Now Retailers Hold the High Cards
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Developers and landlords need to catch up. Retailers are responding to the 2020 grimness in real time. But consider these facts: Today, there is more new and pre-existing retail square footage in this country than ever before. And meanwhile, there are fewer viable retailers and restauranteurs than we have had in many decades.
Our conclusion is an alert: Developers and landlords must pivot, big time!
Our research indicates that there are two groups that are poised to fill the vacuum of retail and restaurant graveyards. One group obviously is those owners with one or more stores who have survived 2020. They will have the experience, determination and confidence to succeed and thrive — and they are motivated.
The other group of successful retailers to watch will be folks from any number of different business backgrounds who decide to “do it myself,” be their own boss, assume the entrepreneurial risk of building a business. They will bring new approaches, new energy, the latest technology and often a cause to support through their business.
From our strategic retailing perspective, here are 11 ideas that warrant new consideration.
Size does matter — and the spaces often are simply too big
- Create smaller spaces for multiple small tenants (that means separately metering utilities, fire separation protection, etc.).
- Remember, even national chain retailers are shrinking their spaces.
Fill the spaces somehow; it’s the overall project that must pencil out, not just the first floor.
- Retail is a critical component to the office and multifamily users. Landlords may have to subsidize that retail space as an amenity to the building’s tenants.
- Recognizing this, some developers have abandoned efforts to sign ground-floor leases. Instead, they run their own restaurant, their own fitness center or rotating pop-up concepts.
- The future of mixed use is programming. Sophisticated owners who can offer programming through events, activities and retail experience will be most competitive.
No more scoffing. It’s time to get with this New Normal.
- Buy out the present leases of preferred retailers in order for them to move to your space.
- Charge percentage rents only.
- Provide liberal out-clauses under reasonable conditions.
- Double the commissions of brokers.
- Start-up retailers are worth money for your project; destination retailers or restaurants are worth even more money.
- Open your wallet!
The abundance of “Space Available” is a form of urban blight. Overcoming this situation calls for bold vision, leadership and fresh judgment. It could be a heavy lift for many property owners, however.
The real estate that retailers need going forward may be in different locations, with different demands for access. And it’s very likely that savvier tenants will be looking for more flexibility in their leases.
Do retailers really want to be in (legacy) shopping centers that are essentially gated compounds, surrounded by acres of parking lots or barricaded by multi-story parking garages? Or will those suburban office parks — presently “retail deserts” — be the first places to adapt to these new retail destinations?
No, retailing is not dead. And it is NOT going to be happening only online.
What is endangered? Humdrum and deadly retail real estate.
Here’s one of the trends to watch for: some brick-and-mortar stores are being reimagined by savvy merchants as the new “third place,” offering a community separate from home or workplace.
Especially in the next 12-15 months, offering a place for enthusiasts of a store’s brand or products will be invaluable. Many consumers will likely lack discretionary buying power. But more than ever they will crave a sense of community. Remote jobs and working from home will foster this desire.
That’s where these reimagined retail stores can shine. They may function almost like a clubhouse, places where customers will want to hang out. Whether it’s a pet store, kitchen store, auto parts, hardware, electronics, apparel stores, bookstores, jewelry stores or cannabis dispensary, there are enthusiasts who care about it and want to be close to it.
And new metrics will need to be applied to these reimagined stores. Instead of the old metrics of sales per square foot or sales per employee, stores now will be treated by suppliers much more like a media platform.
Just like a website or a social media presence, this new generation of brick-and-mortar stores should be evaluated for their advertising and marketing outreach. How effectively are they positioning and reinforcing the store’s brand? Do they tell the story? Are they filling this need? Are they good “influencers?” Are they adequately appealing to and bonding with their loyalists?
But much of the existing traditional retail real estate won’t work. The number of pedestrians won’t matter; only the right ones will.
This trend has been accelerated in 2020. Moreover, while independent retailers have been renowned for being “technology laggards,” thanks to the pandemic, those days have come to an end. Many are now leaders in technology.
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The savvy retailers are using technology to enhance their in-store experience, versus relying on technology to replace that experience. Retailing is a people business. It’s not enough to have profitable merchandise lines, or even profitable stores. Going forward, the retailers who will thrive are those who are laser-focused on their most profitable customers.
That customer relationship, that connection, is meaningful for retailer and customer alike. And it is just one of the many changes enlivening retailing today.
No, retailing is not dead. But it is being reinvented. The train leaving the station has retailers on it.
Our questions remain: will developers and landlords sufficiently reinvent themselves? Will they catch up?
Now, retailers hold the high cards.