Retail Rap: Shacking Up
The end of a retail icon is always big news in commercial real estate, and it’s particularly relevant when the brand in question is closing more than 4,000 stores around the country.
The retailer, of course, is RadioShack. There are a range of factors that have contributed to RadioShack’s downfall — brand identity and points of differentiation have eroded over the years, and in a competitive category where more and more electronics are being sold online (more electronics are sold on the web as a percentage of overall sales than in any other retail segment) — but one of the most interesting storylines in the wake of the company’s recent bankruptcy announcement is what happens next with those 4,000+ locations. RadioShack has already announced the imminent closure of more than 1,700 of those stores, and if early reports are accurate, many of those stores will be in high demand among retailers looking to take advantage of the newly vacant locations.
What is it that makes these soon-to-be-former RadioShack locations so desirable? First and foremost, whether they are located in the interior of a center or on the street, these locations tend to be quite visible and accessible. RadioShack is especially fond of corner locations, and a significant percentage of those stores are located in the kind of grocery-anchored neighborhood centers that have generally been strong performers in recent years relative to other categories of commercial centers. Just to be clear, all locations aren’t created equal, and not all RadioShacks were in highly desirable positions. The grocery anchored spaces are clearly better than the B and C mall spots.
That said, there might be more going on here than simply quality real estate. RadioShack’s longevity (the company was just five years short of a century old when it filed for bankruptcy) and influence has given the brand significant leverage over the years, and that, combined with long term leases have created a situation where many RadioShacks have been located in Class A real estate while paying Class C prices in today’s dollars. In that sense, RadioShack’s demise is actually good news across the board for everyone else: a win/win for both retailers and landlords. I wouldn’t be surprised of many landlords are generating a significant rent increase as they re-lease former RadioShack locations. Consequently, retailers looking to expand not only have access to an abundance of quality locations, but also might be working with landlords who are happy enough with their increase that they are subsequently more likely to be willing to negotiate a lease agreement at slightly less than market rate.
As for what types of retailers will be looking closely at these former RadioShack locations, I think we’ll see a mix of predominantly service retailers and fast casual dining concepts. Mobile phone companies, electronic game stores, and restaurant chains are all good candidates to fill those spots. Retailers that rely heavily on a high volume of everyday foot traffic will take a long look at RadioShack locations.
Store size adds another interesting wrinkle. The typical RadioShack store size is somewhere in the neighborhood of 1,500 sq. ft. to 2,000 sq. ft. — a format that is particularly popular right now. To look at a contrasting example, consider Caché, the women’s clothing retailers that announced plans to liquidate last month and close its remaining 153 stores. Unlike RadioShack, Caché is typically located in regional malls or lifestyle centers, and, with a typical footprint of 4,000 sq. ft. to 5,000 sq. ft., I suspect those stores will be much tougher to fill. There just are not as many uses that work well in that store size. The vast majority of new retail concepts today are looking for stores in the 2,000-sq.-ft. range, and demand for that store size is much higher (especially in the fast casual food arena). That said, store size is only one factor, and those Caché stores located in well performing lifestyle centers and malls will find that their real estate will still be quite valuable.
In the weeks and months ahead, as you head to work, go shopping, or go out to grab and bite to eat, take a moment to notice the RadioShack(s) in your area. I’d be interested to hear from you and find out what retail brands you see moving in to those spots. Do see the same optimistic outlook for RadioShack sites? Let’s keep the conversation going — leave a comment below, or email me at [email protected].