlike so many traditional American malls that were geared at the middle class, many of these new centers are targeting more affluent areas as well as more urban areas with young professionals.

“The overused buzzword these days is experiential, but it still holds merit,” says Elliott Kyle, the real estate broker and developer behind Nashville’s Edgehill Village, a strip of eight vintage masonry buildings, built in the 1920s, that he has populated with a J.Crew Men’s Shop, Warby Parker and Aesop, which sit alongside local independents like the Old Glory cocktail bar, Barcelona wine bar and Kore, which sells products made by local designers. “The younger generation is looking for something that they can attach their lifestyle to. They want where they shop to be an extension of how they view the world.”

There are a handful of developers across the US that are driving this trend, including Michael Phillips, president of Jamestown — the real estate firm behind Westside Provisions and Ponce City Market in Atlanta but also Chelsea Market in New York City — as well as James Rosenfield, who bought the historic Brentwood Country Mart, where he shopped as a child, in 2003.

Since then, Rosenfield has become the unofficial father of the movement, developing Country Marts in Montecito, Marin County and Malibu. Rosenfield’s maze-like developments serve up a comforting, indulgent mix of experiences. In Brentwood, the post office and taco stand are just across from the Christian Louboutin, James Perse and Jenni Kayne stores. (Mashburn, eager to repeat his success in Atlanta, also has a store there.) In addition, there is Farmshop, a farm-to-table restaurant and market popular with celebrities who live on the Westside of Los Angeles, and Sweet Rose creamery, where the neighborhood’s teenagers spend their Friday nights. When Goop opened its first-ever pop-up shop, it opened in the Brentwood Country Mart.

 “We’re not really trying to make money,” says Rosenfield. “I know that sounds crazy, but I don’t think about money. I think about making a great village.” That may be so, but Rosenfield’s success with the Brentwood Country Mart has allowed him to develop more properties, attracting backers including Berkshire Hathaway vice chairman Charles T. Munger. So, what makes a “great village”? What is the secret to making shopping fun again?
 

“We’re not really trying to make money. I know that sounds crazy, but I don’t think about money. I think about making a great village.”

 The major driver, it seems, is food, which is more experiential, and a greater part of the popular culture, than ever. “Food with a capital F,” as Jamestown’s Phillips says. “It’s fundamental to creating a real place. After all, millennials spend 44 percent of their food dollars on eating out compared to 40 percent of baby boomers, according the Department of Agriculture’s food expenditure data from 2014.

Mickey Drexler used to ask me why I had so much food in my country mart. My response? Why is there so much food in the West Village or Upper East Side?” Rosenfield says. “What we create is sort of an urban environment in a suburban location… It’s a good model when you’re looking for ways to compete against the internet because most everybody eats three meals a day, and people do often leave the home to eat.”

Of course, it needs to be the right food — chef-driven, local — and the right mix of retailers. Many of these developments like to test retail through pop-up shops. If they are successful, the developer will extend the lease. At Platform, a centre in Los Angeles’ once-rough Culver City neighborhood — now gentrified with art galleries, startups and film studios — Joseph Miller and David Fishbein have done trial runs with several brands and retailers since its opening in the spring of 2016.

High-end, multi-brand boutique Curve — which has outposts in New York and Los Angeles — didn’t jibe, but upstarts like the hatmaker Janessa Leone and shoemaker Freda Salvador’s successful stints earned them places in the development’s “permanent collection.” They also noticed early on that families were spending a lot of time there, so the second phase of stores openings included a children’s boutique.

“We had the dream of the customer who we wanted to attract, but we had no idea who was going to show up — so part of it was keeping that flexibility instead of signing all of our leases to five or 10-year terms,” Fishbein says. “We were also seeing just how much consumer tastes were changing, and that there were so many really great brands and designers out there who were interested in touching their consumer directly, but they were uncomfortable with the idea of signing an extensive long-term lease.”

Platform’s mix currently includes former fashion editor Josh Peskowitz’s menswear shop, Magasin, the first West Coast outpost of Brooklyn concept store Bird, Aesop, Sweetgreen, SoulCycle and a Blue Bottle coffee. Prism, the swim and eyewear line by Anna Laub, is currently operating a pop-up there, and two new sit-down restaurants are slated to open in the near feature — as is Reformation. Upstairs, there are a slew of corporate offices — including those of Reformation, Sweetgreen, and SoulCycle — that help drive foot traffic on weekdays.

