3 Ways Experiential and Entertainment Retailers Are Regenerating for Spring

If you’d asked Brad Woods, an entertainment and experiential retail specialist for Area Real Estate Advisors, back in January about his outlook for 2022, it may have been “totally different,” he told LoopNet. “But as of today, with [pandemic-related] trend lines down, clients are suddenly calling me to go look at locations. Barring any new wave, people experiencing things together is going to be huge for retail real estate these next couple of months.”

People are shopping again in the lead-up to spring. And having advised entertainment behemoths like Disney, AMC and Live Nation, Woods has a good read on key indicators for everything else: “People are getting back together. Once the parks are fully open, though, the floodgates really open for other experiences.”

But what exactly will the floodgates give way to, considering the experiential retail realm has mostly been a desert since the pandemic began?

Woods pointed to a few key touchpoints during a conversation in February that he said will be foundational to the experiential retail and entertainment real estate segment's reawakening.

For one, outdoor concert series are going be in full swing this spring and summer, Woods said, based on discussions he’s had with entertainment clients across the country. “People just want to be able to plan something at this point,” he added, “without the stress of wondering day by day whether their ticketed event is going to get canceled.” All eyes will be on outdoor venues as winter thaws out.

But the true sweet spot, he continued, is a location with options. “I would keep an eye on dual-purpose places that have an outdoor space coupled with interior functions for indoor entertainment as well.”

Experiential sporting and leisure retail brands like Topgolf, for example, have mostly done well through the pandemic overall, and now those types of brands are incorporating more indoor elements to round out their offerings, he said.

Drive Shack, a driving range competitor to Topgolf, both of which are former clients of Woods, is growing its spinoff called the Puttery, which Drive Shack calls an “adults-only competitive socializing and immersive entertainment experience” centered around golf, with roughly 20,000-square-foot indoor locations with bars anchored by multiple themed, indoor mini-golf courses.

“Indoor-outdoor entertainment venues with gamification elements are going be a huge growth segment,” Woods said.

With industrial space in high demand these days, it may not be easy, but Woods said some of his clients are even looking to find and convert industrial space into these types of indoor/outdoor entertainment venues.

For experience-based tenants confined to the indoors, though, as most retailers are, helping determine the optimal use of floor space is one of Woods' primary imperatives.

Large traditional chain retailers like JCPenney and Macy’s have been downgrading for years, Woods said, “going from 20,000 or 50,000 square feet down to within a range of approximately 7,000 to 15,000 square feet.” But experiential retailers have been inclined to skimp on space too, despite how important space is to delivering experiences.

Cabela’s, for instance, has fared better than many retailers these past few years, but the national outdoor-recreation-merchandise chain known for its massive, immersive-experience stores is still trying to nail the right-size footprint for its needs while maximizing every square inch.

“Before Cabela’s was acquired by Bass Pro Shops [in 2017], their big push was moving away from their huge, 100,000- to 200,000-square-foot footprints down to around 70,000 square feet, which is tiny for them,” Woods explained.

Though it was already extremely immersive, with wildlife mounts and “museum-quality exhibits,” Woods said, Cabela’s had been testing out other experiential components that didn’t work out in some cases.

“The stores were already jam-packed, but we added a bunch of virtual reality and augmented reality (AR) experiences within the store, like a virtual gun simulator, for example, that were just awesome,” Woods continued. “They probably spent around half a million dollars on it, but they just didn’t have the manpower to help patrons with the headsets and the gear, and they realized they really needed that space for another coat rack or something, and so they ended up taking them out. The return on investment was obviously with that merchandise and not with the virtual reality.”

For Cabela’s client base at the time, that round of investment in digital experiences didn’t trump the more tangible experiences that had already been drawing Cabela’s customers in, especially when space became more of a premium.

Meow Wolf is another vanguard of the new wave of experiential retail. In addition to streaming and digital experiences, the American arts and entertainment company caters to what it says are large-scale, immersive, permanent ‘mixed-reality’ installations as well as arts and music festivals.

The venture is expanding from its three locations in Sante Fe, New Mexico; Las Vegas; and Denver; which range from 20,000 square feet to around 75,000 square feet, and has announced a partnership with global entertainment events mogul Live Nation.

This type of fully immersive, trippy blend of art and virtual reality entertainment was being called a disruptor to theme parks and traditional attractions-based destinations before the pandemic, and Woods said he saw a lot of similar but smaller operators spreading seeds then too.

“Trends were emerging from Europe, as well, making it seem like there were going to be a lot of these 7,000- to 10,000-square-foot experiences” in the realm of Meow Wolf, he said.

Other similar niches included VR-based, full-roam, in-person virtual reality experiences pioneered by leaders in the market like Dreamscape Immersive and Spaces, whom Woods had worked with. “That was super exciting for me because I just knew that that would create a stronger retail environment — whether these are my clients or just in the overall tenant mix,” Woods said.

Experiential or entertainment retailers can bring in traffic and enhance an entire shopping center, Woods said, so it’s a component he looks for in any retail strip or mixed-use development.

Esports, similarly, is a massive trend that’s only going to get more varied with the type of space it occupies. While esports venues typically make headlines with larger-scale arenas, it’s a broad niche that deserves attention across the board, Woods said. “There are splinter groups that have some energy around putting some chairs and consoles in a space that suddenly becomes a type of smaller, pop-up esports arena. That may not be a huge leasing opportunity yet, but it’s definitely something to keep an eye on.”

Retailers with excess space, on the other hand, could benefit from the increasing trend of stores-within-stores, Woods continued. “Big box retailers, especially, have an opportunity to look at curated experiences in their stores – like Sonos in Best Buy or Disney in Walmart. If you've got this area that you're not utilizing and are already selling products from a vendor, is it an opportunity to turn that area into an experience within itself?”

Consider how many Barnes and Nobles locations may have been propped up by an embedded Starbucks, for example, he said.

Furthermore, Woods is increasingly looking outside the box during these times for “creative deals on a pop-up or a short-term lease for some type of experience in an underutilized space, especially over the next year or 18 months as everyone continues to emerge from [pandemic-related restrictions].”

Traditional-minded owners who are less willing to budge on short-term leases are at a disadvantage, he posits. “First off, we need to ask, what can we do with the space? Second, what lease structure is appropriate? Is it a pop-up, a 90-day deal, a six-month deal? Or is it something you can let breathe for two to five years? And then we’d just determine what the tenant improvement allowance would be for something like that. Those are usually the things my tenants are asking.”

One parting word of advice on retail space utilization is a simple one. With the rise of omnichannel purchasing, he said, it’s important to keep in mind consumers’ preferences for conveniently returning items to local stores. “You have to understand that, despite the need for as much space on the floor for merchandising as possible, people want [BOPIS, or buy online, pick-up in store] options as well as return options, and it’s crucial to have spaces set up for that.”

As for an overall takeaway on the brick-and-mortar entertainment and experiential retail resurgence, Woods is bullish. As just a few examples, he pointed to e-commerce retail giants like Amazon, which is setting up physical stores; Helzberg Diamonds, which is testing out AR ring fittings, and Casper, an online-first, direct-to-consumer brand bent on disrupting traditional mattresses retailers, that now sets up pop-up stores and outposts where it offers “nap appointments” to consumers.

Casper is an interesting example of the importance of experiences, Woods concluded.

Casper was born online, and it’s had tremendous success, he said. “But then they started saying, ‘wait a second … people actually want to lay on the mattress.’”