Retail trends in real estate continue to change with the and for the consumer.
Tom Londres is the CEO of Metro Commercial Real Estate Brokerage based in Philadelphia, PA. The core business focuses on suburban retail strip centers, big box, community centers, supermarket anchored centers, and downtown urban. They provide third party solutions for retailers, owners of retail and investors in the greater metro area, including Pennsylvania, New Jersey and Delaware.
Location was, is and will be key to the value of commercial retail real estate. Depending on the criteria of a particular business, the value of a location will vary from business to business. If you are trying to sell tequila on the morning side of the street, you are going to struggle. You have to make it easy for your consumer to access your business. For a retailer, location is a surgical strike!
In the 1980’s the growth of the retail strip centers grew with suburban sprawl. This is when the big box retailers' growth exploded, think Wal-Mart & Home Depot and the deconstruction of the department store began. Instead of being located in a department store, the departments became a store of their own. Apparel, appliances, tv’s all became a single mega center, often located across the street from the mall.
From there came the open air shopping centers with one or two categories under one roof.
Online and bricks & mortar used to fight for the customer, you stay in your cage, I’ll stay in mine. No more.
Now, we have the omni channel. No longer can a successful brick & mortar retail business thrive without an online presence, nor can an online retailer thrive without a brick & mortar presence. They need both. Retail has to have an online presence and a bricks and mortar presence. This race to grow is creating disruption and opportunities for those who can execute.
Buy online, purchase in store (BOPIS) is the evolution of online with bricks and mortar. Stores are now trying to balance the physical space needs with just the right amount of merchandise on hand to increase sales when you pickup your online order in the store.
This eliminates the delivery cost, and the numbers show that the consumer will make an additional purchase when they pick up their order in the store.
The consumer demands quality at a good price, now and the ability to get out of the transaction whenever they want. For the retailer that gets this wrong, they will forever lose the consumer. These consumer demands are changing the physical configuration of the store.
Stores have to create an experience in their store. The consumer goes to the store to have the experience, then makes their order. The product can be shipped direct to the consumer or available for the client to pick up in the store.
Today, data drives decisions. For years data has been collected but only recently has it been analyzed and applied in a recognizable form. Now the consumer and retailer can lean into the data collection for greater convenience for both parties.
Apparel reconfigured is happening much like the hotel business and Airbnb. Consumers recognize that they want the nicest brand, but realistically will only use it once. Instead of a closet full of once worn garments, why not rent. Millennials value material possessions less than prior generations. They want the experience, not the possession.
Retailers have to be good stewards to meet the consumers expectations. Consumers expect a responsible retailer. The consumer is rejecting retailers that ignore conserving energy. Roofs, parking lots, solar power, recycled water, lighting, etc. If you do not conform and retrofit your store, the millennial buyer will pass you buy for the responsible retail option.
Disruption continues to reveal opportunities in real estate for those who can see the opportunity. The reconfiguration of retail is greater in the urban core than suburbia. Mixed use projects and established urban retail show great potential.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
BIGGEST RISK: I'll give you what I think is the biggest risk or one of the big risks if you owned retail real estate. I'm not going to get into the mind of a retailer where they think they should be other than I think they should be always in the online world and the bricks and mortar world. That, that is universally agreed if you're a retailer and want to move forward with some exceptions, but if you want to, generally speaking, if you want to be a vibrant, relevant retailer moving forward, you have to have an online and a bricks and mortar presence that's effortless, that has a great customer experience.
And we can see that with both of those retailers that are disciplined in each one of those corners trying to get, um, into the other space. But I would say if you own retail real estate and you have an exposure, um, high exposure to department stores and apparel retailers, I would say if your portfolio contains a large portion, the percentage of your occupancy, is coming from department stores or apparel retailers. I would say you need to rethink when those options come up.
If you have the opportunities to downsize to mitigate your risks, you have to inject entertainment, you have to inject food, you have to inject convenience, services. Fitness, theater. And again, moving towards diversifying your center, not away from retail, to diversify and add apartments. Although some assets would lean towards that just in scale and size you need mitigate and say, I'll take one wing of retail and make them apartments or luxury condos or townhouses.
Maybe I'll add a hotel or something, but generally speaking, if you look at your portfolio, if you're owner of a retail real estate and you're leaning more towards a department store and or apparel, I'd say probably rethink it. Because I think apparel is shrinking, uh, in its category and its demand and its consumption. And I think department stores, most of them, if not all of them, will be radically different or completely eliminated within a decade.
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