While 2019 will experience more store closings than in 2018, a generally dynamic retail sector together with shoppers’ ongoing demand for physical store locations – despite tales otherwise – new concepts and a healthy economy will continue the positive US retail environment we are currently seeing.
Successful retailers are embracing the lessons learned from the last few years, realizing it is not just the location of stores that matters, but that they must transform their business models quickly and evolve their brand to remain relevant to consumers and to continue their story well into the future.
The idea that there is a ‘retail apocalypse’ is a myth. In fact, total retail growth was a healthy 3.1 percent in 2018, according to the US Retail Sales Report, Current Statistics and Recent Trends. Simply, the sector has been in the midst of transformation over the past couple of years. And this transformation is progressing well. New retail concepts are successfully replacing the traditional due to changing shopping habits. For example, Amazon Go and Amazon Marketplace are disrupting the retail convenience store sector.
New-style tenants drive demand
Medical and dental clinics, health clubs and wellness centers, and municipalities are examples of the types of growing businesses now occupying the empty retail space left from the closure of more traditional retail businesses. Real estate developers and owners are welcoming this transition as these smaller to mid-size non-traditional retailers are often willing to pay double the rent of more traditional anchor tenants and big box stores.
And these new tenants also want real estate developers and owners to add residential, hospitality and distribution components to retail developments because these segments bring added customer traffic. They want retail centers and malls to provide ‘entertainment’ components to enhance the customer experience, encouraging shoppers to stay longer and spend more time at malls. New restaurant concepts along with entertainment venues such as food halls, wine and piano bars are accommodating this need.
Both online and physical retailers recognize they must integrate the business models of both channels to maintain relevance, as demanded by the customer. Convenience will continue to accelerate as a top consumer value and consumers will continue to push for more evolutionary shopping experiences.
To continue to be successful in this evolutionary time, retailers are having to adjust to the effects of the business disruptions in our industry – retail bankruptcies, store closures, tax law changes, mixed-use development, natural disasters, downsizing/rightsizing and Financial Accounting Standards Board accounting changes, to name just a few. It is the retailers’ responsibility to manage these disruptions proactively, by ensuring they are located in vibrant and well co-tenanted shopping centers, diligently enforcing their tenant lease rights and the obligations of our landlords, and effectively managing occupancy costs to protect the profitability needed to transform and evolve.
Considering the fast pace of change, the real estate management and lease administration segments of our sector must leverage technology to do some of the heaviest data lifting for retailers, providing transparency of our lease and portfolio information to other business partners to improve speed and effective business decisions.
Protecting profitability during times of change and uncertainty is difficult. It is the retail sector’s responsibility to build the organizational flexibility needed to meet their evolutionary needs by focusing on training and developing talent, so that their lease administration teams become key contributors and differentiators of lease language and terms.