LOOKING THROUGH THE CRYSTAL BALL: RETAIL RESILIENCY

BY ARTHUR PERLEN

A glimpse into the past, present and future of retail reveals reinvention that is not tied to investor sentiment or political positioning, but rather to the entrepreneurial spirit that embodies the adaptation of existing concepts and the development and growth of new concepts. The market conditions of one year ago, coupled with the changes due to Covid-19 over recent months, will create the environment of the future. Are we ready for it?

The Pre-COVID-19 WORLD

The retail industry embraced a cultural shift into entertainment and experiences, with owners and entrepreneurs devoting space to concepts prioritizing fashion, health, food, and fun. In a growing market with limited barriers to entry, we counted on five categories tenant profiles to backfill vacant space:

Always a strong market, the industry locally incorporated new concepts from all over the country, often to meet the tastes of a diversified population.
Med-tail (medical retail). The trend that started with optometry and dentists grew to orthopedics, radiology, physical therapy, and other specializations using retail space. For many reasons, including visibility, flexible space configurations and convenient customer parking, retail space became more appealing than the traditional medical office building.
Both Restaurants and Grocery stores have grown their store count tremendously over the past few years. Local and national restaurant brands have increased their footprint as new concepts especially in the fast-casual category have grown. Regional and national Grocery grands have also increased their footprint fighting for an increase in market share.
Fitness users, both corporate and franchise-model variations, ranging in size from big box to small inline shops, recognized the attraction of a younger, healthier demographic and dramatically increased their location count.
Fashion retailers especially in the off-price and fast fashion categories created a shopping experience that provides a level of instant gratification unavailable with online shopping.
The Post COVID-19 MARKET REALITY

The retail environment of today is characterized by a sense of hesitation, a broad acceptance that the life of yesterday is on hold. We have seen some trends accelerate and other trends face serious challenges which will have a long-term impact for the industry. For instance, “direct to streaming” movie releases and the abundance of online content coupled with movie theatre closures may force a permanent change in how a movie is released, marketed, and viewed. Online sales of fitness products and exercise programs may dampen sales of memberships at local gyms. Restaurants that are not well capitalized and/or part of a larger chain may permanently close.

The pandemic has compressed the timeframe under which the massive shift in department stores and mall retail is effectuated. The seismic shifts in that sector that many believed were 3-5 years away, but began decades ago, were pushed into a period of months. Some projections estimate that 25-30% of holiday sales will be online this year. Even though we have been talking about e-commerce for over 20 years, and retailers have been preparing for it, the current year caused massive shifts in buyer behavior creating new (online) shopping habits.

Rents have dipped a bit, but we are not seeing a significant increase in retail vacancy in most markets. We haven’t seen major vacancy in shopping centers, or the development of new space coming on the market. Retail space that was challenged a year ago remains challenged because of its fundamental characteristics – location or obsolescence.

WHERE DO WE GO FROM HERE?

What is great about this business – and I have been in it for 29 years – is the unending creativity of entrepreneurs and retailers. Retail will continue to be strong. It most likely will not look like what we knew as retail 10 years ago. Through each cycle I have been through, each peak and recession, innovation is the result. New concepts, new ideas, new ways of doing things emerge from economic challenges.

The retail of the future – and the future is now – is omnichannel. Companies that started online will discover the need for a bricks and mortar presence. There are countless examples of companies that started in cyberspace and now have physical locations. Retailers both large and small have created effective online shopping platforms, including giants Wal-Mart and Target. Grocery stores have adapted to delivery and pick up business. The convenience of ordering in advance with a proximate physical location for distribution is the perfect blend of a bricks and mortar and cyber strategy.

The trends in bricks and mortar retail are demographically driven. The decision matrix pre-COVID is the same moving forward. Calculations involve population, age groups, and incomes. Retailers that were successful pre COVID will adapt to market conditions and continue to be successful. Restaurants that have adapted and pivoted to a COVID world will be fine. New concepts will emerge that will continue the demand for retail space.

Traditionally apparel is a challenging product for online sales. Treasure-hunting apparel shoppers are looking for an experience in addition to a product. Off price fashion shopping and fast fashion concepts represent a unique sector that can compete with online retailers as their inventory turns rapidly and offers consumers a wider selection. These concepts know their customers well and create an experience for their customers that will allow them to continue to prosper in the future. Not all companies are suited for online business. The retail industry is peppered with companies that are not affected by Amazon and do not require an ecommerce presence.

Omnichannel, bricks and mortar, and even ecommerce retailers will benefit from the ability to be in geographic proximity to their customer base and will need a physical location to serve their customer’s needs. We live in a dynamic market with bright and creative entrepreneurs who will always develop new concepts and new ways to market to consumers and meet their customers wherever they shop and live. The retail (r)evolution is moving quickly our industry will ready.

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