Positioning Retail Real Estate for a New Generation

August 30, 2018

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Still Think Brick-and-Mortar Retail is “Dying?” Think Again.

With Healthy Performance to Date in 2018, Shopping Centers Striking a Balance

By Matthew K. Harding, President
Levin Management Corporation
North Plainfield, N.J.

Some prefer to gauge the state of things through hard facts, others via sentiment. Following several years of speculation about the future of brick-and-mortar retail, both sets have ample reason for optimism.

The National Retail Federation in August adjusted its retail sales forecast for 2018, upping predicted growth to a minimum of 4.5 percent over 2017 (the trade organization initially predicted growth between 3.8 and 4.4 percent). Levin Management Corporation’s (LMC’s) own mid-year survey generated the strongest numbers in its seven-year history. A full 71.0 percent of survey respondents reported sales at or above the same level as last year. This compares to a trailing six-year average of 54.2 percent. Strong quarterly numbers announced by a wide variety of major retailers like Target, Kohl’s and Tiffany & Co. provide further reinforcement.

For those in the sentiment camp, LMC retailers are feeling confident about what comes next. Nearly three-quarters of our survey participants expect their July to December performance to match or exceed the first half of the year.

A healthy economy – and resulting confidence by consumers and business owners alike – undoubtedly is fueling retail’s positive momentum. However, equally important is the evolving role of retail as consumers once again embrace shopping as a pastime. A trip to a shopping center has become more than an outing to purchase goods and services. That’s not to say retail properties are transforming entirely into places for recreation and socialization. Rather, the most successful properties today are striking a balance by offering a diverse tenant mix that provides ample reason for consumers to visit.

In terms of leasing trends, we are, indeed, seeing increased activity among entertainment concepts, restaurants, personal services and fitness brands. However traditional retail is also quite active, especially discount brands like TJX. Activity among grocery tenants continues to shape our marketplace as well, with expansions and store renovations by long-time regional brands, notable new entrants (think Lidl), and ongoing activity among specialty and ethnic grocers. And physical store expansion among ecommerce-founded brands like Casper and Wayfair provides further proof that physical retail is alive and well.

The most successful retailers across categories are offering quality products and finding new ways to engage customers. More than half of LMC mid-year survey respondents reported that they have adapted their business model in some way – or ways – in response to the growth of ecommerce.

Most notably, nearly three-quarters of those respondents cited increased training and focus on customer service. They understand that personal touch, human interaction and “experience” will always distinguish physical store retail from online shopping. They also are working to give the new generation of shoppers what they want and need. Consider grocery, where we are seeing online ordering with pickup or delivery, in-store nutritionists and classes, and the incorporation of more prepared foods with healthy grab-and-go options for busy lifestyles.

Our survey results also point to increasing connections between traditional and online retailing. Sixty-eight percent of survey participants noted they currently offer an online option for purchasing goods, scheduling appointments for services or placing orders for pick-up – up from just under half of respondents last year. Technology-centered marketing is playing a key role as physical stores work to compete in an increasingly digital world. This includes leveraging a variety of platforms to engage customers before they shop, and to provide real-time, in-store incentives and conveniences.

The bottom line? By the numbers, through tangible changes in the brick-and-mortar environment and in the growing enthusiasm among tenants, there are good things happening in – and for – physical retail.

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