We have all seen the many news articles published throughout 2018 and 2019 emphasizing the "retail apocalypse." They portray a doomsday-esque outlook on the future of retail, citing the numerous store closures across the country as evidence of the end of brick-and-mortar. This negative press has been dominated by big name, mall-based brands like Gap, JCPenney, Sears, Herberger’s, Victoria’s Secret and Payless Shoes.
What many articles fail to mention is the common theme among the closings, the biggest being their location – within malls. Malls have been struggling for years and many are dying on the vine. For a mall to stay relevant, they must change their tenant mix by providing more experience based, customer service-oriented retailers, along with traffic drivers like fitness, medical and hotel. Many struggling retailers have too many stores and have been unable to keep pace with an evolving consumer culture that has changed dramatically. Many of the stores named above have been working through a slow death that has occurred over many years.
No one will argue with the fact that Amazon has changed the face of retail and online shopping has changed the way people shop with a “click and get it now” mentality. Online shopping is here to stay and will continue to change the retail world in ways we do not fully understand yet. However, this change does not mean the demise of retail. In fact, smaller, local retail chain openings are set to outpace store closings in 2019, as they also did last year. There are also countless examples of larger brands finding ways to stay relevant in the changing retail landscape – not everyone is going out of business! These thriving retailers understand a fundamental truth about the changing retail landscape: The consumer who once HAD to shop in stores now must WANT to shop in stores.
From a commercial real estate perspective, we are seeing two identifiable strategies that retailers are implementing, to not only succeed in their existing footprints, but also expand:
1. Their brand is focused and inclusive with a clear brand identity.
2. They use technology to provide effective online service, while keeping brick and mortar shops stocked to give the customer a positive, intentional shopping experience.
Specialty brands that have a singular mission with limited, well-defined offerings and a smaller footprint are seeing exponential growth. In the Twin Cities, Love Your Melon (hats that help charity), Martin Patrick (high-end menswear and housewares), both located in the North Loop, Sota Clothing Company (outdoor clothing) located in St. Louis park, and Pacifier (unique, curated baby items) with four locations in the Twin Cities metro, are all local brands that have opened or expanded brick and mortar stores in the last few years with much success. These companies have a focused offering and defined “brand identity.” Their small size, generally between 1,000-3,00 square feet, is their strength because the items in the store are limited, exclusive, local and unique – something you can’t get on Amazon.
We are also seeing the rise of the beauty and fitness industries moving away from “big box” gyms and salons to membership-based boutique clubs with smaller footprints. With offerings as varied as eyelash extensions and rowing clubs, these focused groups, specializing in one thing and doing it very well, are causing a boom to these types of retailers opening and expanding space. Even bigger brands like Target and Aerie are finding success by focusing in on a specific demographic and being more inclusive. Both brands have recently announced they will carry lines of intimate apparel that are designed for all sizes of women. The bottom line – retail brands who define their brand and focus on their target demographic, whether specific or broad, will continue to find the most success locally, and even nationally, in the changing landscape of retail.
We are also seeing an increase in brands that are not shutting their doors because of the explosion of online shopping but are instead opening brick and mortar stores because of it. Brands like Bonobos (men’s suits) and Warby Parker (eyeglasses), that have both opened storefronts in the North Loop of Minneapolis, are excellent examples of brands that started online but have expanded to small footprint storefronts over the last few years and show no signs of slowing. This is due in part to the changing expectations of the digital consumer. If the digital consumer can have anything he or she wants at the click of a button, what does she want from her retail experience when she ventures offline? Exactly that, an experience. These digital brands realized that there is no substitute for the personal connection of customer service and that there is no virtual reality that can truly help you understand what a pair of pants or sunglasses will look like when you try them on. The experience of being immersed in a brand is what the consumer is seeking and what these brands have successfully accomplished.
Other larger brands have also realized the benefit of creating an experiential, thoughtful shopping experience for their customers. Again, Target is a great example of a large retailer evolving with consumer expectations. Their recent store renovations were designed to create shops inside the larger store to cultivate a smaller, more boutique-feel within the big-box context. Regional malls are also catching on to the experience trend by designing spaces that combine retail and food, like food halls. The Rosedale Center's Revolution Hall is an example, or pop-up showrooms like Fourpost (formally, RAAS) at Mall of America and North Local Market at City Center, which opened for the Superbowl and the Holiday season in 2018, that serve to create a sense of place for the consumer to experience that doesn’t feel like the same cookie-cutter retail shop that doesn’t change, whether you are in Baltimore, Minneapolis, San Francisco or Vancouver.
The digital experience of being able to buy literally anything online has created a consumer who is actually craving connection and conversation with the brands they love or want to try. Brands that have tapped into this conversation by providing a unique retail experience, that also translates to an online and robust social presence, are the brands that will likely not make the doom-and-gloom headlines anytime soon. In fact, I foresee a slew of news articles in the future that introduce these new concepts as the new face of retail, leasing up well-located, small footprint spaces and changing the face of retail as we know it.
Originally published in the Minnesota Shopping Center Association's Spring 2019 State of Retail Real Estate Report.
Colliers International | Minneapolis - St. Paul
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