As the dynamics of retail continuously evolve, the brick-and-mortar segment is undergoing a revolution of its own. Despite the swift ascendancy of e-commerce, the physical store persists as a dominant player, affirming their position as an integral part of the consumer’s shopping journey.
The Undying Importance of Physical Retail
According to a PwC survey, brick-and-mortar stores remain consumers’ most popular shopping channel. Echoing this sentiment, the National Retail Federation (NRF) reported that a commanding 80% of shopping transactions still occur in physical stores. Physical stores offer an immersive shopping experience that online platforms can’t replicate, engaging customers with tangible products, tactile sensations, and immediate gratification.
Rising from the Ashes: Store Closures and Openings
However, brick-and-mortar retail has not been without its challenges. News of store closures from prominent brands like Bed Bath & Beyond and Tuesday Morning signifies a shift in the commercial real estate (CRE) landscape. Despite this, in 2023, store opening announcements outnumbered closures, attesting to the resilience and adaptation of the sector. Major retailers like Five Below and Dollar Tree are planning to open hundreds of new stores, reaffirming their faith in physical retail.
The Evolution of Retail Store Formats and Malls
The changing face of brick-and-mortar retail is reflected in the evolution of retail store formats and shopping mall trends. Traditional storefronts are being transformed, with renovations to accommodate changing consumer preferences and industry shifts. For instance, Dollar General is remodeling stores to accommodate demand for inexpensive groceries, while Walgreens is adding primary care clinics to its locations. These renovations have been spurred by retailers regaining budgets post-COVID, as stated by Bill Barton, Executive Vice President of Sales at Quality Equipment Management (QEM).
In the CRE space, the introduction of new retail formats, such as the market fulfillment centers rolled out by Walmart, indicate a clear shift towards a more customer-centric model. These centers, powered by their proprietary Alphabot system, are designed to increase the number of daily orders a store can fulfill, thereby enhancing customer experience through quicker, more accurate online order fulfillment.
Anchor Tenants: The Pillars of Retail Spaces
Anchor tenants play a pivotal role in driving foot traffic to retail strips and shopping malls. They serve as a magnet, attracting customers and helping smaller retailers thrive. In the realm of investment real estate, these tenants are crucial as they contribute significantly to the returns for investors in Real Estate Investment Trusts (REITs) or those holding single-tenant net leases or triple net leases.
Consumer Preferences: Shifting Towards Sustainability
Modern consumers are becoming increasingly conscious of their shopping habits. The rising popularity of secondhand retail reflects a shift towards more sustainable consumption. As revealed by a WD Partners report, a staggering 92% of U.S. consumers participate in the secondhand market at least once annually, indicating a vast opportunity for retailers to tap into.
Embracing Retail Technology: The Omnichannel Experience
Technology has become an indispensable tool in the evolution of brick-and-mortar retail. Retailers are leveraging technology to create a seamless omnichannel shopping experience, integrating digital and physical shopping experiences. Take J. Crew, for example, which recently launched a virtual store in collaboration with Obsess, an experiential e-commerce company. This digital touchpoint allows the brand to connect with new audiences and drive sales in an innovative digital format.
Evolution = Adapting and Thriving
The narrative of the retail landscape’s evolution is one of adaptation and resilience. While the advent of digitalization has brought its challenges, it has also unlocked new frontiers for growth and innovation. For stakeholders in commercial real estate, especially those with net lease investments or REITs, a keen understanding of these shifts will provide valuable insights into investment real estate opportunities. After all, the future of brick-and-mortar retail is not a tale of decline but rather of dynamic adaptation and endless possibilities.