Future-Proofing Retail with Stream’s Michelle Schierberl, Senior Vice President
Picture the retail landscape of the 1980s. Malls were at the height of their popularity. Big-box shopping centers featured physical storefronts for every item imaginable: shoes, clothing, electronics, jewelry, records and CDs. Thirty years later, our lifestyles have changed, and we have shifted to e-commerce in our quest for convenience. Many of those same storefronts have transformed into experience- and service-centered retail. The corner record store is now a center for spin classes; the clothing store is now a fast-casual restaurant.
Retail reflects what consumers — everyday Americans — need and want. And those needs and wants have always changed over time.
Retail is a malleable, ever-shifting investment class — and one that still provides great ROI, but not necessarily in generic, sprawling entities. Although consumers are still going to physical retail storefronts, most centers are likely to have evolved in their tenancy as they meet the desires of their customers. Today’s savvy investors should look for retail centers that work right now and are positioned well to evolve. In this article, we’ll take a tour through the changing retail landscape and look at ways that investors can wisely select their investments.
Change is the Only Constant
The highest and best uses for malls have been pivoting for some time now. The crash of traditional big-box stores, like Sears and J.C. Penney, is not an indicator of the overall state of the retail market, but instead the ever-shifting preferences of consumers. Former physical retail spaces are now being infused with new life by transforming for different use cases — office, medical, mixed-use, senior or student housing, experiential shopping hubs, health and wellness, and many more.
Department stores and accessories and clothing chains are the slowest-growing segments in the retail category. Instead, growth is centered on new grocery, restaurant, and experiential categories demonstrated in brands like The Line, Roots and Lush. Smaller-format, tech-focused retail outlets are picking up steam. For example, grocery stores are downsizing, with small-format specialty outlets proliferating in mixed-use spaces.
The entire model of consumer real estate has shifted. Instead of sprawling suburbs with dedicated retail hubs, we’re now seeing a rapid increase in live-work spaces that incorporate dense housing solutions with custom retail outlets. Retailers are thinking of new ways to hook consumers, adapting to convenience culture with just-the-way-you-want-it restaurants like Chipotle and Cava.
Instead of investing in large-format, high-rent spaces, retailers are turning to smaller showrooms and distribution centers that allow consumers to experience products in real life before making an investment. For example, luxury car dealer Lincoln has focused on smaller, 6,000 to 8,000 square-foot showrooms that fit between two and six cars. These showrooms can be integrated into multi-use retail spaces: Consumers can walk from their apartment, grab lunch, and then stop by the Lincoln showroom, all without leaving a quarter-mile radius. “It’s about being small and nimble,” says Lincoln sales and services manager Greg Wood.
As consumers, we still like to see and touch products before we buy them, but that doesn’t mean we need to see every option in every color. Omni-channel shopping experiences give consumers that ability to try out their purchases, then order online or in the store and have their items delivered to them. This explains the increase in pop-up stores and showrooms for companies such as the mattress manufacturer Purple and the eyewear maker Warby Parker.
Retail is far from dead—but the format is evolving and rightsizing with an emphasis on convenience and accessibility instead of volume.
Investing in a new generation of shoppers
Future-focused retail investments look at a series of questions:
- What kind of income does the local population have?
- How dense is the area, and what is the consumer profile?
- How many competitors are there for this service or product?
- What are the barriers to entry?
- What are the dynamics of the community? Do people both live and work here?
Successful retail investments will focus on high-density areas with a high proportion of consumers who both live and work in the area. These centers should be able to offer consumers something they’re currently missing: a new way to work out or eat, or a chance to try and seamlessly order products. And they should cater to the population and their lifestyle.
E-commerce isn’t the only reason the retail landscape has changed. Our consumer profile has changed as well, with buyers now expecting retailers to provide a varied shopping experience. Online shopping is the rule, not the exception: Today we visit the store, tomorrow we purchase on-line and select delivery or ship-to-store. We can return items online with a click of a button or by visiting smaller retail hubs.
The retail of the future is composed of holistic, highly convenient, experiential spaces where shoppers can access restaurants, entertainment, health and wellness, medical care, businesses, and even living spaces in one multi-use retail center. The key to forecasting retail success is to always consider the needs of the surrounding population—and invest in the creation of spaces and environments where consumers want to spend their precious time and money.