We present key insights from our conversation with Conor Flynn, CEO of New York-based REIT Kimco on August 12, 2020. The Coresight Research Open for Business webinar was hosted by Deborah Weinswig, CEO and Founder of Coresight Research.

Building the Future of Retail

1. Creative Uses for Outdoor Spaces The Covid-19 pandemic has challenged shopping centers of all kinds, but Flynn said that Kimco’s concentration on open-air centers has allowed it to navigate the pandemic better than REITs that are heavily invested in indoor malls. Traffic at Kimco centers is only down around 10% year over year—which is surprising considering how reluctant many consumers are to visit public places, as we highlight in our weekly surveys of US consumers. Flynn explained that 94% of Kimco tenants are currently open for business. One of the ways that the company is helping drive traffic to stores that have reopened is by finding creative uses for outdoor areas. Flynn detailed how Kimco is using excess parking space for a variety of purposes. Parking takes up about 75% of space at most Kimco shopping centers. Strict local ordinances often mandate an excessively large number of spots, meaning that many spaces are often surplus to requirement. One of the first alternative uses that the company pursued was the creation of dedicated BOPIS parking stalls, which Kimco rolled out in a 24-hour period at the beginning of the pandemic. The company has also created green spaces and European-style outdoor café experiences in outdoor common areas at its shopping centers. While Flynn acknowledged that Kimco has no direct control over what retailers do within their stores, he noted that the company is now making sure common spaces at its shopping centers are used creatively and kept safe. Basket sizes and conversion rates have increased recently, Flynn said, creating an almost unprecedented opportunity for retailers to capitalize on each additional shopper they can drive to stores. Today’s shopper is not coming to the shopping center to browse; they are coming to buy. [caption id="attachment_115208" align="aligncenter" width="700"] Deborah Weinswig and Conor Flynn
Source: Coresight Research[/caption]   2. Tenants as Partners Flynn noted that working with tenants as partners is key to navigating difficult economic times. Rent-collection rates at Kimco centers have risen to over 80%—a substantial improvement from rates earlier in the pandemic. Flynn credits this increase to both the ingenuity of Kimco’s tenants and the company’s efforts to aid retailers in managing the impacts of the crisis. Flynn leveraged his experience of the 2008 financial crisis to help Kimco create a unique rent deferral plan for each of its tenants. The company also created a program to provide financial assistance—to fund attorney services associated with navigating government support initiatives. Over 600 tenants signed up for the program, and Kimco provided $20 million in funding. Kimco has also managed to retain high occupancy rates at its centers—98.2% of the company’s spaces over 10,000 square feet are currently occupied. 3. Rapid Shifts in Shopping Center Structures Approximately 80% of Kimco centers are anchored by home-improvement or grocery stores, which Flynn cited as one of the reasons that the company has been able to weather the pandemic better than some other REITs. Flynn explained that he has not been surprised to see the struggles of apparel anchors intensify during the pandemic—Kimco has a “watchlist” of certain traditional anchors that have been gradually declining in recent years, or even decades, and has already avoided anchoring Kimco centers with these retailers. Flynn advised all shopping center owners to reduce their exposure to apparel and focus on the grocery and home-improvement retailers that have been thriving over the past few months. He also recommended pursuing beauty retailers as tenants of small-box stores, citing Sephora and Ulta Beauty as two of the REIT’s top-performing tenants. Even within anchor stores, Flynn sees opportunities for the structure of the store to evolve. He discussed his expectation for much of this innovation to focus on the center of the store, where grocery shoppers buy commodity items—as opposed to the perimeter of the store, where shoppers pick out fresh produce, meat and fish. Unlike shopping for fresh items, shopping for commodities can be automated without harming the customer experience—while many consumers prefer to select their own avocados or grade of beef, few consumers have specific preferences over which specific box of cereal or can of beans they buy. This automation may include the use of the center of the store as a micro-fulfillment center for delivery and BOPIS purchases, or even using robots to pick up commodity items for shoppers as they peruse the perimeter of the store. Kimco is increasingly interested in adding a residential component to its centers—apartment complexes attached to centers can be attractive, based on their proximity to a wide array of amenities. Similarly, retailers appreciate having a built-in customer base when housing is added to their shopping centers. Flynn indicated that landlords can charge both retailers and tenants a premium for this desirable proximity and that Kimco will likely continue to expand its residential portfolio. Key Takeaways

• Grocery and home-improvement stores are the most reliable and durable anchors of outdoor and indoor shopping centers, and they drive traffic to other retailers.
• In order to have high occupancy and rent collection rates, landlords should work collaboratively with tenants and implement measures to help those with constrained balance sheets survive the pandemic.
• Creative uses of outdoor spaces can bring back shoppers post crisis and assist in retailers’ development of BOPIS and drive-thru purchase options.