Real Estate

Can a Combo of Stores and Fulfillment Centers Save Empty Big Boxes?

In the current retail climate, industrial REITs have been hailed, while retail REITs have been hammered. As industrial REITs have reaped the rewards of the e-commerce boom, investors—fearing a brick-and-mortar bust—have taken a broadly skeptical view of retail REITs, much to the consternation of executives at REITs that own malls and shopping centers.

Shlomo Chopp, managing partner with New York City-based investment management firm Case Equity Partners LLC, thinks he’s come up with an innovation that could help bring retail REITs out of their market slump while also giving industrial REITs a bit of competition. His patent-pending idea ultimately would be a physical marriage of e-commerce and brick-and-mortar retail.

Chopp envisions retail REITs partnering with his company to adopt a “shopping fulfillment center” concept. As its name suggests, this invention would merge shopping and fulfillment in one location.

Shlomo foresees these shopping fulfillment centers being located in converted big-box stores at malls or inside newly constructed properties, with each setup featuring a store wrapped around a fulfillment operation.

Case Equity Partners has tapped JLL executives Matt Powers and Larry Kilduff to recruit customers for Chopp’s fulfillment model. Chopp expects prototypes of the concept to be rolled out within the next year and a half or so at an estimated three to five locations.

“We’ve had a very good reception from retailers,” he says.

The concept would work in the following way: orders placed by a shopper using a special app would be fulfilled at a local shopping center. In real time, the shopper could “tell” robotics technology at the in-store fulfillment center to fetch the items in his or her online shopping cart. Then, the shopper can choose how he or she wants to get those items, such as having them delivered to the home or heading to the store and picking them up in specially designated shopping lanes. An app-equipped shopper could also place an order while visiting a store, enabling the facility to track the shopper’s movement throughout the store, and then take home his or her purchases.

The national network of in-store fulfillment centers would be run by a third-party logistics company, allowing retailers to share costs and potentially reduce store sizes or cut back on store counts.

In a Q&A with NREI, Chopp explains how his “bricks-and-clicks” hybrid would work, compares his concept to the pencil-and-eraser combo and shares the data implications of this business model.

This Q&A has been edited for length, style and clarity.

NREI: What makes this concept different?

Shlomo Chopp: In a nutshell, what we’re doing is taking the last-mile fulfillment center—which is how e-commerce behemoths like Amazon are able to cut costs and get products to shoppers quickly—and putting that in your store. The way we’re doing it is by attaching the fulfillment center to your store. So if you’re shopping at home, you’re getting the products from the store, and if you’re shopping in the store, you’re getting the products from the store as well.

Essentially what it does it takes everything that a retailer has to do, but doesn’t need to do, off [the retailer’s] hands and lets them focus on the retail side of things. At the same time, it basically saves a whole class of real estate from essentially going into oblivion. The mall and the retail shopping center have no integration with e-commerce right now other than some retailers turning them into physical manifestations of an online ordering form. It basically brings the e-commerce fulfillment component to your store without limiting the amount of stuff that you can keep on hand. It essentially makes the store relevant again, even in the very heavily-focused e-commerce environment that we’re in right now, and on the flip side, actually takes away a lot of the negatives that e-commerce has by combining it with brick-and-mortar.

NREI: So, it’s a marriage of e-commerce and traditional retail that enhances physical stores?

Shlomo Chopp: The best possible analogy I can give is when we initially came up with the concept and we spoke with our patent attorney, I asked him, “Is this patentable?” And he said, “Shlomo, when you take a pencil and you add the eraser but they work perfectly on their own—the pencil and eraser don’t have to be attached—the pencil makes the eraser better and the pencil makes the eraser better, and that’s patentable.” This is the sort of same concept—the fulfillment center is making the store better and the store is making the fulfillment center better.

NREI: What are the data implications of this concept?

Shlomo Chopp: I can house many retailers across a network of these facilities nationally—I’m providing logistics services to them, and it makes sense for us to piggyback their company on our logistics services—and their shoppers all come into our facilities. So we can actually track when a shopper walks in—where do they linger, where do they stop, what do they buy?

That data can be put into a heatmap. So, when a new retailer says, “We want to sell jeans in Knoxville, Tenn. We want to open up a jeans store,” we can tell them, “Hold on. Let’s run a report.” Based on this heatmap, we can tell what type of engagement there’s been between shoppers and jeans. What types of jeans have gotten shoppers’ attention? What has sold? Then, we can go back and say, “We think the best markets for you to open up in are X, Y and Z. But don’t go to Knoxville, because they’re not wearing jeans, they’re wearing khakis there.” This type of data is currently unavailable. Even Amazon can’t get this data.


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