Retail Recalibration28-Sep-2017 - By: James C. Auld • AIA • CDP
The good bad newsThat brick-and-mortar retail, the kind of stores that have been principal players on the retail stage for decades, have been struggling is not new news. While the recent spate retail bankruptcies and store closings make the headlines, the true state of affairs is far more complex and optimistic. A research report from the IHL Group shows that big chains are opening more stores than they are closing, small retailers continue to open shops and sales are up more than $120 billion over last year. Nonetheless, smart retailers and developers recognize that business as usual no longer works and are exploring new formats, different locations, and innovative uses for out-of-date properties— all with an eye on customer experience.
Trifecta of troublesIt's hard to pick-up a newspaper or magazine and not read about the demise of retail. Causes for concern, analyzed in detail in the press, focus on the closing of department stores as well as stores of recognizable brands, and those retailers who are shutting down their operations completely. Other commentators, especially those tracking the real estate and retail sectors more closely, point to the number of REITs that are either divesting of their retail properties or recycling their assets with a focus on newer developments in high income locales. Finally, everyone is talking about the rise of e-commerce and its impact on physical retail.
The shake out is real, particularly with regard to the department stores. Among the most recognizable retailers shuttering multiple locations are Sears, J.C. Penney and Macy's: that's a lot of real estate and lost jobs. While the reasons for decline varies, the fact is the traditional department store model is overdue for an update. Others losing ground include retailers from American Apparel to Radio Shack, who like many others before them fell victim to changing tastes, poor management or both.
A closer look at the REITs suggests that they are adjusting to the changes in the market with wise moves to strong markets, not abandoning retail. They are investing in improvements, and looking for broader mix of more productive tenants. And they are succeeding according to NAREIT, funds from operations for retail REITs were up more than 6 percent in 2016 over 2015. Retail REITs paid $9.4 billion in dividends in 2016, an increase of nearly 8 percent over 2015. Furthermore, their occupancy rate has held steady near a record high of 96 percent.
As for the competition from e-commerce, the Commerce Department reports online sales grew 15.1 percent in 2016 and accounted for 8.1 percent of total retail sales for the year. Excluding fuel and car sales, Internet Retailer’s calculations showed e-commerce growth slightly higher at 15.6 percent, with online retail sales representing 11.7 percent of total retail sales versus the 8.1 percent reported by the Commerce Department. While online sales grew faster in 2016 than they have in the past three years, they are still a smaller portion of the market compared to store purchases.
Change is the constantRetail is in the midst of a sea-change, and not for the first time. Peddlers, merchants, retailers have always been the agents of change; the technology-driven marketplace has simply accelerated the pace of it. Accommodating change—be it vacant department stores, evolving consumer expectations or competition from Amazon—demands fresh thinking about how to revive aging, under-performing properties and how to create new developments designed to adapt to the evitable changes to come. At STIR Architecture, we have been evolving the retail prototype for over 30 years. Because shopping is a social activity as well as a commercial one, customers' needs and wants drive the market. In turn, successful merchants and retail developers respond with shops and centers that not only meet current demand, but anticipate what's next. We have been working closely with a handful of savvy developers who are re-imagining the retail landscape in a variety of ways.
Remixing usesFor years, the department store anchor was the engine that kept the rest of the mall churning. Today's anchors are increasingly other building types or even non-built space like a park. This is especially true where older suburban malls are being redeveloped as mixed-use communities with multifamily residential components. Increased density, long the bane of suburban towns, is now seen as a solution that provides more affordable housing keeping residents and tax revenues in the community. More housing creates a need for more community-serving retail: dry cleaners, salons, and food including a grocery store anchor, specialty foods shops and take-away meals. Nearby multifamily residences support other, non mall-standard uses such as day care, healthcare clinics, gyms and spas.
As the concept of office work has evolved, so has the kind of environment workers expect and that makes workplace a potential anchor. Today's workers don't see their day as 9 to 5 or the work week as Monday to Friday. They take their work with them, inside and out, and prize flexibility and choice. They require less personal space, but need better spaces for meeting, working, collaborating, and conferring with other workplace sites. The new workplace presents multiple opportunities for affinity retail. Drop your toddler off at pre-school in the lobby, stop at the cafe for a latte, and at the pet shop because the dog is coming to the office.
With so many hours spent online, there's a very human need to get outside and socialize. That's means a greater need for parks than parking lots in some mixed-use developments. Even small parklets can be a draw in denser, more urban retail centers. More decks and terraces, more views to nature or if that's not possible water features or art. Existing community spaces in a center can be repositioned with programming and amenities to serve as anchors, too.
Urban/Suburban ShiftsMore and more suburbanites want what they drive to find in the city—great experiences on the bustling boulevard, where they can stroll and window shop, eat, entertain, and socialize. Similarly, urbanites seek the kinds of amenities found in the suburbs, like private and shared outdoor spaces and parks. Rethinking the traditional relationships between building typologies that separated uses allows for greater diversity and more complementary adjacencies. New and reused buildings being designed for more than a single use have interesting indoor/outdoor relationships, view sheds, roof terraces and shared amenity decks and spaces and more places to create attractive retail environments and experiences.
What E-commerce can't doOnline shopping is convenient and price competitive, but it isn't social. People want to be with other people. See and be seen, touch, feel, hear, and smell. That's experience retail and that's where exciting retail centers and shops beat e-commerce any day of the week. By Identifying the "best of the best" in every category—food, entertainment, music—and creating experiences invites customers to come, linger, share experiences, and build memories. If the environment is always fresh, different, unexpected, customers will keep coming back.
Right now, we are engaged with these changes every day as we work with our clients to create the most successful environment for the property, the community, the culture and the market. That keeps us actively listening to everyone involved in the effort from local leaders to prospective tenants and customers.
Sidebar: What can you do right now?
- Think global, source local–see a new concept somewhere else and find a local merchant or artisan who can reproduce it with panache.
- Enable free WIFI so that people can connect with each other, stores, media platforms and you can measure the traffic.
- Program music to change the retail experience with time of day, day of year, seasons.
- Increased use of UBER and LYFT have changed the role of the pick-up and drop-off, make sure your is ready.
- Re-purpose some parking into a parklet
- Food in all varieties is king, which makes Farmers Markets and true farm-to-table dining attractive.
- “Incubate” new operators by bring food and apparel trucks to your property.
- Create selfie spots and invite your customers to share on your instagram/facebook/twitter #yourcenter
- Remember one size doesn't fit all. People love customization that can come from contextual responsiveness or artful interventions or TLC.
James C. Auld, AIA, CDP