CREJ - Retail Properties Quarterly - November 18, 2015
Our consumer-driven retail environment is changing with the dynamics of generational shifts and e-commerce. Consumers are cost conscious and looking for new shopping experiences. Those of us active in retail real estate – and all of us as consumers in our day-to-day travels – see landlords and developers being bombarded by restaurants, which leads many to ask, “Where are the real retailers to fill my projects? Where are the stores selling widgets? The shops offering goods? The anchor stores?” These questions are not repeated when it comes to restaurants. There are so many food options popping up in Colorado and across the nation that there is not enough space for the demand. But where are the true retailers? The retailers still are sorting out how to compete with the likes of Ebay and Amazon, and now are competing with each other on their own individual websites as well. We all get bombarded with emails daily with the greatest sale opportunities and, more often than not, we all go to the Web to read up on new purchases, especially on big-ticket items. This phenomenon is becoming more prevalent as generations X and Y and the millennials make up a larger part of the consumer base. Shoppers are so well equipped with smartphones, tablets and laptops, operating on Wi-Fi that there isn’t a need to walk into stores, nor do many want to. These texting since-they-were-teens consumers are well trained to shop online and may have never seen the brick-and-mortar stores from which they buy. Yet while some consumers never leave their couch, many consumers still want the instant gratification of taking home a product the day they decide to buy it. Brick and mortar is not going away, but what is happening is retail stores are becoming ware houses for pickup. In order to give consumers this opportunity for instant gratification, stores such as Best Buy and Kohl’s allow consumers to buy their products online and pick up the items in the store. This eliminates the need to walk the aisles, deal with purchasing at the register and talking to a salesperson, yet delivers that instant gratification. Kroger and Walmart are doing the same thing with groceries and even offering delivery services. The takeaway is that the store in your hometown is now the distribution point. This could mean that these stores may not need as much space for merchandise or display or as large of an improvement allowance for build-out. In turn, they may not pay as much rent. The Great Recession saw the rise of the discount store, and more people frequently shop at off-price retailers like Nordstrom Rack and Marshall now. Any stigma that may have hurt these retailers in the past is gone, as consumers want to hold on to as much hard-earned cash as they can. We know that Web shopping is forcing retailers to compete on price, but, as consumers, we are pushing retailers to focus on discount concepts because we are buying less at the full-price stores. Everyone wants to feel like they are getting a deal that they can’t pass up. The retailers are seeing this and responding. For example, Macy’s is testing Backstage, a second-run concept similar to Saks Off Fifth and Nordstrom Rack. J.Crew opened J.Crew Mercantile, which the company says is not an outlet center, but offers outlet pricing. From the retailers’ perspective, these are opportunities to diversify and add stores in markets they already may have fully built out with full-price stores. Also, they are seeing the opportunity to build the right-size spaces in less-developed markets, which allows them to be mindful of capital expenditures. These discount stores are less expensive to open, and they are easily merchandised, often with existing inventory. New off-price concepts offer the opportunity to expand in saturated markets, but so do off-shoots of some household name brands. National retailers, especially those publicly traded that must continually exceed investor sales and growth expectations, are finding ways to add more revenue sources in related businesses. For example, Target is testing Target Express, a neighborhood quick-stop store for daily needs in urban environments. It also is testing Target Open House, which will offer smart-home elements like integrated baby monitors, automated lighting and thermostats for customers to learn about, test and take home. H&M is pushing out three new concepts – Cheap Monday, Cos, and & Other Stories to offer hip and cheap, luxury and high fashion, respectively. Dick’s Sporting Goods is trying a concept called Chelsea Collective to compete with similar highly successful athletic-fashion concepts like Lululemon and The Gap’s offshoot Athleta. These specialty stores are not only offering new revenue sources but also are catering to the shift away from box stores that consumers are asking for, and instead offering stores where consumers can get more personalized purchasing experience for a specific ware. As a real estate professional, the takeaway is to consider these consumer trends and understand how the retailers are reacting to them. These are the uses and users we are going to see looking for space in 2016. As brokers, owners and developers, we have a role in shaping the retail landscape. We can execute that role more effectively if we are planning shopping centers and merchandising plans that recognize where retail is going and not expecting the large-format traditional anchors, but rather the smaller-format spin-off and off-price bands. With the discount stigma gone, shoppers are looking for value and will price shop in any avenue they can. They are looking for a specialty experience even if it is coming from a national retailer. If centers are positioned to give the retailers and, in turn, the consumers what they are looking for, we will fill shopping centers.