Retail real estate's map of the future
In a recent survey conducted in 10 countries this year, JLL found that two-thirds of shoppers prefer shopping in person to shopping online.
Retailers in the U.S. have drawn the same conclusion. Class A retail space has never been harder to get. Fast-expanding brands are shrinking their standard footprints to fit into second-generation space and are venturing into secondary markets. New construction is at a standstill. Rents are rising.
How long will this go on? Not forever, surely, because “premium” retail space is in the process of being redefined.
To get a handle on what the future might hold, JLL conducted a series of interviews, workshops, and brainstorming sessions as a part of our “Future Vision” program. We imagined possible futures and how they could impact how we live, work, and shop.
More, but smaller, stores
One conclusion we drew was that shopping could encompass a merging of digital, physical, and hybrid activities. With deeper knowledge made available through digital channels, classic brick-and-mortar brands might one day find themselves less concentrated in specific zones and instead sprinkled through the environment with smaller stores.
And large stores stocking 100% of a brand’s merchandise could employ new and less expensive delivery methods to fill local orders.
In Dallas, Walmart is offering autonomous delivery by flying drones within a 10-mile radius of a growing number of Walmart stores. The retailer intends to eventually offer drone delivery to up to 75% of residents in the region.
The California Department of Motor Vehicles recently granted Nuro approval to test its third-generation R3 autonomous delivery vehicle in four Bay Area cities. Nuro’s driverless vehicles don’t have seats, windows, steering wheels, or pedals. They don’t carry passengers, just goods. And they contain temperature-controlled storage units to hold food.
In this possible future, retailers may shrink store footprints in neighborhoods where drone-drops and driverless delivery have taken hold. They will also have to think about what technology partnerships they’ll need to make to successfully roll out such a complex initiative.
And while technological advances could cause customers to make fewer trips to stores, they could also increase their brand loyalty with highly personalized services.
Online AI assistants can offer an apparel shopper a menu of suggested outfits inspired by his or her past purchases and body type. The shopper arrives at the store having already trialed the store’s inventory via a virtual fitting on their digital twin. Such apparel purchases would be more likely to fit and thus less likely to be returned or thrown away.
What to do
Reduced-size store formats have not been uncommon in recent years. In 2023, Ikea opened a 52,000 sq. ft. store in downtown San Francisco and has a 66,000-sq.-ft. location in downtown Toronto. Three years ago, Aldi debuted its Aldi Corner Store in Australia that is about half the size of its standard 13,000 sq. ft.
Here are some questions retailers should be asking themselves in the coming years:
- How might we further incorporate AI into our operations to personalize and optimize the shopping experience today?
- What technology partnerships should we explore today to be prepared for tomorrow?
- Is there an opportunity to right-size or improve the design of our store prototypes to meet new shopping habits?
- Are we using modern, robust predictive models to guide our new store site selection?
- What strategies can we explore to be ready for future environmental regulations and to meet our own sustainability goals?
- How can we make our products a part of the circular economy?
Making the most of technology is about awareness, acceptance, and adoption. Some companies jump right in, some wait and see. In retail real estate, the time has come to attempt the jump from accepting to adopting.
