The sharp rise in e-tailing and its game-changing impact has created a new normal in the retail real estate sector. Major national retailers are evolving their strategies in an effort to “survive and thrive” in this new market dynamic. Looking beyond the e-tail era, what factors are shaping retail’s next phase?
“The good news is that even though Apple, Netflix, Amazon, eBay, and other online giants killed record stores and video rental shops and are in the process of doing the same to electronics and bookstore big boxes, e-commerce will never replace the brick-and-mortar shopping experience,” says Sean Glickman, CCIM, managing director of Glickman Retail Group in Maitland, Fla.
Research shows and many retail industry experts agree that consumers are settling into a preference for a “blended” shopping experience. In a recent Forrester Research survey, shoppers said visiting a store served as the most important source of product research before purchasing in every major consumer category except travel.
“This research speaks to the need for retailers to focus their technology efforts inside the store,” said Dan Seliger, digital strategist for 3GTV Networks, in a recent Brick Meets Click blog post. “We have to stop thinking of the Internet as something tethered to a home computer or a shopper’s smartphone. The goal should be a borderless communication continuum where every channel is connected. … Smart retailers can use this approach to help overcome the inherent limitations of brick and mortar while offering shoppers a blended in-store experience built around their needs.”
The impact of retailers’ exploration of the online environment is creating new and oftentimes challenging realities for their real estate footprints. From big boxes to inline neighborhood centers, retail real estate – and those who advise retailers and tenants on their space decisions – must evolve to ensure spaces meet both retailers’ and consumers’ rapidly changing needs.
A variety of retail experts weighed in on key questions facing the industry in the current market. These CCIM designees include Glickman; Shawn Massey, CCIM, partner, The Shopping Center Group in Memphis, Tenn.; Francis Rentz, CCIM, managing director/senior adviser, Southland Commercial Advisors in Tallahassee, Fla.; and Jeff Yetter, CCIM, LEED AP, director of real estate, Express Oil Change & Service Center in Greensboro, N.C., and a member of the North Carolina CCIM Chapter board of directors.
Aside from e-tailing’s ripple effects, what are some of the biggest challenges facing the retail real estate sector right now?
Glickman: The unpredictable economy, consumer confidence, and increased taxes that are cutting into consumers’ disposable income are some of the biggest issues.
Yetter: The continually changing, idealistic development regulations imposed by the local municipalities are our biggest issues. Express Oil’s business is typically driven by an initial impulse buy, and the local municipalities’ trend of limiting access and visibility directly affects our ability to conduct business.
Rentz: Investors with B and C class shopping centers or a weak anchor on the decline must find reuse ten-ants to fill vacant spaces. This typically means non-retail, nontraditional retail, or service tenants, which often translates into lower rent or greater capital in-vestment to reshape the property.
Massey: The lack of good quality retail space availability is the biggest challenge. With the lack of new development since 2008, we find our clients in search of space that is simply not built today.
What factors are influencing retailers’ site selection and acquisitions decisions in this environment?
Yetter: We have seen a major increase in competition from a pad-site buyer standpoint. This has produced a scarcity of viable sites and driven up pricing in our larger markets. This is due in large part to the resurgence of quick-service restaurants, bank branches, and similar out-parcel retailers. This is also a result of the lack of new developments being delivered as compared to the pre-economic downturn conditions.
Massey: Most retailers are very risk adverse right now — entering areas where they can avoid unfavorable zoning or adverse site conditions is critical. Retailers are becoming ever-more data driven as well. They are performing extensive research to get a clear picture of the factors shaping an area’s retail environment, including demographic, socioeconomic, and psycho-graphic profiles, the workplace population, and consumer spending patterns.
Rentz: My clients are looking for quality real estate with no weaknesses. It is more important than ever that the site has all the fundamentals that make for a successful retail site: visibility, accessibility, parking, and favorable demographics. A solid anchor tenant may get a project built, but a great location and greater design will be even more important going forward to sustain a project. As Yaromir Steiner said in a recent Shopping Centers Today article, “The place is the an-chor.”
What’s next on the horizon for the retail real estate sector?
Rentz: Retailers will continue to reduce their square footage into smaller, more efficient footprints. Traditional retailers will continue to perfect and grow their online presence, while the e-tailers will attempt to fine tune their brick-and-mortar locations to perfect a one-day delivery strategy. The survivors and thrivers will have a great geographic footprint of stores as well as offer a great online experience.
Yetter: Customer first service is the key. The auto services industry has traditionally focused on upselling customers, thus creating a lack of trust among consumers. We are focused on combating that perception by delivering the highest level of service and focusing on the individual customer’s car needs. As in most industries, the level of service and the customer experience continue to become more important as customers evaluate their growing purchase options.
Massey: It is all about the customer experience. Many retailers and restaurants fail to recognize that the customer’s needs and wants come first. The retail customer today wants it all from omni-channel retailing to being wowed with their in-store experience. This might be classified as the “Apple effect” that many retailers are trying to replicate. Those who do not adopt these two pillars in the future will disappear from the retail landscape.
Glickman: Most retailers are shifting focus and heavily investing in their omni-channel platforms, information technology, logistics, and same- or next-day de-livery. By doing so, retailers like Target, Macy’s, Nordstrom, Walgreens, The Gap, Office Max/Office Depot, Walmart, and many others are positioning themselves to compete in the digital world.
By: Jennifer Norbut, CCIM Institute (National Association of REALTORS)
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