“Every time a new pop-up comes through they bring their Instagram following and host events,” Fishbein says. “We think the ability to incubate and test is very valuable in building the community here. It’s about being fluid and reactive to the market.”

Store size is also important. While Platform — which spans four acres of what used to be a car dealership — was essentially built from the ground up, most of these developments are taking old buildings and refreshing them, sometimes with a complete overhaul, sometimes not. (It’s called “adaptive reuse.”) But keeping a small footprint is essential for “soft goods” retailers — clothes and accessories, rather than food — in order to generate enough dollars per square foot. Rent is often negotiated based on scale of business, which means that a property manager may cut smaller brands a deal early on in the relationship. However, that preferred rate rarely lasts for more than a few years.

“Originally we were talking to a soft goods retailer in the biggest space we had,” Kyle says. “One thing that really worked out was getting Barcelona wine bar. Cooler brands are taking smaller footprints.”

That’s not to say outdoor centres can’t be modernised at the mass level. Consider the Grove, developer Rick Caruso’s supersised 575,000-square-foot version of this concept, which opened in 2003 connected to the “Original Farmers Market.”

“Every time a new pop-up comes through they bring their Instagram following.”

“It’s a much more complicated format than dropping in a carousel — everything has to be relevant,” says Caruso, who recently enlisted Platform’s Miller and Fishbein to help build Palisades Village, a new development set to open in the downtown area of the tony neighborhood on the coast of Los Angeles’ Westside. “It’s about finding retailers that understand that they need to curate their store to represent the community that they are serving. Nordstrom at the Grove has a very unique offering, and that has paid off big for them. Same thing at Topshop, Elizabeth and James, Nike. They could go onto Nike.com, but the shopping experience is so pleasant and compelling. We’ve got to give them a reason every day to come to the property.”

And although much of the inspiration for these concepts come from city streets, cities are now taking cues from the suburbs. The Howard Hughes Corporation’s South Street Seaport project, for instance, will include a 10 Corso Como alongside an upscale movie theatre. Redchurch Street in London’s Shoreditch neighbourhood — where one can shop at Club Monaco or Sunspel — or Bergen Street in Brooklyn’s Carroll Gardens enclave — with its stretch of stores including Clare V. and Diptyque — are examples of this new approach.

Retail still grows organically in cities, but more often than before, developers are coming in and buying chunks of properties at once in order to control both pricing and brand mix. That’s because, once the cool brands would help to gentrify a neighbourhood, the corporate chains would take over, “ruining” the experience. Take Bleecker Street, for instance, which has been plagued by store closures thanks to increasingly high rents. The neighbourhood cannibalised itself.

“What was great organic retail 30 years ago — something that was not managed by one person — eventually succumbed to pricing pressures,” Phillips says. “Common ownership means we are able to balance the whole mix, bringing in higher-volume retailers with more artistic ones.” That means charging rents based on volume, not square footage. The idea is that, long term, a well-balanced development will be more profitable than if it is able to charge extremely high rents for a short period of time.

But while outdoor centres may feel more modern and forward than what else is currently being proposed on the market — and an interesting alternative for brands like Warby Parker and Outdoor Voices, which would presumably not be caught dead in a traditional mall — they still face many of the same challenges, as well as different ones. Vacancy rates in community shopping centres increased in 30 of 77 metropolitan statistical areas in 2016, compared to 24 in 2015 and 19 in 2014, according to market research firm Reis.

“Better” retail concepts, as they’re called, might be an antidote to those stats, but there is still the risk of homogenisation. Hot direct-to-consumer brands like Warby Parker and Aesop tend to cluster together, creating a welcome vibe. But there is the risk of repetition beginning to feel as commonplace as sitting an Abercrombie & Fitch next to a Bath and Bodyworks. For developers, the key to avoiding such a trap is control.

