design:retail - June 2018 - 40

040
Figure 2

The future of retail real estate will be customer-centric

Consumer
Engagement
Spaces

ANCHOR TENANTS

Traditional
retailers

Retail, residential,
entertainment

ORGANIZING PRINCIPLE

Retailer and
manufacturer "push"

Consumer "pull"

PRIMARY FOCUS

Selling things

Consumer
engagement

ROLE OF TECHNOLOGY

Powering the
system

Connecting buyers,
sellers and places

TENANT MIX

Mass market

Market of one

Source: A.T. Kearney analysis

success-today and tomorrow-begins and ends
with developing a competitive understanding of
the consumer, anchored in how they think about
their lives and expressed in their own language.
Every CES will need to craft a distinct and unambiguous customer-centric value proposition or
brand promise. Everything operators and tenants
do must reinforce that value proposition and serve
as a continuous demonstration of authenticity, integrity, values and respect for the consumer.

A QUICK LESSON IN DEMOGRAPHY
The fate of retail real estate has always been
linked to demography. The industry's growth has
been defined by its ability to respond to changes
in the composition and physical location of the
consumer market. Today, for the first time in
history, that market includes six generations of
shoppers: the Silent Generation, Baby Boomers,
Gen X, Millennials (or Gen Y), Gen Z and Alphas.
When the Southdale Center opened its doors as
America's first enclosed, climate-controlled shopping mall in Edina, Minn., on Oct. 8, 1956, the oldest
Baby Boomer, the vanguard of what was to become
the largest demographic cohort in American history, was only 10. In the wake of post-World War II
prosperity, which made automobile ownership accessible to the working class, parents of those early
Boomers were abandoning city centers across the
country in favor of a life in the suburbs characterized
by an almost jarring conformity and slavish devotion to brands featured in mass media outlets.
Retail real estate followed the people, and the results were staggeringly successful.
In the United States, fueled by decades of relative affluence, broad-based upward mobility, high
consumer confidence, and explosive suburban
and exurban home building, total shopping center
growth dramatically outpaced population growth,
especially in the 1960s and 1970s (see Figure 3).

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THE POTENTIAL OF THE DIGITAL GENERATIONS
Baby Boomers continue to exert disproportionate economic influence-some direct and some
unintentional-even though their generational
influence has waned significantly in the face of
younger, larger cohorts. The Millennials' challenge
to Boomer dominance has been reinforced by the
emergence of Gen Z. These "customers of the future" are part of a multigenerational market driving
new demand, but operating in the shadow of an
asymmetrical model of generational wealth retention. This is a challenge to retailers because-at least
for the next decade or two-Boomers and Gen Xers
will retain significant wealth and largely be done
spending on items that fueled a high percentage of
past retail growth.
By 2030, every Boomer will be over age 65, and
our original Boomers will be celebrating their
84th birthdays. By contrast, the youngest of the
20.8 million Alphas will be only about 5 years old. For
CES operators of 2030-or at least those focused on
more traditional approaches to retail-Millennials
and Gen Z will represent their key consumer targets.
Where Boomers tended to be more alike than
different, Millennials and Gen Zers celebrate the
power and potential represented by human diversity. Together, they form a rich, varied and complex
consumer pool, one where 20th-century cohort
labels associated with ethnicity, race and religion
increasingly don't apply. Yesterday's minorities
are tomorrow's emergent majorities, a fact already

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recognized and fully embraced by today's most
successful retailers.

THE END OF OWNERSHIP?
Younger consumers value access to functionality over ownership and demonstrate a clear and
growing preference for experiences over the acquisition of "stuff." In the past, consumers flocked to
the shopping centers in search of value, expressed
as the relationship of price to branded goods. The
CES of the future will cater to the collective and individual values of their customer base. This helps
explain the success of businesses from Uber and
Lyft to online designer clothing rental sites, such as
Rent the Runway, Style Lend and Armarium.
New consumers clearly prefer personalized,
authentic brand interactions, a preference often
combined with a belief in the benefits of creating and sustaining strong connections to their
local communities.
The de-emphasis on ownership for ownership's
sake (or "conspicuous consumption"), and the new
emphasis on goods and services that are local or regional, authentic, values-oriented, or offerings that
provide experiences, will have a profound impact
on the CES of 2030's tenant mix.

TECHNOLOGY
By 2030, it is estimated that 40 percent of all
consumers will be digital natives. By that point, the
mélange of information and communication technologies that began finding their way into stores
and homes beginning in the 1990s will have lost
their novelty and will form the connecting infrastructure that enables and facilitates how we live,
work, socialize and, of course, shop.
CESs will interface with customers routinely
accustomed to communicating and interacting
through an ever-expanding variety of connected
platforms, devices and locations from phones, apps
and voice-activated personal digital assistants to artificial intelligence (AI)-powered bots, subscription
services, the Internet of Things (IoT) and beyond.

The industry is facing an inflection
point. There are many options
going forward, but standing still
isn't one of them.

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