Real Estate Partner, Henry Finkelstein, recently spoke with GlobeSt.com regarding retailers downsizing their store sizes to create more distribution hubs for supply chain support, store-within-a-store concepts, as well as renovating and repurposing existing space. 

Excerpts:

“This has proven extremely difficult for larger stores,” Finkelstein said. “While store-within-a-store concepts, such as Sephora in Penney or Toys at Macy’s are a possibility, creating a truly separate use is very difficult.

“We have observed that the value of last-mile distribution space has skyrocketed in recent years,” he said. “Meanwhile, the incremental sales associated with extra sales floor space may have little or no imputed rental value and may even be a drain on capital budgets.”

“Those renovation costs are closely tied to the square footage being refurbished and an over-size store in needlessly costly to update,” he said. “The fact that some of the merchandising in the extra space is showrooming for Amazon is a further disincentive to excess square footage.”

“Better yet, the department stores’ own use of the space presents fewer covenant problems and little capital cost. Alternatives, such as Amazon’s purchase of Whole Foods or renting in-fill location buildings would be a major expense.

“Moreover, since the parking demand for distribution use is significantly less than for traditional retail, repositioning the rear space can result in surplus parking. That extra parking property can be used for pad developments, for which there remains strong demand as the demand for large floorplan interior space continues to diminish.”

Resources

• GlobeSt.com