“On a local neighborhood street where a hundred different landlords own the prime blocks of the street, there isn’t necessarily a unique vision and merchandising strategy. Once the Shinolas and Warby Parkers come in, it’s kind of a free for all— anyone who wants to latch onto that merchandising mix can just come in there,” Fishbein says. “I think, for us, being able to control all of the real estate and year-after-year, edit it and keep it relevant is a big differentiator.”

“There are a lot of layers to our thinking about which retailers to bring into our properties, there’s not a simple answer,” Rosenfield says. “People think I’m anti-chain, but I’m not. Apple is a chain, but it’s one of the greatest retailers on the planet of the day. We do like owner-operators, because they generally have better customer service. There’s a trickle-down effect.”

But even when the alchemy is just right, it requires quite a bit of maintenance, as many of the independent retailers that operate in these developments are less experienced with retail than a traditional mall tenant. “It’s management intensive,” Rosenfield continues. ”I was lucky enough to have a lot of exposure at a young age to Fred Segal, who was a real estate developer but behaved like a merchant. We’re here every day refining and making it better. Our tenants are not big national companies, many of them are one-of-a-kind businesses. It’s an artistic, unique, different type.”

“What we’re seeing today is that you have to be more proactive. You have to be coming up with interesting product and content and events that bring your customer down more than once a season and bring that personal connection that makes them want to buy your brand over another,” Fishbein adds. “It’s been challenge with some brands, just getting them to understand that they need to change their way of business as well in order to be successful in this new market.”

Developers must also manage the community around the project, especially in gentrifying neighbourhoods where long-term residents can feel marginalised. “When buying older property, it’s important to be thoughtful to the indigenous population,” says Kyle, whose Edgehill Village sits in a working class neighbourhood.

But more than anything, the biggest challenge is simply converting foot traffic into dollars. These centres may be meeting places, but that doesn’t necessarily mean people are spending on big-ticket items. For entrepreneurs like Miller and Fishbein — who secured $47 million to refinance Platform in February 2017 — there needs to be a return on their investment.

If the mix isn’t just right, that return could be elusive. As Mashburn says, “I don’t think I really realised the importance and the impact of who your neighbours are.”

BY LAUREN SHERMAN JUNE 12, 2017

Original Article from BusinessOfFashion.com

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Vitality Bowls is  currently seeking sites in Texas and throughout the US.

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Experience: The Future Of In-Store Retail

Technology is not limited to online retail. Couldn’t it also save physical retail?
 
motionloft
 
by Jeff BarrettCEO Barrett Digital 
 

Have you ever tried to return a rug you purchased online? It’s bulky, hard to fit in your car, and the person at the FedEx store looks at you like you’re crazy when you wrap the whole thing in Saran Wrap like Jamie Foxx in “Booty Call.” Apparently you have to buy rug bags from a U-Haul store. Who knew?

That’s a very long and personal way of saying online retail is not perfect. Not yet.

A few weeks ago, I wrote about all the ways and reasons online companies are putting pressure on brick and mortar. And that fact hasn’t changed. Millennials’ increased desire for curation and delivery, the ease of starting a business with affiliate marketing, and the low barrier cost of not creating a physical store all exist and aren’t going anywhere.

But does that mean brick and mortar can’t compete? No. While its disadvantages are known and well-documented, it still has advantages. It’s immediate, it’s an experience, and it’s still easier to return an item if you don’t like it.

Amazon, with drone delivery, will try and reduce shipping time to a matter of hours, and that may tip the scales, especially when someone factors in travel and parking to a retail location. Augmented reality will do a much better job of letting people visualize a space so that online can compete with Pottery Barn (although I don’t know how you’ll be able to smell-test candles online).

But technology is not limited to online retail. Couldn’t it also save physical retail?

Motionloft, a Mark Cuban company, makes sensors that use computer vision technology to tell the difference between people, cars, and bikes. Retailers use its data to help build better attribution models, increase sales conversion, and trigger proximity marketing.

“The future of retail will embrace neural networks and machine learning devices to get more connected. Analysts will use customer footfall traffic and behavior data to create experiential shopping destinations,” Motionloft CEO Joyce Reitman told me. “Common paths customers take to get through stores will be fundamental for designing aisles and improving merchandising and inventory plans. Dwell time will be used to send highly targeted Bluetooth advertisements to customers’ mobile devices based on where they stand and for how long. The supply chain will be optimized to meet customer purchase patterns in real time.”

