CREJ - Retail Properties Quarterly - May 3, 2017
As we hear about more store closures every day, it leads many to ask the question of whether online shopping is killing the brick-and-mortar stores. We are witnessing the fastest-changing consumer market in our lifetime – and rapid change comes with pain and challenges. We hear about retail stores closing, downsizing or filing for bankruptcy, but analysts agree that retail stores aren’t disappearing – they are evolving rapidly, which is causing some initial panic. However, the evolution of retail can be summed up by recognizing a few key trends. • Budget and tech-savvy shoppers. Since the Great Recession of 2008, shoppers have become more tech savvy and cost conscious. Technology allows consumers to easily compare pricing in multiple stores, leading them to make better-educated decisions. • Sales promotion overkill. In order to entice savvier shoppers back into stores, there has been a push of sales and promotions, leading to a devaluing of the product. It seems the more sales and promotions, the less inclined society is to purchase full-price merchandise. Outlet malls and discount retailers continue to thrive while their full-price counterparts struggle for market share. • Convenience required. Today’s busy society requires most homes to have two working adults to pay the bills and care for the kids. Stores providing convenience are being noticed. Examples include King Soopers and Walmart, which allow you to order groceries online for delivery to your home or car, and Kohl’s, which set up a special checkout line for online order pickups over the holidays. These are a convenience to customers, cutting time spent shopping and waiting in long lines. Retailers that will survive the evolution are the ones with the financial resources to provide a robust online presence and meet the convenience and faster shipping requirements of consumers. • Millennial expectations. Millennials, many of whom have never known a day of their lives without a computer, are changing shopping. Retailers must adjust to the immediate-satisfaction expectations of this generation by giving them a reason to go to stores and not just jump online. Millennials look for an experience, so more stores are getting onboard by offering kiosks, handheld mobile devices and entertainment. Restaurants coined the phrase “eatertainment” to explain the trend over a decade ago, which now features concepts like ViewHouse and The Source. These are accompanied by entertainment concepts such as Topgolf, The Summit, Brunswick Zone and Great Wolf Lodge. • Leases are up. Ten-year lease deals contracted during the recession are up for renewal. If a store was “on the border” of profitability, a lease renewal will spur a rotation into smaller-footprint stores or more store closures. This triggers a domino effect. When an anchor store closes, it often activates what is called “co-tenancy clauses,” allowing the remaining mall tenants to exercise their right to terminate or renegotiate the terms of their lease. • Oversaturated U.S. market. Despite the recent closures, the U.S. is still oversaturated with stores. According to a Morningstar report from October, the U.S. has 23.5 square feet of retail space per person, compared with 16.4 sf per person in Canada and 11.1 sf per person in Australia, the next two countries with the highest retail space per capita. With online shopping availability, retailers must consider closing or shrinking less desirable locations because they have become less necessary than in previous decades. This phenomenon also will lead to greater distances between repeat stores. • Retail partnerships. Unaffiliated retailers joining forces is a growing trend. In 2015, Target and CVS became partners with CVS taking over Target pharmacies. Target benefits from CVS customers coming into the store and CVS is able to expand exponentially without the overhead of opening new storefronts. In 2017, Walgreens and FedEx announced a partnership that will put FedEx drop-off/pick-up centers in Walgreens stores. More of these types of retail partnerships should be expected as retailers continue to look for ways to streamline expenses. • Uniqueness matters. Small stores with unique products not at major superstores are in demand. This can be seen in online retailers opening small storefronts as distribution channels and in international retailers finding the value of entering the U.S. It is a tenant’s market, so the new-to-market retailer offering a unique product is a real catch for property owners; therefore, the new-to-market retailer often can negotiate better rents and have the opportunity to expose its international brand in a new market. With an eye on these retail trends, the city of Thornton is proving to be on the forefront with these new projects announced along the north Interstate 25 corridor: •Denver Premium Outlets, breaking ground in May, addresses the savvy shopping mentality. •The Summit and Topgolf, approved to begin construction in 2017, are experiential/entertainment concepts. •ViewHouse Eatery and Bar, approved for construction in 2017, addresses the “eatertainment” requirements for modern day restaurants. Realistically, brick-and-mortar stores aren’t going anywhere. There is still an appeal for the sensory experience of shopping – smelling, touching, hearing and trying on. However, the industry is evolving, with online shopping no longer just a support sales tool. Today, the brick-and-mortar store may support the online store. While both remain necessary, the evolution leads to a contraction in the number of physical storefronts with larger radius rings between repeat stores. Looking to the future, retail must remain nimble to retain the capacity to anticipate and respond to future trends and support creative/sustainable retail development to ensure the economic vitality of our communities.