LOS ANGELES—As retail evolves, retail owners need to have the flexibility to cater to changing market demands, Westwood Financial's co-CEOs Randy Banchik and Joe Dykstra tell GlobeSt.com. The firm's recent restructuring provides the flexibility and capital to meet these changing demands, allowing the company to cater to the shifting needs of its tenants. We spoke with Banchik and Dykstra about how flexibility comes into play in the dynamic retail environment and how financial considerations are also a concern.

GlobeSt.com: Why does flexibility matter for retail owners?

Dykstra: Retailers are searching for the right balance. The right store footprint and the right number of stores in a market supported by a home delivery option. As retailers search for the optimum store size, they are ideally looking for an owner that can provide the flexibility for them to grow or shrink store sizes. Some properties and stores are harder to reshape than others. It's not always practical to be flexible because the economics of relocations and changing store sizes is economically challenging, but where owners can be flexible, it is a valuable tool for competing for new tenants and retaining existing ones in an evolving marketplace.

Banchik: We're clearly in a rapidly evolving retail environment with e-commerce and brick-and-mortar retail. All tenants are assessing not only their location, but also the best prototypes and formats to deliver their goods and services to their clientele. What we're definitely seeing in the grocery space as grocers share some of their thought processes is as they approach the adaptation of their stores, they need to partner with their landlords to meet those prototypical requirements.

Dykstra: The mainstream headlines are that e-commerce is taking over the retail world and brick-and-mortar stores are antiquated and dead. That can't be further from the truth. According to the US Census Bureau, 90-percent of retail sales are NOT done online and over 90-percent of pure online e-retailers lose money, hardly a sign of an apocalypse. It's true that there have been many high profile retail failures with thousands of more store closings to follow. E-commerce clearly had a serious impact, but just as important to the failures was traditional retails entrenchment in the past, overleveraged balance sheets, lack of imagination and poor execution – K-Mart, Sears, JC Penney and many others have been a “dead man walking” for years and wouldn't have survived without the internet. The fact is, the off price apparel retailers – Ross, TJ Maxx, and Nordstrom Rack are thriving. By my count there are over 70 retailers that have intentions of opening thousands of stores over the next few years and even Amazon is rumored to be planning an expansive retail store network. The weak will die and the strong will get stronger.

GlobeSt.com: What are tenants demanding from owners today that require continued flexibility?

Dykstra: Tenants are clearly uncertain about the most effective way to deliver goods and services profitably to the customer. Do they deliver products from the retail store or from a fulfilment center, or both? Does a retail store evolve into a showroom? If they are delivering goods to customers at home, how much retail space do they need? How many stores are required with a robust omni-channel business plan? There are a lot of questions for retailers and no easy answers. The retail demand for space is clearly much different than in the past and will take several years for retailers to discover the “sweet spot.” My prediction is that retailers will have more space than they are currently thinking. Why? Because retail stores are more profitable than e-commerce and home delivery.

Banchik: Tenants are demanding flexibility in terms of their store sizes, and more often requesting capital contributions with landlords to fund the cost of remodels and changes to prototypical operations. Landlords are being asked to accommodate for other types of delivery options; for example, the click-through lanes at brick-and-mortar stores that allow consumers ordering online to have more efficient means of pickup.

GlobeSt.com: How does flexibility come into play with financial considerations in retail leasing transactions?

Dykstra: The successful ownership of retail properties is a never ending puzzle of managing the balance sheet, selecting the right location, the right tenant mix, the right site plan, the right marketing plan, the right rents and the right physical plant. Most properties are financed with lenders and often equity partners- both of which have some control over what can be done at a property. Owners can't always unilaterally make changes without consulting with partners and lenders and other tenants. Change and flexibility at the property can be very hard and capital intensive. It's important to be flexible and it's easy to support when it's accretive to the bottom line and very difficult when it's defensive and dilutive to the properties cash flow.

Banchik: The landlord, when faced with evolving tenancy and tenant needs, has to have the ability to partner with and adjust to those needs and contribute to the needs of those tenants. If a grocery store has the need to expand its prototype, the landlord needs to not only have the flexibility to participate in that financial expansion, but also to have the time and space and income flexibility needed to clear out additional shop space for an expansion area space while the grocery store is doing its planning. We were working with a Kroger grocery in Georgia, and it took two years to make sure the tenant had a plan in place and was able to carry expanding shop space. We were able to relocate the tenants and were prepared to deliver space to the grocer when they were ready to expand. Without having financial flexibility, we wouldn't have had the wherewithal to provide the tenant-improvement contribution that the grocery store needed to make it happen.

GlobeSt.com: What else should our readers know about flexibility in retail real estate?

Dykstra: Retail and shopping centers are always evolving. Kmart and JC Penney thrived for years, the department stores succeeded for years, Walmart swept through the country for many years bankrupting thousands of small businesses. Then, we had the big box category killers that put countless others out of business. Costco and the off price retailers have continued to succeed and now we have the amazing and incredible Amazon and its astonishing success. Amazon is uniquely great, but even they are not making a profit from e-commerce. Amazon told everyone for years they didn't need physical stores and now they are planning to open hundreds of brick and mortar stores. It's clear that e-commerce on its own doesn't work and needs brick-and-mortar to succeed profitably. The real news is that properties need to change to remain current and some will fail, but great shopping centers are very much alive and well.

Banchik: We all have to be flexible. There's no question in this retail landscape that things are evolving rapidly. Having fixed assets both financially and operationally will not provide the best avenue for either landlord or tenant. As we continue to change more quickly, more flexibility and adaptability are required to meet the changing needs of tenants.

LOS ANGELES—As retail evolves, retail owners need to have the flexibility to cater to changing market demands, Westwood Financial's co-CEOs Randy Banchik and Joe Dykstra tell GlobeSt.com. The firm's recent restructuring provides the flexibility and capital to meet these changing demands, allowing the company to cater to the shifting needs of its tenants. We spoke with Banchik and Dykstra about how flexibility comes into play in the dynamic retail environment and how financial considerations are also a concern.

GlobeSt.com: Why does flexibility matter for retail owners?

Dykstra: Retailers are searching for the right balance. The right store footprint and the right number of stores in a market supported by a home delivery option. As retailers search for the optimum store size, they are ideally looking for an owner that can provide the flexibility for them to grow or shrink store sizes. Some properties and stores are harder to reshape than others. It's not always practical to be flexible because the economics of relocations and changing store sizes is economically challenging, but where owners can be flexible, it is a valuable tool for competing for new tenants and retaining existing ones in an evolving marketplace.

Banchik: We're clearly in a rapidly evolving retail environment with e-commerce and brick-and-mortar retail. All tenants are assessing not only their location, but also the best prototypes and formats to deliver their goods and services to their clientele. What we're definitely seeing in the grocery space as grocers share some of their thought processes is as they approach the adaptation of their stores, they need to partner with their landlords to meet those prototypical requirements.