The Stoler Report: Impact of E-Commerce on Bricks & Morter Real Estate


♪ [Theme Music] ♪>>>MICHAEL STOLER: Google.
Amazon. All these companies. Technology companies.
JET. Everybody is, that’s the new retailor. What’s
happening to that poor little bricks and mortar store? What’s
happening to the bookstore? What’s happening to the
appliance store? What happening in the world? Has e-commerce
had a major effect on bricks and mortar? So today I’ve
brought together a group of individuals who have, who
are the gurus, who will provide their insight. Will
e-commerce affect retail? My guests today is
the legendary Josh Muss, who is the chairman
and C.E.O. of Muss Development. Brad Blumenfeld, who’s the vice
president and principal and Blumenfeld Development.
The global chairman of real estate, hospitality and
whatever other category relating in real estate at Weil, Gotshal
& Manges, Philip Rosen. And last but not least, the
broker but not the broker to the stars, the
broker to all the retailers, the executive vice president
at Newmark Grubb Knight Frank, Jeff Roseman. So part of the
reason that this show is being created was really
Phil Rosen saying to me, e-commerce is having
an effect on bricks and mortar. So I said, you know, we have
to put people together and Phil was supposed to help me
find some of the guests and needless to say I found them
myself. But one of the guests who became a guest is a person
who literally today could talk about the bricks and
mortar of retail. At one time you were saying just
now before we started the show that recently you
were in the Short Hills Mall and you were looking for a
bookstore and you couldn’t find the bookstore. And you own a
property in Austin Street in Queens where there is one of
the few last Barnes & Noble, that’s no longer
going to be there and the other Barnes & Nobles in
Queens is also closing. The world has changed. Amazon
was created originally in the book business. That was the
mantra of Amazon when they went into the business
and today they are global monster over there. How
have you seen e-commerce and having an
effect? I mean- >>>JOSHUA MUSS: Well our
particular situation on Austin Street in Forest
Hills, which is a major local shopping street, we
brought Barnes & Noble in there back in there about
20 years ago. At first there was, you know, scorned
because they thought they were going to put the small
mom and pops out of business. Barnes &
Noble became the darling of Austin Street, everybody
loved that it became a community facility. Problem was
when Barnes & Noble started getting affected
by the Internet. Some years ago, about three or four years ago,
they chose not to extend their option unless they got
a rent break. Several years ago the economy was not so hot.
They came back to us this past year, they say we
will not extend, extend our option unless we get
a rent break, we said no deal this time and we
were fortunate enough to replace them with a Target. >>>MICHAEL STOLER: So
here is the question. In today’s market and you
have all the interesting companies who are coming
here, you helped me a couple years ago when we
brought the urgent care center over here, who’s
coming into retail? OK. What retailers, who have a
combination of e-commerce and bricks and mortar, are
you seeing in your market today?>>>JEFFREY ROSEMAN: Well I
think it’s a combination. Besides who’s coming into
retail it’s retailers who are sort of repositioning themselves
and sort of creating a better environment. Retailers
I think realize that to get shoppers off the couch they
need to provide sort of an experience for them so now
there’s you know coffee bars and wine bars and sort of
hair salons and creating an experience because I think at
the end of the day, you know, people want to shop online
for certain things but I still believe we’re social
animals, people want to walk in and see people
and touch it and feel it, exactly, there are certain
things that you just you’re not going to buy on
online so there’s been a whole new retail has
reinvented. You mentioned fitness, there’s probably
20 different types of fitness users out there
now, besides gyms, you know, there’s spinning and
boot camp and all sorts of them so, you know, New
York City, which is where we operate, which is a
bubble, I mean, rents keep going up and there’s more
retailers coming in and there’s more names coming
in all the time so, you know, we’re not
seeing the effect.>>>MICHAEL STOLER: But,
you know, Brad was talking before and talk to me
about this Google program.>>>BRAD BLUMENFELD: There’s
an evolution that retailers are getting into the Internet
side of business and Internet providers are getting into the
retail side of business where you have Amazon and Amazon
Prime doing two hour or next day delivery. You now have
Google entering that market with Google Express
and for instance Google Express now services out of our
project at East River Plaza and they’re in 25, roughly,
metropolitan cities->>>MICHAEL STOLER: So,
OK, if I wanted to order something, you know, and
East River Plaza you have, you have a Costco, you have- >>>BRAD BLUMENFELD:
