CREJ - Retail Properties Quarterly - May 2016
Like many of you, I have been inundated with media reports proclaiming e-commerce will take over the retail industry and that the traditional brick-and-mortar stores are becoming obsolete. They say large-scale shopping centers are dinosaurs, and that the younger generations will not visit malls but, instead, make all their purchases online. If this is, or was, the goal of e-commerce, then I am confident e-commerce will fail. The truth is e-commerce needs brick and mortar to survive. Consumers crave the ability to hold their products and experience in person many of their important purchases. Online shopping, even virtual reality, will never replace the tangible nature of in-store shopping. This experience is the single greatest differentiator that will lead to the continued success and viability of retail shopping centers. While e-commerce will not take the place of shopping centers, it is challenging the traditional formula of designing, developing, constructing and managing those shopping centers. To remain competitive, today’s retail shopping center stakeholders must understand and adapt to the current trends, which are heavily influenced by e-commerce shopping. An immediate change is a reduction in space needed for traditional big-box retailers. As those tenants further understand consumer purchasing habits in store versus online, the square footage needs are reduced significantly. The challenge presented is what to do with existing large footprint stores when those tenants exit or desire smaller footprints? One solution is renovating existing large footprint retail space to repurpose for multiple smaller modern prototypes. This option uses existing infrastructure and building space and only requires renovating the building systems and main entrance facade to accommodate the new tenant mix. Performed correctly, this can be significantly less expensive and delivered to market in half the time of a typical new-build project. An example of this is the Streets of SouthGlenn in Centennial. We are under construction to convert a large sporting goods retail box into two smaller soft goods national retailers. The retail experience, as previously stated, is the single greatest advantage shopping centers have in competing with online purchasing. Younger generations may value this experience more than any previous generation. Additionally, workplace dynamics are changing. Technological advances make it possible to work from anywhere at any time. During the workday, table space is becoming a premium at coffee shops, restaurants and outdoor spaces for people looking to work outside of the office. Fast-casual restaurant tenants cater to this daytime traffic and the increased presence of this type of tenant is evident in new shopping centers. The increased foot traffic from fast casual combined with spaces that encourage extended stays is good news for existing shopping centers. It is redefining what peak times are for shopping and allowing the consumer to spend more time at the shopping center, which retailers know is a good thing. The challenge for existing shopping centers is incorporating this tenant diversity in existing traditional shopping centers and creating additional desirable spaces for consumers to linger or work remotely. One solution is utilizing expansive existing parking lots to incorporate additional pad development. Many municipalities have reduced, or are willing to reduce, parking requirements from the standards imposed 10 to 20 years ago. This can create additional real estate and development options in existing shopping centers and improve the tenant diversity needed to increase traffic and allow consumers to stay longer. Additionally, the typically dead spaces between big-box retail stores can be filled with courtyards and outdoor dining areas. Fast-casual tenants can occupy the leasable square footage no longer needed by many of the tenants who still want and need a storefront presence. Renovating these spaces to accommodate new tenants can be challenging to pull off, but the result can be a more vibrant shopping center providing the exceptional experience many consumers are craving. Existing retail shopping centers certainly are challenged in today’s competitive marketplace to compete with e-commerce. The formula for success is changing, and e-commerce will continue to change the landscape of new and existing retail centers. Those who embrace the change, understand the impacts to existing and future developments and how to capitalize on these trends will undoubtedly outperform their competition.