Over the last couple of years, we have discussed how, despite the growth of online shopping, traditional brick-and-mortar retail continues to thrive. We’ve talked about how much of the highly publicized, and we believe inaccurate, “Retail Apocalypse” is largely due to the decline of the old, enclosed mall model and struggling retailers that failed to understand the changing shopping habits of consumers.
Today, we will address the current retail environment, the fact that some online retailers are getting into the brick-and-mortar game, and how omni-channel shopping (brick-and-mortar with a combined online presence) affects the tenant/landlord relationship.
Despite the uncertainty of the stock market in the 4thquarter and poor weather during key shopping dates, early reports indicate that 2018 was the strongest shopping season in six years, with an expected increase of 5.1 percent over 2017. This growth was felt among online and traditional retail with omni-channel sales being the key driver of success for most retailers.
As we’ve mentioned before, online continues to grow in the commodity goods (when buying decisions are led by price and convenience) sector, but traditionally online retailers in the specialty goods (purchases made with discretionary income and with more of an emotional attachment) sector continue to try and provide an experience to their consumers. How do they connect to their customers on a more personal level? By opening a traditional store in the right location.
According to some reports, there are roughly 600 stores in the U.S. operated by online brands with a conservative growth expectation of at least 850 additional stores opening over the next five years. Some notable names in this growth trend are Warby Parker, Wayfair, and Casper Mattresses. Many retailers start brick-and-mortar growth with pop-up stores, which eventually lead to permanent locations.
So, what sectors lead the way when it comes to omni-channel retail growth? Apparel and accessories, with a majority in the mid-high price point, are a major player. These specialty retailers are also bringing about an interesting change in how they advertise, which affects traditional retailers, landlords, and developers alike.
To these retailers, their online presence and “brand” are far more important than traditional signage along a busy road, which is still valid to commodity retail. Social media “influencers” can be more powerful than even the best brick-and-mortar location. All of this plays into providing an experience and facilitating an emotional connection to a brand. But what does this mean for landlords and developers?
The experience customers have at a store is just as important as the products that the retailer provides. A large part of this experience can be the property that they are visiting. Much like a store, landlords can benefit greatly by providing a property that the consumer “gets to go to” versus “has to go to”.
Mixed-use developments, adaptive re-use of properties, open-air shopping centers, and entertainment-focused developments all spark emotion and create an experience for the consumer beyond traditional shopping transactions. Examples in the Huntsville/Madison market are Stovehouse, MidCity, The Garage at Clinton Row, Campus 805, and Lowe Mill ARTS & Entertainment. In these types of developments, co-tenancy is key.
The importance of assembling the right mix of tenants that complement each other and add to the overall experience cannot be understated. Because of this, the online presence that a retailer has built is vital. More and more landlords are looking at this as an indication of future success for the tenant and the development.
Lastly, a landlord can position himself or herself to benefit from the growth of clicks-to-bricks retail by providing spaces that meet the demand for both pop-up shops and the eventual transition to a more permanent space. Pop-up locations can range from 250 square feet up to 1,000 square feet, with permanent spaces starting at 1,800 square feet. This concept also works for restaurant space as can be seen at the Stovehouse development’s food garden, which will be opening March 2019.
In closing, 2018 was a strong year for retail and 2019 doesn’t show any signs of slowing. We believe the biggest issue facing retail in our market won’t be store closings or the lack of prospective retailers, but a lack of desirable space for the modern retailer.
There are landlords and developers in our market embracing the future of retail and local consumers will certainly benefit. Whether you are a landlord or a tenant, Crunkleton Commercial Real Estate can help position your property or business for future success. Give us a call or check out our website for more information.
Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management, and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.
VP of Leasing
Crunkleton Commercial Real Estate Group