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This Landlord Says Founder Businesses Are the Future of Retail

ICSC Commerce + Communities Today

October 19, 2022

Amid recession rumors and rising inflation, both sales and growth have dropped off at big-box stores. At the same time, sales at businesses still led by their original creators increased substantially over the past year.

Northwood Retail president Ward Kampf cited sales statistics of some of these so-called “founder businesses” among his company’s tenants. For the first three quarters of this year, sales at Nina Berenato, a jewelry store founded in 2018, rose by double digits over the first three quarters of 2021. Before being recruited to Austin, Texas’ Domain Northside, Berenato had been selling her handcrafted jewelry from a travel trailer, doing pop­ups across Texas. Similarly, Tecovas, a handmade-boot store started by Paul Hedrick as a direct-to-consumer operation, also has seen stronger sales this year than last. Hedrick opened his first store in Austin in 2019 and now has 21 locations throughout the Southwest, including Texas, Alabama, Arizona and Georgia. And organic grocery store limbo’s, founded in 1984 by health enthusiast Jim Someck and now numbering four locations in San Diego, had one of its highest sales weeks ever at the end of July 2022. Sales that week outperformed the company’s strongest weeks – Thanksgiving and Christmas – over the past three years.

Northwood Retail, a Dallas real estate company that manages or advises on more than 3 million square feet of retail across the U.S., has prioritized recruitment of founder businesses, including the tenants above, to its centers. Under Kampf’s direction, its portfolio, which spans from California to the Carolinas, hosts 71 first-­to-market tenants and 28 digitally native brands. Kampf talked to Commerce + Communities Today contributing editor Rebecca Meiser about the success of founder businesses in the Northwood portfolio, why founder businesses will continue to thrive and Northwood’s strategy for seeking out – and supporting – such tenants.

You define founder businesses as companies that are led by their original business creators. How do they differ from mom-and-pops?

Founder businesses are built to grow. Mom-and-pops you generally think of as one store. They’re more in­line, strip center-type [establishments] that are a little more commodity driven versus somebody that’s building a business to scale and grow across the city, regionally or across the country.

Why are founder businesses resonating with consumers and employees right now?

Some of these guys are mission based. They have a statement, and it’s very clear what that statement is. People connect to that, whether it’s the consumer or employee. That makes a difference, especially now. For instance, we have a tenant, La La Land Kind Coffee, who started in Dallas. [The founder] hires kids from foster homes. He went to Los Angeles and became the hottest thing on Montana [Avenue] in Santa Monica. And we’ve got Brilliant Earth, who [sells ethically sourced fine jewelry and] went public last year. Founder Beth Gerstein discovered that the diamond business is very dirty. A lot of younger Millennials and Gen Z don’t want to contribute to that system, so Beth created this new category very specifically that consumers are responding to. What these businesses are doing is creating disruptions.

Why are these businesses flourishing just as big-box retailers struggle?

Founder businesses just have their ears closer to the ground. They know their employees well. They know their customers really well. They have a following that’s generally organic in nature. People relate to people that build businesses. People will always say to me: “Who do you like working with? Apple? Neiman?” And I say generally: “No, it’s the founder of a business I like working with:’ They’re just more in touch. They have a good handle on their stores. They all have a story and they know how to grow and scale their business.

What does that looks like in practice?

You saw this during the pandemic, where the founder companies were just more nimble. They built their companies. We were on the phone with large, large companies that have either department stores or very large retailers, and the common thread was they didn’t know where their employees were. You could just see there was an imbalance of how fast they could get back on their feet, compared to founder companies.

In what other spaces could founder businesses thrive while big boxes stumble?

What you’re seeing right now with big boxes is: There’s a lot of pressure because they just have too much stuff. They just ordered and thought consumption would go on forever. We call that more commodity retail. Other than groceries, people don’t really want commodity retail. They want a good experience or they want high quality. That’s what founder businesses provide.

Landlords are in the business of getting the most value and profit for their centers, and founder businesses don’t start with the same credit backing as their larger counterparts. In other words, they’re riskier bets. Does that give you pause?

Just like us, these people are in the business to make money. The difference is that a lot of the founders, when we meet them, they’re not public. They’re still capitalized. It might be through friends and family money or loan, though. But they’re in the same business we’re in. It’s not philanthropic that these founders are doing it. On our end, [these founder businesses] offer something different and unique, and that’s what the consumer wants. And I believe money will follow a good concept. Additionally, investing in these types of tenants can be incredibly valuable because we’re able to do multiple deals if they open well with us and they’re unique tenants.

What do you do, as a landlord, to support these businesses?

You try to put them in at a fair rent so that they can grow through their growing pains. It’s not always about getting top dollar. It’s about going and getting the right tenant. What’s important to us [as a company] is getting something special, and then you have to help market and promote them, whether it’s through social media – Instagram, TikTok – or trying to get them press if they’re opening a store.

Northwood Retail has 71 first-to-market tenants. Why are they attracted to your centers?

They know we’re going to put other good tenants around them. One of the reasons they come to us is they know that we can deliver on that placemaking. We create unique places and unique experiences and go out and find other unique retailers. You can’t just have one unique retailer. You need to have several.

Clearly, all founder businesses aren’t going to be successful. What should other landlords be thinking about when assessing these businesses’ potential as tenants?

Are they A) a good business person? Could they run a good business? Then B) at the core, are they good people? We’ve seen where people have great ideas but they may not be visionaries. You can tell when somebody is both. They have a lot of conviction in their business, and they have a different look. In meeting them, you can tell that they have a different sense and a different skill set. It’s a little like looking at an athlete and trying to understand who has the potential to be elite. When you do this enough, you can tell. You see the same characteristics around really, really successful retail businesses.

How do you find these tenants? Do they come to you, or do you search them out?

Generally, we find them. It’s rare that they find us. We ask around, we walk the streets and we hear about things. We ask people in the market, whether it’s a top broker or just people in general: “What do they know about the business?” We catch them early. We’re hopping on planes all the time. I was on the phone today about: “Can somebody run to Orange County and look at this sushi concept?” We’re constantly doing that, just constantly.

This feels like a very people-centered approach to business.

What’s most important is that we don’t do a concept we haven’t put our eyes on. If we don’t meet the founders, we will not do a deal. With this model, you’re betting on the business owner.