by Dan Rafter
It’s been predicted for years now, the demise of the brick-and-mortar retailer. But while consumers do continue to flock to the Internet for their purchases, brick-and-mortar stores seem to have regained their own momentum. JoAnn McGuiness, chief operating officer of Oak Brook, Illinois-based Inland Real Estate Income Trust, Inc., shared her thoughts on the future of traditional retailers. Here is what this commercial real estate veteran had to say.
It’s been a long, uphill battle for brick-and-mortar retailers, but recent sales data is actually quite promising – can you elaborate on this? It was a great holiday season, and according to the International Council of Shopping Centers (ICSC), 91 percent of shoppers made a purchase at a brick-and-mortar store. We are also finding that the holiday season is beginning to start earlier, around early November, and last until January 31, so the dollars are spread out over a larger period of time. ICSC also reported that 50 percent of consumers received a gift card this year, many of which have yet to be redeemed. Gift cards are not accounted for in the holiday sales numbers until they are redeemed, so they typically show up in the January and February data.
What can we expect to see from the sector in 2016? We are seeing retailers, particularly grocery and big-box, move toward smaller store concepts. Instead of having one large store in a single market, retailers are opting to open several smaller stores, which benefits both consumers and shopping centers. By covering more ground in an area, retailers are able to logistically offer same-day delivery, and consumers benefit from having multiple convenient locations and increased inventory options. In addition, smaller stores offer an opportunity to capture more rent and introduce new retailer concepts and a more diverse tenant mix to a shopping center, which helps drive consumer traffic and interest.
Can you identify some trends you’re seeing in the space? Technology has become a major force in driving traffic and sales at brick-and-mortar stores. We’re seeing that retailers are using technology more to their advantage to help attract and retain repeat customers.
For example, the Curbside app offers the convenience of shopping online without having to pay for shipping or delivery. Similarly, Instacart allows consumers to purchase goods from local participating retailers through the app and receive them sometimes within two hours. Another app that supports brick-and-mortar stores is Shopkick, which helps drive traffic by offering shoppers points for walking into certain retail stores and even more points for scanning available items, getting consumers to walk through many areas of the store they may not have otherwise visited. This typically results in consumers increasing their spend.
We’re seeing that these apps help retailers compete with the notion of same-day delivery while also still supporting their local community by being able to charge the local sales tax.
Today’s shoppers, especially millennials, desire instant gratification, and some are willing to pay the extra charge for same-day delivery. We can expect to see retailers continuing to utilize technology to drive traffic into stores through the use of apps and in-store pick up, which offers the same convenience of shopping online while meeting expectations for immediate gratification.
Retailers will also have to continue to evolve and provide innovative formats in order to keep consumers’ interest. Customers that shop in-store want to see updated, fresh concepts that enhance their shopping experience.
We’re noticing a major push for health-focused, fast-casual restaurants and grocery stores, as consumers – especially millennials – are seeking more health-conscious options.
We’re beginning to see more car-charging stations developed at shopping centers, but have identified this as a trend that will ebb and flow with gas prices.
As more consumers are telecommuting, we have identified a need and desire for social interaction and entertainment outside of the home. To meet this need, we have increased the amount of social activities at our shopping centers, including concerts, car shows, holiday events, family days and more. These events have proven to drive traffic to our centers and help boost our retailers’ in-store sales, which ultimately leads to higher rents and greater NOI.
What challenges or opportunities do you think these trends might yield? One challenge arises from grocery store consolidation, which also creates opportunities for smaller, regional grocery stores to better meet the needs and demands of their customers. Large grocery stores that operate the same way across several markets can actually lose costumer focus and may not fit within each market; what works in one neighborhood may not work in another area. By consolidating and offering smaller grocery formats, the store can be better positioned to serve its market and specific demographic.
We are seeing record low levels of supply, while demand has helped pushed occupancy back up to pre-recession levels. This is a great opportunity for leasing-up shopping centers, and is resulting in rent growth.