On Merchandising, Part 2
"Casting is 65 percent of directing." — John Frankenheimer
Happy holidays! I hope you’re winding it all down for the old year, taking needed time off, and getting ready for the new one. The Banks girls have just finished exams and we are in that special purgatory that is Waiting To Hear From Colleges.
As you’re out shopping for gifts I want to follow last month’s note and talk about what my hopefully-college-bound daughter calls “shopping for shops.” For those new around here —or for the sane ones that don’t obsess about such things— retail merchandising is the process of intentionally selecting which tenants you want in your real estate project. It may not be so important for the small convenience center but for destination retail it’s the heart & soul of the process.
At Revel we split the activity conceptually into two halves – Uses and Users. First you pick the types of stores you want (Uses) and then you very specifically call on specific tenants (Users) for each. Merchandising, curating, proactive leasing, call it what you want. We call it casting because we’re sick of the word “curating” and because, well, we all sort of wish we’d been in the film industry over here.
And because it’s the perfect analogy. Imagine if Tom Selleck had accepted the role of Indiana Jones. Eric Stolz was Marty McFly for five weeks before they fired him and hired Michael J Fox. The end results would be completely different. The script may not change but the casting matters.
Unfortunately the city IS going to make us build roads where we’re going
This is a foreign concept to most friends in other corners of CRE. No one “casts” office tenants or apartment residents or home buyers. A prospect shows up with money and signs a contract or they don’t. But in retail world you could argue that the most important part of the process is merchandising. I struggle to think what is more important. You have to be exceptionally intentional and diligent about it. And you have to be patient.
I could write a dozen more notes on the intricacies of casting the right tenants. Instead I’ll leave you with some Do’s and Don’ts from my own hits and misses, as well others’ wise words I’ve picked up along the way.
I cannot overstate the importance having good taste is to the process. Or at least, knowing where your patrons’ tastes skew, though they may not even know themselves. The bad news: you have good taste or you don’t. The good news: there are lots of people in the retail business that do.
The first question is always: who is the patron. But the next question is: are you trying to make something unique (Oscar Bait) or are you trying to do the safe thing (comic book franchise movie)? This sounds like a dig but I swear it isn’t. If you don’t care that the lineup of your center is exactly like a dozen other centers then you have a much easier road in front of you. Sydney Sweeney puts butts in seats; don’t worry your pretty little head about how her performance will shake out.
Urban Lifestyle Center Starter Pack
National tenants pay more rent than local ones. The fool isn’t necessarily the one that prefers the $60 Starbucks lease to the “fourth wave” pour-over joint with tatted baristas paying $30. Added bonus: the pension fund you’re hoping to sell this to puts a lower cap on that “credit” tenant.
Cool kid tenants don’t have any money. But if we learned anything in high school, it’s that other people will pay a lot of money to sit with the cool kids. If you have offices and apartments on top you can afford to be pickier with your tenants and not just take the national ones.
You actually shouldn’t worry about getting the coolest tenants because a) you won’t and because b) there is an argument to be made that Cool died back when white guys took over jazz. Instead of what is hip, focus on strong brands with good followings and great products.
Houston’s isn’t coming to your project.
Brand matters. Brand is more than a name and a logo. It is a way to talk about reputation. Samsung gets to charge more for TVs because it has brand value that consumers trust. Some local operators have brand values that far exceed any national. Be aware and ask around.
Price point carries a lot of brand information. You want a hamburger joint in your project? I do too. A Steak N Shake is a much different proposition than a Daniel Boulud Burger and you need to understand the difference. The correct answer: Hamburger America.
Sid Mashburn always said that his #1 seller was jeans. Used to be Levis 501s, now he has his own but still they’re tops. Don’t get obsessed with making everything luxury. Does your center have the retail (or food) equivalent of an $80 pair of 501s?
Beware of any tenant that describes their business as Upscale.
Beth Azor is incredible at merchandising and prospecting for new tenants. She teaches a course and you should take it.
No franchisees! Remember the JFK line about Washington DC? This is franchises: all the unique local flavor of a national chain with the credit of a mom and pop.
A.I. is going to completely change the shopping experience both online and IRL. On the list to write about in 2025…
Retail trends come and go. Remember cupcakes? Can you believe popcorn shops came back for a moment? Don’t get caught up in the newest thing. A little is okay, but go easy. A deep dive into Pace Layers over the holiday is a worthwhile read on this subject.
You have shop at the store or eat at the restaurant before you get serious about the lease.
One bad apple can spoil the whole barrel. No law firm ever refused to sign an office lease on 15 because the CPAs on 14 were a real drag, but let me assure you that one bad retail tenant can clear out a center faster than a flood. Sometimes the best leases are the ones you don’t sign.
Leave room for serendipity because some of the other best leases you’ll sign are with tenants you’d never heard of before.
Still my favorite shop in America
There is a lot you can get wrong with retail that will sink you: wrong location, wrong layout, wrong spaces, wrong storefronts, wrong music, you name it. But the merchandising is everything. An award-winning script and a world-famous director mean nothing if you don’t get the casting right.
What you really want, in the end, is that organic feeling of high mixed with low. Not all discount. Not a luxury ghetto. A delightful mix of expensive and affordable, traditional and avant garde, fast and slow, food and retail and services and wellness, morning noon and night.
The Year In Bread. This was a travel year for the record books. I’m writing from Charlotte for my forty-sixth and final trip of 2024. I’m a sucker for a bakery and along the way I ate at a lot of great ones. Below, in vaguely geographical order, were the best things I had stateside. I hope you get out there and try them all.
Standard Baking Portland ME: the muffins were good but the Canelas were fantastic.
Grêp Kafé Medford MA: Viande Paté
Oak Bakeshop Providence: Summer Blueberry Coffee Cake
Madrid Bakery Providence: Costrada — a rich Spanish Napoleon. Not for the faint of heart
Pop Up Bagel NYC stirs up lots of controversy, so you know I’ll weigh in: they aren’t bagels. But they are insanely delicious vaguely bagel-shaped sourdough treats and you should get one.
Little Chef Princeton: Alsatian Apple Tart
Delponte’s Bakery Bradly Beach NJ: Canolis
K’far Philadelphia: Would I go completely out of my way for a Jerusalem Bagel? I did. Would again
Isgro Pastries Philadelphia: a tie between the Sfogliatelle and the Zeppole
Yellow Georgetown DC: Za’atar Labne Croissant
Bodos Bagels Charlottesville: Call Your Mother is the best in DC. Bodos is the best in the country
Brown Bear Bakery Cincinnati: Sesame Banana Bread Croissant
Gabriella Norwood OH: Ensaymada
Floriole Chicago: Ham & Cheese Croissant
Spinning J Chicago: the Peanut Butter Cookie from the soda fountain you wish you lived next to
Lost Larson Chicago: Lingonberry Almond Cake
Donut Den Nashville: the Apple Fritter but only if it’s fresh from the fryer
The Vintage New Orleans: yes you have to get a beignet in N.O. but don’t go to Cafe Du Monde. Go here and get champagne too
Bowie Bakery El Paso: Conchas
Little Tart Bakeshop Atlanta: I couldn’t make a bakery list without my favorite bakery in the country. The croissants are as good as anything in Paris and the Peach Galette is the only food item on the planet I’ll stand in line for.
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For those new here, I run a retail development and consulting shop in Atlanta, and I write semi-regularly about commercial real estate.
Wishing you and yours a restful holiday and a lovely 2025,
-Geo