Advisory Topic: CRE Tech 5.0 Vol. 17 No. 45
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3,000 SF Nordstrom Local Store Just the Beginning of the ‘Smaller and Smarter’ Revolution

Author: Jim Young, Co-Founder & CEO, Realcomm

Nordstrom Local, a new, much smaller version of the traditional department store format has recently opened in West Hollywood. With almost no inventory to speak of, the store is designed to deliver a first-hand, personalized retail "experience." Expert stylists, a beverage bar, nail salon and other amenities are designed to bring a much more comprehensive fashion experience to clothes shopping. The Local store, in combination with inventory housed in the traditional department store format that can deliver merchandise within the hour, can offer both efficiency and effectiveness. While not emphasized in their first announcements, I suspect technology, as it becomes more and more compelling, will have a future role in the experiences offered in this new format.

It is important not to lose the bigger message when evaluating the new retail concepts that we are beginning to see in the marketplace. Amazon buying Whole Foods, Target partnering with Amazon for returns, Target’s new small format stores, Tesla’s limited inventory auto dealership showroom and Amazon’s retail stores- all are examples of technology morphing with bricks and mortar. The next few years will bring a whole host of new experiments to test ideas that will lead to the perfect combination of physical retail and technology, to produce the ultimate experience and greatest efficiency.

Technology and automation are not the only factors driving retail’s move to smaller and smarter. The world has noticed that bigger formats that offer poor inventory management, questionable service and logistical issues (traffic and parking), also often lead to the industry’s challenges. Add to that an overbuilt inventory and a potential debt crisis by some over-leveraged retailers and the reengineering continues.

The following infographic illustrates the eight trends that are colliding with and contributing to the retail transformation. The eighth trend, which was added since our last article in May of this year, is debt management. In recent headlines, the Toys “R” Us bankruptcy provides some insight into the high-flying, liberal lending practices of a few years ago. This happened again, despite the lessons learned in 2008. ‘Take the money and expand’ was the common mantra and many retail executives could not resist the adulation or the desire to dominate their space. I suspect that this is only the beginning and the next 24 months could produce a number of headlines similar to Toys “R” Us.

The following is a brief summary of the Infographic, outlining the eight factors influencing Retail’s Transformation:
(1) OVERBUILT – Recent reports indicate that the United States has significantly overbuilt retail in the last decade. Some estimate we have as much as seven times retail per square foot as the next closest country.

(2) OBSOLETE – Some feel that the size, format and experience of department stores are outdated and that more unique and custom shopping experiences are the new norm.

(3) SOCIAL INTERACTION – In the old days, teens went to the mall to socialize and hopefully, shop. Today’s new technology and social media platforms such as Facebook, Instagram and Snapchat are the new ‘places’ where youths interact.

(4) BAD CUSTOMER SERVICE – Retailers are struggling to find and train employees who have the right attitude and skills to deliver a positive customer experience at scale.

(5) OMNI CHANNEL CHALLENGE – Most, if not all, retailers are struggling to deliver a seamless and engaging omni channel experience. The cost of delivering a strong bricks and mortar enterprise while cultivating an online channel is costly.

(6) INVENTORY MISMANAGEMENT – Despite the tremendous infrastructure investment required to deliver a mall or retail experience, you still can’t easily find particular products in an efficient manner; for example, all the stores that have "brown shoes in a size 8."

(7) THE ONLINE MOVEMENT – It is not just Amazon, but online in general, that is delivering a more efficient and engaging shopping experience. With little legacy required by the online community, traditional retailers are struggling to keep up. Just last week, Amazon introduced a 'Fashion-Bot' that uses a smart camera to snap photos of wardrobe choices and apply artificial intelligence to assist in the selection process.

(8) DEBT MANAGEMENT – Many retailers were convinced by financiers that their brand was ready for expansion. Cheap money combined with an aggressive appetite to lend led many retailers to partake in overly ambitious and optimistic expansion plans. This debt issue leaves them with limited resources that are needed to finance the changes required in this transformation. The signs of this Retail Transformation have been building for years. It is only in the last couple of years that it is becoming apparent to everyone that this is not an anomaly but rather a paradigm shift in how we shop and how retail outlets should be designed.

Experience, efficiency, convenience and price competitiveness are all features today’s consumers have come to expect. The mall or retail operation of the last century is gone forever. The future will blend location, bricks and mortar, technology and design to provide a new type of convenient and exciting retail experience that also provides operational efficiency and a sustainable way forward.

To learn more about this and other industry trends and what’s ahead for Corporate Real Estate and Facilities, join us at CoRE Tech 2017 on Nov. 14 and 15 in Silicon Valley. There is still time to register!

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