If I’m standing in an aisle wondering which peanut butter to buy and one of the brands sends a coupon to my phone, I’m choosing the one with the coupon.

According to Amati & Associates partner Marco Bevolo, Stefano Marzano, former CEO Philips Design, nailed it when he said the retail of the future will look much more like the retail of the past than the retail of today.

“Big data and the social media mobile revolution are on their way to extend personalization opportunities to high street retailers” Bevolo told me. “Retail, therefore, will know ‘you’ as based on your public profiles and data-tracked behaviors, as much as the old shop owner of 50 or 100 years ago in Italy would know every detail about every customer, in order to serve them best.” 

Easier said than done. “It will not be a smooth ride toward this future, as in five years the backlash of uberization of services will impact employment, categories, and infrastructure” he added. “This will require intervention by regulators and governing bodies, while cities and citizens will have to find their true authentic soul, beyond gentrification and class divide. Nevertheless, low-hanging fruits and short-term opportunities, from digital mirrors to systemic lighting controls, will already improve the shopping experience.”

The most interesting point in that quote is what happens to participation in the sharing economy when people aren’t making enough money participating or the companies themselves are still not turning a profit. I still think that’s both the present and the future, but it will adjust and fall back to the mean over time.

It also poses what I think will be the most important question of the 2020s: Will people choose convenience over the collective interest of their city, state, etc.? What do I mean? Some of these choices will be obvious. If you choose to have your groceries delivered, fewer people will be employed at the grocery store–although, since there is a driver, that’s a 1:1 trade right now.

If you choose to use a kiosk at a restaurant, that will eliminate fast-food jobs or servers. People won’t feel too badly about that, but those jobs are how many of us funded our high school life and maybe college. If you choose someday to ride in a self-driving Uber, that will eliminate taxi drivers.

Manufacturing is turning to fewer employees and more 3D printers. You can’t blame them. That’s a smart business decision. But it doesn’t take long to imagine a future where 10% to 20% of jobs may be eliminated by automation in the next 10 years. The consumer will save money and be excited, but what happens to the economy when 10% to 20% fewer people are able to buy things?

This is a worst-case scenario, obviously, but an important point to consider when discussing the future of retail. Retail is where we will see this first. We’re already seeing it.

Consumers will choose the best, cheapest, and most convenient option available more often than not. So you have to give them a reason to come to the store. When they are online, they expect personalization. We have the technology to bring that to the physical store experience. If people enable Bluetooth on their phones, physical retail can do a million things. Through alerts, AR, lighting, and music, physical retailers can take shoppers anywhere they want them to go and make it an experience.

 Published in CMO.com

 

 

IFA’s CEO Speaks Out on Future of Franchising

Franchising’s biggest ambassador says the industry has nothing but sunny skies ahead. 
 

Robert Cresanti
 

Franchising has been the quick-service restaurant industry’s best friend. The major national chains that have served America for generations—McDonald’s, Wendy’s, Burger King, Taco Bell, and Subway—all franchise at least 85 percent of their units. As a whole, the quick-service industry is by far the biggest driver in franchising; some 26 percent of all franchise establishments are quick serves, according to International Franchise Association (IFA) data, while 46 percent of franchising jobs stem from that industry.

But food service franchising has taken its lumps in recent years. The rising crop of fast-casual and fast-casual 2.0 chains across the country has largely rejected the franchise model, with companies citing concerns over quality control. And many of the business regulations conceived during the Obama administration—minimum-wage hikes, menu-labeling policies, and the joint-employer rule, for example—have been especially burdensome on franchisees.

Could it be that franchising is simply a model of the past? Certainly not, says Robert Cresanti, president and CEO of the IFA, a trade group representing franchisees all over the globe. We spoke with Cresanti to gauge the status of franchising—and how franchisees and franchisors alike are fine-tuning the model for the future.

 

What is the health of the franchising industry today?