Target, Old Navy, Burlington->>>MICHAEL STOLER: So if I
wanted to order a product from one of those stores, OK- >>>BRAD BLUMENFELD: I’m
not sure that they service every store but they service- >>>MICHAEL STOLER: No, I’m
talking about those major stores that we spoke
about. And I wanted to order, hypothetically an iPad
because they do sell iPads or something like that or a
T.V., I can order and it can be delivered and I
don’t have to go and pick it up?>>>BRAD BLUMENFELD:
Correct and that is not just in the cities, Google
is now rolling it out all over the country so they
started in the central business district and they’re now
in Midwestern smaller cities and they’re going to continue
to creep across.>>>MICHAEL STOLER: So I
said before they’re buying it in the store and they’re
delivering it. Their profit margin is made by the
delivery charge, OK, that they’re getting maybe
on the Amazon Prime approach where they’re taking an annual
fee but they are taking it? Why do they have
to even go to the store? Can’t they go directly to a
warehouse, which is something that you were talking
about in your article?>>>PHILIP ROSEN: That
could be the next part of the evolution that Brad
was talking about. It’s not there yet. I think
what’s happening now in the retail industry is
you’ve got a dichotomy. You’ve got the A. malls
and the malls as Jeff was describing the malls
that are redesigning themselves. Those malls
and maybe some of the upper level of the strip
malls are going to do fine and going to continue
to do fine because the customer wants to be
there. Customer wants to, particularly women,
they want to look at the clothing that they’re
buying, as do men- >>>MICHAEL STOLER: But you
know there’s been also an evolution if you follow
the other approach, let’s take Warby Parker as an
example. Warby Parker started as an Internet
company where people- then they opened up their
retail component. Their retail component, per
square foot, is probably close to Tiffany’s sales
per square foot. I walked into their store on 77th Street
and Lexington Avenue they were 150 people waiting
over there to get to look at glasses. They’re doing,
I mean, rent, sales are $4,000 a foot is one step
from, you know, Apple.>>>PHILIP ROSEN: But that
is the upper tier product, Warby Parker, even
though it’s not- >>>MICHAEL STOLER: It’s $99. >>>JEFFREY ROSEMAN: But
it’s also an Internet restart->>>MICHAEL STOLER: It
started as an Internet retailer.>>>BRAD BLUMENFELD: It’s
one of those industries where it’s just squishing
margins because there’s so much margin in the eyeglass
business that for an Internet provider to come in, probably
one of the obstacles and one of the evolutionary
things that happens is all of these companies, Google
you’re mentioning is opening retail presences, Warby Parker
needs to have their brand where you can actually
go and touch and feel, so it sort of compliments their
online platform and I think they’re all doing both. >>>MICHAEL STOLER: You
know we were talking before Josh about, you know, an
entity that really hasn’t done well. You know The Great
Atlantic and Pacific food stores, OK, and they bought
Walbaums, they bought Pathmark, they bought a number of chains
and they’ve gone through what the third bankruptcy
in their history and they’re tenants inside
of one of your shopping centers are two of them
over the years. Why do you see them not doing as well
as opposed to like an Aldi who opened up with you
on the East River Plaza? >>>JOSHUA MUSS: I think
that if in fact you’re going to have the alternatives to
mail order, or email order, you better have a product that’s
scintillating. Somebody wants to go and touch and feel,
they want to touch and feel good fruit or good vegetables,
they’re not going to just get anything. I don’t think
the standard supermarket has kept up with the product.
I think that’s why Whole Food has done well because if you
order from Whole Foods you know that they’ll
deliver a quality product.>>>BRAD BLUMENFELD: And I
would say it’s not just the product itself but it’s the
presentation, it’s the experience, so
if you look at Duane Reade today versus Duane Reade
ten years ago they’ve totally remodeled their
stores, made the materials that you look and touch
them and walk through much more appealing and the
same with an Aldi’s, it’s a more modern clean
look than an old tired Walbaums.>>>JOSHUA MUSS: Well, you
go to a supermarket to get a cantaloupe, you want
to squeeze it, right, you can’t squeeze it
on the Internet.>>>MICHAEL STOLER: But you
know if you go to Fresh Direct, which has done well, you know->>>JOSHUA MUSS:
That’s pre-squeezed. >>>MICHAEL STOLER: OK.
It’s pre-squeezed and it’s also the evolution of who you’re
selling to and millenniums are more geared to that
type of approach. They’re not wanting to go into
the supermarket. If you ever try to go to the Trader Joe’s in
Manhattan, the store on 14th Street where
the Palladium used to be, you must bring someone with
you, your spouse or you hire some vagrant to go wait on line
because the line to go through, am I right Jeff, is so long.
