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Brookfield on the Future of Retail

Oct 13, 2020 by Matthew DiLallo
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Brookfield Property (NASDAQ: BPY) (NASDAQ: BPYU) is one of the largest global real estate companies. It currently controls roughly $86 billion of real estate assets worldwide, including a sizable portfolio of high-quality U.S. retail properties. Because of that, it knows the sector very well. Here's what the real estate giant sees ahead for the industry.

Retail is here to stay, but the game is changing

Brookfield Property recently held its annual Investor Day. One topic the company's management addressed was what they see ahead for their retail portfolio. Leading that discussion this year was Meredith Darnall, senior vice president for the business intelligence and strategy team for Brookfield's retail portfolio. At that event, she shared some insights her team has learned. She started by noting:

For the last several years, there has been much discussion in the media concerning the relevance of brick-and-mortar stores across the retail landscape. With the onset of the pandemic, some have even speculated that this may be the moment in which consumers just stop shopping in stores altogether and convert their buying exclusively online. However, this is not the case. In fact, our retail is here to stay. And how the game is being played is changing.

She discussed this evolution by noting that:

Healthy retailers are realizing that physical stores deliver multiple salient benefits beyond just in-store transactions. Stores serve as a platform to engage customers and allow them to have an authentic experience with the brand, allowing brand building and customer acquisition. Stores also play a vital role in fulfillment, serving as a distribution, pickup, and return center. It is this role that has grown in importance in the last several months.

Indeed, one of the most important roles of physical stores these days is enabling consumers to buy online and pick up in store, especially during the pandemic. Brookfield noted this is the fastest-growing and highest-margin distribution channel for retailers, as it reduces last-mile distribution and inventory management costs. So retailers will continue to need physical locations.

Retail centers of the future

According to Darnall, the "evolution of retail has real implications for real estate." The company believes that to win, a retail property needs to become a hub of daily life and commerce. That means meeting retailers' needs to provide their customers a centralized place of discovery, fulfillment, and returns. It also means these spaces need to cater to consumers' daily needs, blending retail with dining, entertainment, fitness, medical, and education.

Brookfield envisions winning retail properties as mini-cities where people can live, work, and play. On one hand, these destination marketplaces will enable consumers to discover new things at their leisure as they browse storefronts, dine with friends, and enjoy entertainment. On the other, these places will provide them with the convenience of curbside or in-store pickup for something they ordered online or the ability to return an online order as they run other errands. In a sense, Brookfield envisions marketplaces of the future as places that provide consumers with the flexibility to "connect, discover, and explore" when they have time while also "having their needs met" as they go about their busy daily lives.

Brookfield has already started transforming many of its retail centers into mixed-use destinations that blend shopping, dining, and entertainment spaces with residential, office, and hospitality properties, so it believes its portfolio is already set up for long-term success as the properties within become hubs of daily life.

Physical retail still has an important role to play

The retail landscape is changing. One of the biggest changes is that physical stores are expanding from simply being points of sale into distribution, pickup, and return centers. By handling multiple functions, these centers can increase convenience while reducing costs.

This shift means retail property owners also must evolve. They need to transform into hubs that provide retailers with storefronts and logistics solutions while meeting more daily needs of consumers. Properties that change to meet these needs should thrive, while those that don't will struggle to survive.

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Matthew DiLallo owns shares of Brookfield Property Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.