We’re fully back and more since the recession. The statistics basically prove that we shed fewer jobs than the rest of the industries with whom we measure ourselves. We had fewer closures overall relative to others, where the system kind of endured around franchising. Have there been some problems? Yes, there were problems during the recession, and certainly economic down times tend to expose some of those weaknesses. But overall, as a system, from restaurants—which amount to almost 50 percent of all franchise units out there—all the way to the service industry side of things … it’s really strong performance.

Our economic statistics indicate that we’ve out-performed competing non-franchise market segments every year in growth, and that trend continues. We expect it to continue this year. So I think all is at an even keel at the moment. We’re also really anticipating and looking forward to opportunities that we haven’t had in the past eight years with the coming of Trump.

What do you think it is about the franchising industry that has helped keep it so healthy?

These [quick-serve] restaurants and other restaurants that have gotten their noses bloody in their local markets, they’ve perfected the business model; they’ve learned to adapt and survive and overcome. Those are hard lessons that an individual who’s not involved in franchising and who is opening up a [quick-serve] restaurant concept for the first time usually has to learn the hard way. The fact that you have a playbook that has a game plan in place for you, and a system where if you talk to another franchisee who’s had a problem like the one you’re experiencing and you share your troubles with him or her, you can find answers to business problems you’re confronted with.

I was on a radio show in Chicago, and someone asked me, “Aren’t you guys just a nightmare for small businesses?” And I said, “No, really successful small businesses oftentimes become franchises.” When they open their third and fourth store and realize they don’t have enough capital to open up the stores they think are needed, and they can hire the managers that are of sufficient quality to independently run those stores, that’s oftentimes when the brands look around and say, “What we need is an ownership culture.” And they then begin to open up those [franchise] opportunities. There are places for all of these businesses, franchised and not, along the food chain.

We see a lot of fast-casual companies talk about franchising as if it doesn’t match their quality offering. What do you say to those businesses that think franchising is something that is of lesser quality?

It’s the last refuge and argument for them to make. There are great-quality restaurants that are private and independent, and there are great restaurants that are franchised. When I travel across the country and I see a brand with which I am familiar and I know what to expect, I often seek that brand out. When I feel like I want to explore something new and different, I often seek that brand out. But I can tell you, when I’m on a difficult business trip somewhere, I’m going to park myself at an [Intercontinental] or at a Marriott hotel, or one of the brands I know, more often than I would go with a local hotel that I’ve never heard of before. That’s the case for most business travelers—not just American business travelers, but travelers all around the world. They come to expect a certain quality.

Everyone’s chasing millennials as customers. What do you see as millennials’ role in franchising?

There’s a sub-class inside of the millennial group that is just absolutely brilliant, and I’m seeing them all of the time. I’m seeing them as owners of some of the franchise restaurants already.

We have something that we call NextGen in Franchising. We do a FranShark Experience [similar to “Shark Tank”] at our convention every year. I can tell you that the judges who are judging these concepts that young people have brought to them have invested as much as $50,000 personally. They not only voted on who had the best and most exciting and probably most likely to be successful franchise concept, but they also walked off the stage and wrote a personal check to invest in their franchise and offered to be mentors to them.

There could certainly be a lot better education out there; it’s our daily battle, educating people on what franchising is and isn’t, and how the business model works. That is a continuing challenge for us. We’ve launched a series called “@Our Franchise,” and it tells a bunch of the stories of people who are to be emulated in franchising but aren’t necessarily household names.

I think we’re in decent shape on the millennial side. There is not a franchise system out there that is going to be successful in the next five to 10 years that doesn’t have a strategy to engage millennials as customers or to bring them on board as people who operate their systems. They better have a plan, or else they’re going to be finding themselves on the outside looking in.

How do you think the franchise industry has evolved over the course of the last decade? What direction do you see things moving in?

One thing that seemed to appear out of thin air was the union activity around the joint-employer issue. That has been a high-arching threat in the franchise space—an attempt to basically treat all of these owners of local businesses as though they were run and owned by one entity. As one of the protesters at one point said to us, “We won’t quit until Ronald McDonald sits at the table with us and negotiates for all of the McDonald’s restaurants in the United States.” Well, that’s an interesting concept, except if you know nothing about franchising, you should still know that most of those stores are not owned by Ronald McDonald or by the McDonald’s Corporation, but rather are individually owned, locally.