OK. And it’s Trader Joe’s, is a price orientation,
it’s like Aldi, Aldi they charge you for bags.>>>BRAD BLUMENFELD: But
it’s also a quality of goods and service right? >>>PHILIP ROSEN: And I was
going to say Brad had a great point before when we were
discussing it pre-show, I think Brad said that every
one of the retailers has to upgrade themselves. Upgrade
their product, upgrade their presentation, and I think that
that’s what they’re working on. You know the Internet
e-commerce sales is still only 15% of the retail industry.
They’re going up rapidly but it’s still only 15%.>>>MICHAEL STOLER: We were
discussing it before the demise, you know, everybody said and
it is happening, there’s no question that it’s happening
in the book business of the Barnes & Noble. I think
the people in Austin Street are upset because now they
don’t have a library anymore.>>>JOSHUA MUSS: It’s not
even a library, it’s a lounge.>>>MICHAEL STOLER: It’s a
lounge where they can sit->>>PHILIP ROSEN: But books
aren’t a product that you need to touch and feel. >>>MICHAEL STOLER: OK,
books aren’t a product, and also, there are no
more Sam Goody’s, there are no more music stores,
you don’t see that over here but Best Buy, which
everybody had given it its last rites, has rebuilt itself.
It’s now opening up in Macy’s. They’re opening up->>>JEFFREY ROSEMAN: They’ve,
you know, reinvigorated their stores, they’ve created a much
better atmosphere, more energy and it’s become a much more
pleasant place to shop.>>>MICHAEL STOLER: Which
Internet retailers have you seen go into the
bricks and mortars. >>>JEFFREY ROSEMAN: Well
we mentioned Warby Parker, Bonobos, there was an
interesting article in The Times this week about this
retailer, Trunk Club, that opened in the Mansion on
Madison Avenue, which is sort of a great, you know, they
were selling clothing on the Internet and now they’ve
created this sort of lounge->>>MICHAEL STOLER: Right
but some of them are pop ups, you know, the short term->>>JEFFREY ROSEMAN: Those are
all real, all long term deals and there’s a bunch of them.
There’s a couple of jewelry tenants, Baubles maybe? ->>>MICHAEL STOLER:
Baubles, I think you’re right.>>>JEFFREY ROSEMAN: And
they’re all sort of out there kicking tires, looking for a
bricks and mortar.>>>JOSHUA MUSS: In some
respect this might be a vanity application because what do you
do, oh I’m on the Internet but when you have a store
on Madison Avenue, you know, and I’m not sure how long that
these guys are going to last.>>>PHILIP ROSEN: That’s actually
a whole different story. The Madison and Fifth Avenue
stores many of them are there as part of the advertising
company->>>MICHAEL STOLER: They’re
advertising. The Madison Avenue that were on from let’s say,
58th Street to 72nd Street were, until recently, lost leaders.
They were advertising specialty stores where the name
brand could be advertised. The Tiffany, or the high class,
the Polo, now they’ve become gentrified true retailers
over there. >>>JEFFREY ROSEMAN: Nobody
can afford to, you know, just create a billboard
on Madison Avenue- >>>PHILIP ROSEN: Although
the 5th Avenue stores, you know, the pricing of the
5th Avenue stores has gone through the roof and many
of those stores including the ones from overseas those
are loss leaders because of the advertising today. I don’t
know what will happen five years from now.>>>MICHAEL STOLER: A
couple of weeks ago I did a show and I asked these
two bank presidents and also I did a previous show
talking about the effect of the European, the euro has gone
down so people who are coming here, even though we
have the 55, 56 million people, they don’t have as much
money to spend in the retailers. That can happen to->>>JEFFREY ROSEMAN:
That’s a bigger concern. >>>MICHAEL STOLER: I think
that’s a bigger concern- >>>JEFFREY ROSEMAN: There
used to be tour buses of the Chinese up on Madison Avenue, I
mean, I’d see them we rented a piece recently on Madison
and 59th Street and I’d stand there for ten minutes and five
or six busses would pull up. You know, now from what I’m
hearing that’s being curtailed. And I think that’s
as vital an issue to retailers as anything
else, certainly in New York.>>>MICHAEL STOLER: You
were talking before about the Amazon Prime up in
Harlem that you’ve seen. >>>PHILIP ROSEN: I’m
amazed. I think, you know, Amazon Prime Now is a two
hour delivery guarantee that Amazon promises
to the prime owner- >>>MICHAEL STOLER: The
special ninety dollars- >>>PHILIP ROSEN: Whatever,
whatever the price is. It’s the price to be an
Amazon Prime customer and so you’ve got a two hour
guarantee of whatever you order on Amazon Prime. In
order to effectuate that they have to get the cars
out of the distribution center very very early in
the morning and keep them waiting and I’ve seen them
waiting in rows in Harlem and different parts of the city
but I’ve seen the Harlem->>>MICHAEL STOLER: But you
were saying these cars are not cars they’re basically
mini warehouses.>>>PHILIP ROSEN: They’re station
wagons and they’re station wagons that are at
the end of the day they are mini warehouses.>>>MICHAEL STOLER: I
feel like you’re aging yourself. They don’t call them station
wagons, they’re called S.U.V.s, they’re mini S.U.V.s right?>>>PHILIP ROSEN: Actually they
look like the old station wagons. I don’t know what car
they are but they look like the old, you know, that
I used to take on my car pool to school. The interesting
thing is they load them up with the best selling products and
they’re able to fulfill their guarantee by keeping them
waiting in the streets of Manhattan so that they can
deliver the products. So if you order five products on
Amazon Prime Now you can get delivery of all five by
five different distributors, five different cars.>>>MICHAEL STOLER: So here I’m
going, I have five people here, myself and four others, how many
of us sitting in this room utilize the e-commerce
to buy things?>>>ALL: I do. Absolutely.>>>PHILIP ROSEN: I
feel like a traitor by the way.>>>MICHAEL STOLER: So we use
e-commerce. Do we use it for what type of products? OK.
