Following the Great-Recession and ever changing consumer habits, the future of retail centers will most certainly look nothing like what we saw just five years ago. In 2008 regional retail power centers were planned for three corners of an intersection in nearly every regional trade area of our market here in Phoenix, AZ. This meant 1-2 million square feet of shopping concentrated at one intersection. This feat was accomplished in part by the depth of users in the major big box categories of department stores, electronic stores, office supply stores, bookstores, and furniture stores. Competitors would align themselves across the street from each other in opposing regional power centers. As a result of the economic downturn, a significant increase in online sales, and the emergence of a more frugal shopper the retail environment has changed for the foreseeable future.
Retail use categories that lack depth today:
- Fewer apparel stores– 18% of total online sales today
- Fewer electronics stores– Circuit City & Ultimate Electronics out of business
- Fewer book stores– Only Barnes & Noble remains
- Fewer office supply stores– Office Max/Office Depot Merger
- Fewer furniture stores– 7% of total online sales today
- Elimination of the video rental stores
- Fewer gift card shops– e-cards becoming the norm
- Cellular category’s slowing growth
*source commerce dept
Todays big box retailers are reducing their prototype sizes to account for increased online sales and to more efficiently use their brick and mortar spaces. Larger stores like Target and Wal-Mart are modifying their inventory by increasing food and other products types and have impacted traditional big box retailers in the grocery, electronics, furniture and office supply segments.
Middle-income consumers are still being frugal with their shopping dollars and more often turning online to find the best deals and incentives to get the most out of their purchase. Amazon achieved $64 Billion in sales last year and their impact on big box retail continues to be significant. However, big box retailers have caught on to impact of the recession driving dollar store expansion and have begun to again prohibit those users coming into regional retail power center environments.
Malls are being reinvented into either mixed use or more of an entertainment experience to create an inviting shopping experience for the consumer to compete with online sales. A+ Malls are achieving the entertainment & shopping experience mix required to thrive while B/C malls are becoming obsolete as retail environments and will need to continue to reinvent themselves as mixed use and employment centers with select supportive service retail.
Food and Beverage is the only segment not dramatically impacted by online sales and is also the most aggressive sector currently expanding in retail centers across the country. Restaurant growth will account for over 40% of planned retailer growth over the coming year.
Service medical tenants – dentists, chiropractors, urgent care clinics, etc. – will continue to move into conveniently located retail centers.
Traditional unanchored/small neighborhood centers will for the most part be unaffected by these changes in the retail marketplace since they rely primarily on local/regional retailers to fill their spaces.
Expect regional retail power center developments to be dramatically smaller in size in the coming years. 500,000 SF will be typical moving forward and there will not be 2-3 power centers at one intersection due to the lack of retailer depth mentioned above. With fewer big box tenants to choose from the number and size of these shopping meccas will be significantly reduced. Many of the developers that used to frequently build these large power centers have become more focused on infill redevelopment and repositioning of retail centers.
Retailers who provide content and experiences that assist shoppers with ease and entertainment will be the leaders in the future of online retail sales. Post recession retailers are spending more to capitalize on growing mobile traffic and attract and accommodate the new shopper who is adept at browsing via their smartphone or tablet. For retailers, improving their mobile platform to create an easy shopping experience means additional video and personalized content – including targeted discounts and purchasing incentives. Online holiday spending grew 14% between 2011 & 2012 to $42.3 billion. While retail sales growth has been in the 4-5% range for several years, online sales have grown steadily in the 13-15% range. There will be dramatically more change in retail over the next ten years then we have seen over the past several decades as technology continues to leap forward.
By improving their Omni-Channel presence and increasing online sales through an improved consumer experience retailers will then have to rethink their physical store locations including size, layout, and overall store experience. Will the stores become more of a catalog showroom for the retailer’s best selling items? Or will the stores become more of a complete shopping experience including customized entertainment experiences and personalized incentives geared toward the shopper based on information collected during their online browsing or shopping history?
Over the next few years you will clearly notice who is leading in the creation of this new retail shopping experience. Retailers that don’t create an Omni-Channel approach will slowly disappear as their sales continue to decline.
Share with us your thoughts when you encounter a unique shopping experience that you feel is different from the traditional retail experience.
Matt Milinovich | Partner
[email protected] | 602.778.3830
Source: Strategic Retail Group