That’s been a building dark cloud over what we’re doing. A small business owner can’t look over his or her shoulder and say, “Get my general counsel out here; she needs to take on the federal government for me.” They don’t have a general counsel. They can’t call their head of HR because they are their head of HR.

Despite these pressures over the last 10 years, we’ve continued to grow, and it’s one of the reasons why I’m so excited about the possibilities that we see when the regulatory pressure from the federal government level … might begin to abate, at least a little bit.

What do you see as being the primary challenges to franchisees today?

Finding competent and capable people to assume jobs is the No. 1 complaint I hear from people in the day-to-day operation. The workforce we have access to is not well trained, and we have to do a tremendous amount of training. When we recruit people into restaurants, we don’t require a high school degree, because the people we hire that are good and smart people sometimes come from very challenged family lives and, often, failing school systems. We provide them with an opportunity to learn how to do a few basic steps to help themselves and feed their families, and then to open up opportunities to greater jobs—cashier jobs, manager jobs, cook jobs, transportation jobs. That pipeline needs to be acknowledged and understood.

We have some franchises, by the way, that only hire people that have master’s degrees because they work for hospitals and do blood samples and so forth, and they’re doing very precise and careful things. But from soup to nuts, finding people who are qualified to work and take up a job without a huge amount of additional training—although we do it anyway—is the No. 1 challenge I see.

What direction is franchising heading, and how do you see it changing in the coming years?

With Trump, we’ll have to wait and see. These are very challenging things that he’s undertaking. This is not little league baseball. This is the major leagues he’s stepped into. I think Trump gets a number of mulligans, and he’s a fairly smart and sophisticated businessman, and hopefully he’ll be able to convert those skills into the political arena here in D.C. I have every confidence that he can and will.

One of the things that’s interesting about franchising and challenging to what our traditional business model has been is the concentration of multi unit franchises in the marketplace. I think we all have to acknowledge that there was a time when people worked their way up from the back of the house, ultimately to rise and own their own franchise. With some of the larger brands that are out there that are sort of platinum-plated brands, I think it becomes harder and harder every year for someone who’s got just barely enough money to buy one franchise to get into one of those places. It means that you’re going to have to come up with investments or opportunities in franchises that may not be your first choice.

A lot of the larger brands know what regulatory burdens are out there right now at the state and federal level and even internationally, and they’re looking for people who are very experienced in this space, who already have several hundred stores. I think one of the long oars in the boat going forward is this intensification of multi unit franchising. I know many of those multi unit franchisees, and they’re very sophisticated and good businessmen, and I can understand why franchisors seek them out. It’s their ability to develop the brand.

I can tell you that the franchisees that come into these spaces, especially the multi unit guys—but also the little guys—often come up with very innovative ideas that the brand adopts and then redistributes out to the brand. Not all of the wisdom resides in the hands of the franchisors, and I think the good brands are flexible.

 Published July 2017  in QSR Magazine by Sam Oches

 

 

 

 

Raising Cane’s named fastest-growing US restaurant chain

 
 
Raising_Canes_Chicken_
 

Raising Cane’s is the No. 1 fastest-growing restaurant chain in the U.S., according to a recent ranking by the Nation’s Restaurant News.

The chicken finger chain, founded in Baton Rouge at the corner of Highland Road and State Street, took the top spot on the list, with sales topping $640.5 million in 2016.

NRN released its Top 10 fastest growing chains ranking in June. The list is part of the magazine’s annual Top 100 report, which ranks the food service industry’s largest restaurant chains and parent companies.

Though small when compared with competition like Chick-fil-A, Raising Cane’s last year saw its sales increase on 25.9%.

“The Louisiana-born brand, which rose from fourth place among sales growth chains in the preceding year, proved once again that a simple menu punctuated with Cane’s Sauce and Texas toast could continue to fuel sales,” NRN says.

Raising Cane’s also had the largest sales growth based on unit count—23.5%—among NRN’s Top 100. The restaurant opened 59 new restaurants during the past year and was named Business Report’s 2016 Company of the Year for businesses with 100 or more employees.

See the full ranking and read a Business Report feature on Raising Cane’s.

 Published July 2017  in the Greater Baton Rouge Business Report