Because there was a discussion with regard, you know,
you bring up Duane Reade, which is Walgreens, today
people utilize the Internet to order their drugs, their health
and beauty, OK? That’s one item. Many people order, you know,
athletic, certain people, Zappos, I mean, which is
owned by Amazon, you know, people the availability of
getting the shoes, whatever you want,
immediately and they have an enormous amount- >>>PHILIP ROSEN: Let
me make a personal observation and I’m going to be, I’m not
sure I should say this, different people like to shop
and different people don’t like to shop. The people who
like to shop, the women’s wear clothing stores, will always do
well. I hate to shop. I would much rather order
something through the Internet than even stepped into a store
and I think that’s where->>>JEFFREY ROSEMAN: You’re not
going to order something, you’ll order->>>JOSHUA MUSS: I’ve ordered a
suit. I found the size that fits me and I saw it was on sale
and I ordered two of them, I spent more money
on the tailor but it worked.>>>PHILIP ROSEN: So I’ll
tell you that I have five kids, including my son in law, I
consider him one of mine and my wife and between the
six of them and myself we get delivery of between
twenty and thirty boxes a week delivered to my house.>>>JOSHUA MUSS: And how
many do you send back? >>>PHILIP ROSEN: So my
daughters will tell you that I actually make money on the
Internet because they order and then return, I don’t
know how it works, I’m not that good at numbers, but they
tell me that we’re making money.>>>JOSHUA MUSS: See, us
brick and mortar guys we feel like that’s traitor.
That’s a traitor, but I do it. I hide it but I do it.>>>BRAD BLUMENFELD: As
convenient as it is it’s still, there are still some
inconveniences to open the box and get out the scissors->>>MICHAEL STOLER: But
let’s take an item, which is, which a lot of us all utilize
and most of us, if I asked the question of how many of
us have an Apple device, I’d say all five would raise our
hands. How did you buy your Apple devices? Is the question.
Did you go to a retailer, a bricks and mortar retailer,
to a Best Buy or an Apple store or have you ordered
this, or a Verizon store->>>PHILIP ROSEN: I’m lucky
because I’m in the General Motors building, which
has the largest Apple store in the world. I just go
downstairs and I buy it there.>>>MICHAEL STOLER: Because
you’re in a convenient situation. How
about yourself?>>>JEFFREY ROSEMAN: But
Apple is a great example to me of a retailer that they sell
what eight products that they have, eight products,
that everyone knows what it is->>>MICHAEL STOLER: And the
same price because they’ve controlled the pricing.>>>JEFFREY ROSEMAN: You
walk into an Apple Store and it’s like there’s a giveaway
going on. I mean every store, walk into that store two
o’clock in the morning it’s busy on 5th Avenue.>>>PHILIP ROSEN: Two
o’clock, four o’clock, every single hour of the day. >>>JEFFREY ROSEMAN: They are
unique but it’s an experience. You go into an Apple Store
and you just, it’s different and to me, I’d much rather buy
something in that store then order it online even though
I know exactly what it is and what I want.>>>PHILIP ROSEN: But
that’s not convenience that’s experience as well. I mean,
the interesting thing is some people go shopping and I’ll say
this up and down 5th Avenue whether it’s Bergdorf or Barneys
on Madison Avenue people go for the experience. Men,
women, everybody and I think that’s the same
category with Apple. >>>MICHAEL STOLER: But I
think what you’re bringing out is it doesn’t matter even though
more people are utilizing and I recently read this
article on e-commerce or e-marketing that people are
using mobile devices to do, more people using mobile than
handheld or desktop products over there. You’re always
going to have bricks and mortar retail. It’s a
question, the question->>>JOSHUA MUSS: I hope so.>>>JEFFREY ROSEMAN: Me too.>>>MICHAEL STOLER: I think
the question is what type of retailers and as we said before
there’s been an evolution. OK. There were always
optical stores but the number of optical stores increased and
then there were the Warby Parker and there are other
people similar to Warby Parker but they don’t know
