Retail ‘Wrap’
If you’ve been reading this column over the last four years, let me first say, “thank you!” It’s gratifying to think that my musings about retail and retail real estate have kept your attention and interest. In this, my 100th and final (except for an occasional contribution) Retail Rap, I wanted to tackle the big question: What’s next? Where is the retail industry — particularly brick-and-mortar — headed in the months and years ahead?
Some of my answers to that question have their genesis in the earliest Retail Rap columns. Among the first few pieces were about the growth of new burger concepts and the rise of fast casual dining (Burger Bonanza): “the eye-opening (and mouth-watering) growth of a wide range of specialty burger restaurants [is] challenging the familiar fast food standbys”; and the trend toward downsizing store sizes to smaller spaces (Big Names, Small(er) Stores):
“Maybe it was the pressures of the recession, but I think these newer, smaller formats are the inevitable result of retailers asking themselves the tough questions about efficiency and then figuring out which departments actually generate more sales per square foot. With less wasted space for surplus inventory and more effective floor plans, some retailers are realizing that they can offer virtually the same selection in a much smaller space.”
I also pointed out in that piece that this was “…a way for retailers to continue expanding by opening up in markets that aren’t a great fit for a full-sized store and relocating existing stores within a marketplace.”
But new concepts and evolving store sizes are hardly the only trends to keep an eye on going forward. The emergence of e-commerce as well as online and mobile ordering is one of the most significant developments impacting the industry. While e-commerce continues to grow at an impressive rate, the most interesting aspect is that it hasn’t taken a bigger bite out of brick-and-mortar — the increases on the virtual side of the ledger have not been counterbalanced by corresponding decreases for brick-and-mortar.
Many very smart people have predicted dire retail outcomes. What we’ve seen instead is that the most successful retailers have multiple distribution channels (which is why we are seeing so many catalogers and online-only concepts now establishing their own brick-and-mortar presence), and that there is much more interplay and a complementary dynamic between brick-and-mortar and e-commerce than there is competition.
While we’re discussing premature eulogies, I would be remiss if I didn’t mention a similar dynamic at play with regional malls. I’ve been listening to the predictions about the imminent death of the regional mall for over 20 years now, and it still hasn’t happened. Some malls have struggled, certainly, and some have gone through some significant changes in order to remain competitive (most notably adding more dining and entertainment concepts), but they are still an enormously important feature on the American retail landscape, and are likely to remain so for the foreseeable future. To a large extent that is because many malls occupy tremendously valuable real estate. The value of that real estate is what has made it possible for brands such as Sears to effectively begin to transition from retailer to REIT — and, in the process, enabled malls to bring in more dynamic and successful concepts for fading giants like Sears.
Generational trends are another important issue for the retail industry. I talked about the waning influence of the Baby Boom generation in one of my earliest pieces (Baby Boom or Bust?), where I pointed out the complexities of tailoring a concept toward an aging demographic. Today retailers have been forced to understand and cater to the Millennial Generation — in many cases, faster than they would prefer. Boomers just aren’t the spenders anymore — and, as a boomer myself, I can say that we are certainly not the trendsetters.
The shift from suburban to urban retail real estate has also been fascinating for me to watch, and I suspect it will continue to play out in interesting ways in the years ahead. Urban redevelopment is both literally and figuratively a very big deal. The emphasis on transportation hubs and the sophistication with which new projects are being planned, developed and integrated with residential and other complementary components are all profoundly important. This urban evolution was certainly evident a few years ago — but today it’s a sea change.
Finally, I want to talk about optimism, specifically “irrational optimism.” That was actually the title of my very first Retail Rap column, where I discussed the fact that, while the economy was improving, “we still have a long way to go” and “there are still some broader structural concerns”. From an economic perspective, I think it’s telling that we are still using the same language to describe the state of the economy today that we were four or five years ago. Even though our overall economic position is vastly improved, a truly robust recovery remains elusive, and the uncertainty in the marketplace today is largely due to the same set of underlying concerns we had in 2011.
On another level, I think the fact that we are still “irrationally optimistic” says something pretty profound about the world of retail. This is, after all, a sales-driven industry, populated by Type A personalities, and it has never been particularly rational. A positive perspective and an optimistic outlook is part of the retail industry’s DNA. We have seen some important changes over the last several years — and over the last several decades for that matter. The industry has evolved — it is always evolving — but in many ways, some very important ways, the industry hasn’t changed at all. It’s still irrational. And it’s still optimistic. And I don’t think for a moment that that’s a bad thing.
I’d love to hear your thoughts on how our industry has changed over these last four years. Are you an irrational optimist? Do you have a different take on the impact of digital and mobile channels on brick and mortar? Leave a comment below or send me an email ([email protected]) to keep the conversation going.
