What Retail Assets Are Thriving? And Why?

Brick and Mortar Retail History

By 2022, analysts estimate that 1 out of every 4 malls in the U.S. could be out of business.  In the 61 years since the first enclosed mall opened in suburban Minneapolis, the shopping mall has been where a huge swath of middle-class America goes for far more than shopping.  The mall has been America’s public square for the last 60 years. That mall was an ecosystem unto itself and often called “the new Main Streets of America,” (William Kowinski wrote in 1985)

1,500 malls were built in the U.S. between 1956 and 2005, and their rate of growth often outpaced that of the population.

Like all booms, this one couldn’t last. The decline began slowly, in the mid-2000s.

The great mall die-off is what economists refer to as a market correction. “We are over-retailed,” says Ronald Friedman, a partner at Marcum LLP. There is an estimated 26 SF of retail for every person in the U.S., compared with about 2.5 SF per capita in Europe and even less in India and China.

Change is the Only Constant

Not all malls are failing, of course, and the ones that are thriving tend to share certain characteristics. Chief among them: luxury and entertainment. Complexes filled with runway brands such as Gucci and Louis Vuitton are reporting healthy revenues. As a greater percentage of America’s wealth is concentrated in a smaller share of its population, these elite malls partly avoid competition with Amazon by catering to those who don’t need to scour for deals.

Others have found success by updating what the best malls have always done: give people a reason to come beyond shopping. Some examples include; a trolley running down its center (which is meant to evoke an urban boulevard), hosting a concert series, a bowling alley, a comedy club, an indoor rope-climbing course, and introducing upscale food courts, going beyond Auntie Anne’s to stands hawking avocado toast and sushi burritos.

Technology helps consumers see more of what’s available and that makes the comparison between brands so much more stark and apparent.

One small change being made are malls that take their inward-facing stores and make them face outward. Where the outside of a shopping mall has looked like a faceless, windowless building, mall operators are putting store entrances on the outside of the building so that it’s more inviting and interesting as you drive by. This allows the customer to drive right up. The strategy can do a lot of good for a mall that is well-located to attract passersby.8

  • More than 3,800 stores are closing in 20189
  • Some retailers planning meaningful expansions in 2018 and beyond. Some of these retailers include; Warby Parker, Gap and Aldi, Ulta, Ross, and Warby Parker.
  • The idea of having brick and mortar is still an important part of the business — most companies admit they can’t succeed in retail without stores.
  • The store closures are for very large boxes, while the folks opening stores are looking for mid-to-smaller boxes.”10

There are other segments that are thriving as well.  The list below exemplifies America’s convenient-based consumer with thriving retailers and increased store openings such as: 7-Eleven, Aldi, AutoZone and others.  The commonality between these new store openings is they are primarily either food, quick service restaurant or discount retail concepts where the consumer can get a deal at or below the pricing on the internet.

Source: IHL Group, Company Reports
Major Store Openings

 

Fashion is less important in physical retail stores. The discounters and convenience store openings are opening in a big way and the fashion retailers are closing almost as fast.

The reason why you see so many vacancies, even though more stores are opening than closing, is that the footprint and locations of the stores being closed aren’t suitable for the stores being opened. The old stores’ formats can’t be transformed and their locations don’t work for the new stores that are opening. Hence, more vacancies can be seen on major shopping streets.

Restaurant brands are the retail assets that are flourishing.

Source: IHL Group, Company Reports
Largest number of restaurant openings

 

The big driver of these numbers is convenience. Noble Romans, the pizza brand, for instance, is opening more stores than any other restaurant business. They are “all about expanding licensing and franchising into grocery and convenience stores… it’s all about the food and convenience these days, not so much groceries of cigarettes and definitely not the gas.”

Consumers want low price points and convenience, but they also want newness, they are tired of many long-established brands. They want fresher environments that give consumers the feeling they are new and the next big thing.

Consumers haven’t gone into hiding and they’re not spending less. They’re spending more and there are more new stores — but tastes have changed. Organizations now need to be able to process new ideas at a rate that’s faster and more efficient than ever before. It’s not enough just to have something new, it must keep evolving. (Forbes, Richard Kestenbaum)

Sources:
1. https://m.benzinga.com/article/10804788
2. http://amp.timeinc.net/time/4865957/death-and-life-shopping-mall
3. https://www.forbes.com/sites/richardkestenbaum/2017/09/11/there-will-be-more-retail-stores-opening-than-closing-in-2017/#5d7b212f3447
4. https://www.forbes.com/sites/richardkestenbaum/2017/05/30/this-is-what-will-happen-to-all-the-empty-stores-youre-seeing/#4e3ab5f24bb7
5. http://www.businessinsider.com/stores-closing-in-2018-2017-12
6. https://www.foxbusiness.com/features/retail-apocalypse-24-big-retailers-closing-stores
7. https://www.cnbc.com/2018/03/23/retailers-ulta-warby-parker-ross-stores-opening-more-locations-in-2018.html