Retail redefined: What’s next for retailers?

Andy Gutman

by Andy Gutman, Farbman Group

At a time when the retail industry is changing so rapidly, and retail real estate realities are shifting at an unprecedented pace, commercial real estate professionals are striving to set their sights on what comes next. Those who want to remain competitive are working hard to be proactive, and to think both creatively and strategically about not only what next year looks like, but also what the next five to 10 years will look like.

The challenge, however, is that making accurate predictions becomes even harder when the pace of change is so remarkable that the contours of the retail real estate landscape can look radically different just a year or two later. Overcoming that challenge means developing a clear understanding of both why and how retail is redefining itself—and what major social and economic trends are driving that process.

With a steady stream of headlines announcing store closings and consolidations, the narrative that brick-and-mortar retail is struggling—perhaps even failing—in the face of competition from online and mobile shopping has grown stronger in recent years. While that may be hyperbole, it is clear that brick-and-mortar environments need to change.

Owners, operators, developers and architects who want to accommodate the growing influence of the Millennial demographic and find new ways to appeal to consumers who increasingly demand more experience with their retail need to rethink some long-held assumptions. They need to find new ways to make brick-and-mortar environments more compelling and engaging, and introduce more lifestyle elements into the retail equation. What follows are some of the trends that are making that happen—and that commercial real estate professionals should consequently be paying very close attention to.

Renovation, redevelopment and reuse

As online retailers like Amazon continue to expand their reach and offer new services (such as same-day service through new distribution centers, and the promise of drone deliveries in the not-too-distant future), many traditional retailers will be forced to either adapt or shut their doors.

Some retail formats will be particularly challenged—traditional enclosed malls have been (and will likely continue to be) one of the hardest hit by this online competition. As struggling malls close and others undergo renovations and redevelopments, the question of what to do with defunct or under-performing properties becomes more urgent. In some cases, a renovation can be transformative, adding a new residential or entertainment component, introducing new dining options and finding new uses for underutilized space.

In fact, with so much retail space available and more coming on the market, I expect to see the creative reuse trend continue, as well. In some cases, a former mall or retail center could become a source of inexpensive office space. Ford, for example, has put some of its business units into the former Dearborn Mall in Michigan. While the cost and access to amenities are pluses, questions remain about the viability of this model. At a time when brands and businesses are looking for chic and unique office spaces, a repurposed mall might not be exactly what the doctor ordered.

Entertainment and experience

Entertainment is one of the fastest-growing retail segments, and entertainment anchors have helped to revitalize and reinvigorate struggling centers. From luxury cinema experiences, to high-end bowling, golf and even indoor skydiving, entertainment is a popular and profitable proposition these days. Sports and fitness concepts are especially popular—dovetailing with a Millennial appreciation for a healthy and active lifestyle.

Empty anchors are well-suited for healthy and active concepts like fitness centers and rock-climbing facilities, and new activity-based entertainment concepts are proliferating. There is a social element to many outdoor and entertainment retailers, and brands are finding new ways to use their own space (as well as adjacent open green spaces) to capitalize on that. From yoga in the park, to hikes, gear tutorials and other special events, opportunities to provide consumers with even more experiential opportunities are becoming increasingly popular.

Dining and drinking

New dining options and creative new bar, café and restaurant options are proliferating, filling space vacated by other retailers and creating a critical mass of restaurants that can greatly expand the local and regional appeal of a retail center. Chef-driven restaurants, farm-to-table concepts and local/independent operators are on the upswing, and the explosive growth of the fast-casual segment has prompted the increase of new, and in many cases more premium fast-casual offerings. Food is arguably the driving force in retail development today, and some estimates project the amount of GLA devoted to it to increase by an eye-opening 150 percent in the next few years alone.

Dining is an inherently experiential process, and the activity and energy of outdoor dining, open kitchens and new and emerging creative concepts can add an enormous amount of value to a retail or mixed-use center.

Technology and transition

Millennials aren’t the only ones who utilize technology as an integral part of their everyday lives. The near universal availability and adoption of tech conveniences and the growing power of social media platforms as an essential channel for marketing and communications means that retail and mixed-use projects that don’t embrace technology are setting themselves up for failure.

Integrating more tech into the actual project itself—interactive touchscreen maps and navigation; changing billboards and signs; targeted and personalized promotions that pop up on a customer’s phone when they walk into a store—not only makes the shopping experience more seamless and convenient, it does so in a way that encourages shoppers to engage with the space around them. In the process, a passive experience becomes more active and experiential. At the same time, more retailers are experimenting with new ways to make the transition from online browsing and shopping to on-site pickup an easier and more efficient process.

Community and creativity

The more a retail or mixed-use development can become connected with the surrounding community, the better its chances to flourish. Serving as a community resource for celebrations and special events is a great place to start. Open spaces and common areas can be used for weekend farmers’ markets, and underutilized spaces can be made available for local entrepreneurs, seasonal vendors and pop-up shops. Offering up gallery and studio spaces for local artists, musicians and designers is an excellent way to strengthen ties with the community and add some experiential flavor to a retail center.

As some retailers adapt and evolve successfully, and others fall by the wayside, these are the trends that are helping to redefine the nature of retail and influence the future of commercial real estate.

Andy Gutman is president of Southfield, Michigan-based Farbman Group.

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