about them as well today.>>>PHILIP ROSEN: Just one
point on the malls, the top quality malls, the top quality
in terms of stores, location, etc, they’re doing great and
they’re going to continue to do great even if, you know,
there was a recession they’ll continue to do well because
the people shopping there aren’t abandoning the malls for
e-commerce and they’re not going to stay home. I think
those malls will continue to do well. The question is in the
entire industry it’s whether the strip mall on a highway
in Kansas, whether that mall will continue to stay
in business as, you know, what I said to you in the room
is that you have a website called deadmalls.com, which
measures, you know, which malls are going out of
business and notifies you every day, which malls- >>>MICHAEL STOLER: I have
children who live in Denver and I will pass malls, which
are dead malls, because they had retailers who
are no longer able to exist. I think the best example
is Kmart/ Sears. They’re not existing. I
mean Kmart/ Sears, years ago, had the best appliances.
People would go for the->>>BRAD BLUMENFELD: But
they didn’t have the best customer service and
that’s where they fell short. I think that, I don’t think
it’s necessarily the best malls I think it’s the
best retailers. So the best, whether it’s Chipotle,
I don’t care if they’re in an A. mall or a B. mall, that
people are going to go there because they have a
great customer experience. It’s the same, to me it’s every
retailer and every category is upgrading their game
whether it’s health clubs, movie theaters, fishing
shops, Bass Pro just took over the old Grizzlies
Stadium in Tennessee and built a three hundred thousand
square foot experiential, state of the art, like fishing
and boat shop->>>MICHAEL STOLER: Right.
And I believe I read an article about the bass centers, the
average customer who goes to a bass shop spends
two hours, two and a half hours, in this shop. Josh, I don’t
know what you and I would do there for two
and a half hours->>>JOSHUA MUSS: I’d
go to the golf store. >>>MICHAEL STOLER: You’d go
to the golf store section.>>>BRAD BLUMENFELD:
But they come from- >>>MICHAEL STOLER: They
come from around the area, I mean->>>JOSHUA MUSS: They
probably knocked out about ten smaller in
doing that when they- >>>BRAD BLUMENFELD: But
everyone needs, there’s room for the local fly shop
or the local hunting shop to step up their game as well and
compete and if they don’t->>>MICHAEL STOLER: But
we’ve seen evolution in retail if you just look and Jeff
has been really helpful to me over the past seasons
always bringing evolving trends, OK, in retailing. You know,
look at health care today. People don’t stay in hospitals.
The average stay in the hospital, to get you to
be in a hospital room for two days you have
to be inordinately sick. The situation is you’re in an
ambulatory surgery, they get you out today for
doing hip replacement in the same day, so the
healthcare is opening. You were saying before take
the dialysis center. You have a dialysis center in
East River Plaza and next to the dialysis center you
have Planet Fitness so the relative who brought the
person to the dialysis center has to go there. >>>JOSHUA MUSS: But
that itself is a problem because you’re ruining the mix of
retailers within the center. In other words, as urgent
care grows and takes over the bookstore, all of
the sudden you’re->>>MICHAEL STOLER: So
forget the Target Plus, this could have been, you
know, you had to rent a Target Plus, you could have
rented to the dialysis center.>>>JOSHUA MUSS: Somebody
filled the empty theater with an urgent
care center already- >>>MICHAEL STOLER:
So it was too late. >>>JEFFREY ROSEMAN:
The urgent care though, they’re not sort of the
clinics of yesterday. >>>JOSHUA MUSS: Yeah but
they’re not bringing in buying customers. >>>MICHAEL STOLER: It’s a
different type, some of them, I agree, I agree. We’ll go for
coffee, Stumptown Coffee. But I’d like to thank my guests
who really gave a pretty good perspective on what’s happening
to retail and e-commerce. I’d like to thank Josh Muss,
Brad Blumenfeld, Phil Rosen and Jeff Roseman, see you next
week. Twitter, Facebook, LinkedIn, Stoler
Report app, see you then. ♪ [Theme Music] ♪

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