How Retailers Can Thrive in the Age of Amazon

Dec. 15, 2017 -- If you prefer to do your Christmas shopping the old-fashioned way—dressing up and driving to the mall, or strolling down New York’s Fifth Avenue or Chicago’s Miracle Mile — Kemper Freeman has some holiday cheer. Despite the growth of online commerce, retail stores and shopping malls aren’t going the way of the dodo.

Mr. Freeman, 76, owns Bellevue Square, a multilevel mall east of downtown Seattle, which features scores of restaurants, hotels, department stores and novelty shops. Foot traffic is up 21% this year, Mr. Freeman says, and he is planning a multimillion-dollar expansion—a bet that even in the age of Amazon, Americans won’t give up in-person shopping.

Mr. Freeman’s bullishness on brick-and-mortar makes him an outlier. This past week Westfield Corp., which operates some of America’s biggest high-end malls, sold out to a European rival, a move said to have been motivated by brutal e-commerce competition. “If Amazon were an animal it would be an octopus,” a Journal tech reporter recently observed—its tentacles reaching just about everywhere in the consumer economy, from products like pharmaceuticals, groceries and cars to services like housecleaning. A CNN report recently said that with anchor stores like JC Penney, Sears and Macy’s shutting down, “America’s malls are rotting away” and “the worst is yet to come.” But not at Bellevue Square, where Mr. Freeman says retailers are lining up to pay $100 a square foot for store space, about three times the industry average.

His company is family owned and has employed tens of thousands of people over three generations. It was Mr. Freeman’s grandfather who, 71 years ago, bought 10 acres in Bellevue, a town of 6,000, and developed 16 stores. Mr. Freeman’s father turned it into a multimillion-dollar shopping complex before handing it off to Kemper, who has expanded it in what is now a city of 140,000 across Lake Washington from Seattle.

Early this month Mr. Freeman and I stood on the roof deck of the new Westin Hotel (which he owns) and gazed down at tens of thousands of shoppers lining the four-block stretch of Bellevue Way that has become known as Snowflake Lane. At 7:00 each night during the Christmas season, artificial snow starts falling as a light show blankets the sky in brilliant colors. Down the way comes a Rose Bowl-like parade of floats, drummers and sleigh-riding Santa Clauses. “It’s the biggest outdoor Christmas celebration in the country, and we do it every night of the week,” Mr. Freeman says with glee. “It’s the kind of thing that brings people to the mall. I pay for it all myself.” Over the holiday season he estimates the parade attracts some 500,000 customers, who shop or eat dinner in one of the mall’s dozens of restaurants.

Mr. Freeman insists that reports of retail’s demise have been greatly exaggerated, and he’s prepared to make the case with numbers. He tells me that a 2016 government report totaled retail sales (excluding restaurants, gasoline and automobiles) at $3.4 trillion nationwide. He asks me to guess how much of that was online. I say 15%. “No,” he says, “it’s 11%, or $400 billion. And the online sales is less than 10% when including restaurants. Now, it used to be 3%, so it’s growing, and it’s not capped. But it’s still only a fraction of the business. It may someday go to 20% or 30%, but it’s not going to take over the world.”

Mr. Freeman concedes that shopping centers are tremendously overbuilt in America, but he says that’s owing to a real-estate frenzy that long preceded the online-sales phenomenon. By his estimate, the U.S. has at least 50% more retail space per person than Canada—and Canada’s figure is 50% higher than Germany’s. “It’s Germany that has it about right,” he concludes—which would mean the optimal amount of retail space is less than half the current American total. “I’ve traveled all over the country,” Mr. Freeman says. “The challenge is to find a place where retail isn’t overbuilt.” If he’s right, a severe real-estate contraction is coming, and weak stores and malls will get eaten alive. Can Macy’s survive? Probably not: “They are run by bean counters”—lawyers and accountants, not entrepreneurs.

Read more: https://www.wsj.com/articles/how-retailers-can-thrive-in-the-age-of-amazon-1513382462

 

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