Becoming Trader Joe, by the firm’s founder Joe Coulombe, is one of the better books I have read in recent years. It clarified much of what I understand about their retail site and expansion decisions. For me, this included Coulombe’s initial objective of providing products for the over-educated and underpaid, products these customers could feel special about buying. This differentiation is in part what made Trader Joe’s what it is—their hallmark, focus on the educated consumer, remains today.
In any event, it was a good reminder that every retailer has their own requirements and most know who their core customers are.
Online vs Brick and Mortar
The Internet and technology are continually influencing how we shop, where we shop, and even when we shop. The apps and tools preferred by different generations vary. According to a new consumer survey from CM Group [1], 47% of Gen Z respondents (born in 1997 and later) prefer to shop in a store compared to online, more than any other generation. In addition, 75% of Gen Z respondents prefer their smartphone when shopping online, compared to 69% of millennials.
Those who know me well, know I rarely shop online, in part because of my work in retail attraction. I am the customer who still drives to Staples for office supplies, does regular Target runs, and goes to grocery store. I still want to see it, touch it, and compare it. In fact, I love going to the grocery store! The first time my mom let me go to Acme alone I was eight years old. I still remember feeling a sense of power with the money in my pocket, and I was there just to buy milk.
I regularly visit stores when I travel to explore their layout, merchandising and pricing. Personally, I cannot imagine allowing someone to pick out my food, especially produce. When I hear funny stories about substitutions that make no sense (beets for horseradish?) I vow to continue to buy my own groceries. However, I do use my smartphone to find deals.
Nevertheless, ecommerce is today’s reality. While online sales are still less than 20% of total retail sales in the US, they are expected to continue to rise nearly 15% YoY, passing 20% by 2025.[2] As a result, retailers must continually reevaluate and tweak their own ecommerce, brick and mortar requirements, and metrics. Those retailers without an integrated platform, mostly local and regional retailers, will lose out.
Communities not paying attention to these trends will also lose out. There have been many notable shifts in community-based retail over the past decade. In 2010, many communities we worked with were challenged to find large enough footprints for the tenants they were seeking to attract—a challenge most noticeable in older downtowns and commercial corridors where few retail footprints exceed 3,000 sf. Agile tenants learned to be creative, merchandising on multiple floors and combining spaces.
Retail space needs have been shrinking again since 2018. Many retailers have moved to showrooming, even using their brick-and-mortar space just for marketing (Bonobos, West Elm, and RH are a few well-known examples), where customers can browse but often there is little or no stock. The growth in ecommerce is having an impact on warehouse space, resulting in more drive throughs (Jimmy Johns just opened one), and causing owners to rethink, even redesign public space to accommodate BOPIS (buy online, pick up in store) and delivery services.
What Does This Mean for Communities?
The pandemic accelerated online shopping, driven in part by fear, then by convenience, and issues related to supply chain.[3] And add to this WFH, hybrid work environments, and where we gather continues to shift.
Many communities are facing record retail vacancies, especially in downtown environments, where for many the primary audience is workers and visitors. Retail is an important amenity that drives foot traffic and can also influence commercial leasing and tourism. During the past 30 months, some property owners have worked with their retail tenants adjusting lease terms to accommodate revenue loss, some moving to percentage-based rents. A CRE executive recently proffered to me that “commercial office owners should just give the ground floor away. After all, it’s usually a mere portion on their balance sheet.” Such a move would benefit many downtowns struggling to regain a strong retail mix and a vibrant sense of place. This approach might also provide local tenants a foot in the door to locations they are often priced out of.
For landlords and downtown organizations it may be time to rethink ground floor space. This might include eliminating overlays that prohibit or limit certain types of uses (banks, bars) and adjust zoning to accommodate other uses, ideally those that drive foot traffic. This might include event space, day care, schools, medical uses, micro-logistic centers, and maker spaces including commercial kitchens, even shared office space.
It’s never been more important to track data, metrics and trends. As a data junkie, I read at least four retail publications a day and many white papers. During the past year while preparing a retail demographic and market analysis for a major US airport, I gained a better understanding of how different generations use technology and the enhanced value of cell phone data.
Understanding how to use the data is critical. Cell phone data which tracks location by the phone’s homebase is a great resource to see where customers are coming and going. This data coupled with more traditional trade area metrics can provide insight for communities on who their customers are, the voids that exist, and ideal marketing, retail attraction, and merchandising.
Pay attention to news. Some experts suggest PayPal’s stock plunge, (down 33.6% in January), may indicate a return to brick and mortar. Retail store sales in Nov./Dec. YoY showed gains across the board: clothing and accessories +33.1%, sporting goods +20.9%, general merchandise +15.2%, furniture and home furnishings +15%, electronics and appliances +13.8%, building & garden supply +13.5%.
And, retailers are opening stores including Academy Sport & Outdoors, Aldi, Dollar Stores, and A Pea in the Pod, to name a few. Amazon is also opening retail stores—an interesting move in my mind, as for the past 5+ years, we have watched them disrupt certain in-store retail sales.
I am reminded that it is always a good idea to gain insights from retailers, ask tenants about their current needs, including: who are their customers, what are their space requirements and preferred locations, lease term needs, parking for customers and short term for deliveries and pick-up, and the like.
I am often reminded of a 2008 quote from the former director of real estate for Walmart, with which I will close, “Anyone who tells you they know what is going in retail, is likely lying.”
[3] Online sales are moving toward pre-pandemic levels, emarketer.com
Catherine Timko, principal/CEO of The Riddle Company, is an ESI Senior Advisor. Trained as a city planner, much of her work, including with ESI, is focused on retail attraction. She can be reached at catherine@theriddlecompany.com