Photo:
Getty
The retail landscape is changing, but brick-and-mortar storefronts aren’t going anywhere. Competition-driven retailers are finding innovative ways to “internet-proof” their operations and identify viable storefront locations that successfully position them to reach their target customers. Retail continues to represent a good potential investment for real estate investors who anticipate the highest and best use and retail operators who embrace tech to stay competitive in the digital market place.
Retail Flourishes Despite Online Competition And Vacancy
Hard hit by the growth of online retail, numerous long-standing retail chains are shutting their doors. Retailers including CVS, American Apparel and Dollar Tree are pursuing mass store closures to keep their ventures afloat and, for some, entering into bankruptcy protection. However, recession-tested and upstart retailers are finding ways to reinvent their operating models to stay competitive in the evolving workplace.
If we look at the growth rate of the retail industry and the corresponding niche of commercial real estate over the last few years, we’ll see that there is indeed expansion in retail. Based on nationwide U.S. Census data, retail sales were up 0.4% in October 2019 from the prior month, and up 3.1% year over year (YOY).
Restaurants are also doing well with revenue growth of 1.1% YOY. Advancements in food service are due in part to the integration of digital ordering and distribution platforms — e.g., Grubhub, DoorDash and Uber Eats. This collaboration is an excellent example of how the synthesis of tech and traditional retail food service operations creates opportunities to retain a competitive edge. Traditional grocers are also maintaining market share through ordering platforms such as Instacart and Shipt.
While retail production is up, vacancy remains a key issue for developers, landlords and local planning boards. Signaling stability, the national retail vacancy rate dropped by a tenth of a percent — the first decrease since 2016 — to 10.1% at the end of the second quarter of 2019.
Entrepreneurs and community stakeholders are collaborating to create innovative new uses through rezoning and redevelopment projects of vacant malls and other neglected retail developments. Though the implementations may not fit the traditional model of retail, many of the successful redevelopment projects are mixed-use residential that create retail and food service space for local small businesses.
Retail business owners are also turning to commercial business parks for lower rents, better parking arrangements and more flexibility in operations and how they serve and interact with the customer.
Leveraging Technology To Internet-Proof Retail Locations
Given that the success and value proposition of online retailing is built on the inherent advantages provided by digital communications, processes and logistics management, the best way to stay competitive is by leveraging the same technology. However, we need to go further to carve out a take-a-drive-motivating value proposition that attracts local consumers.
A principal element for any business, online or physical, is a well-formulated web presence and digital marketing strategy. The preferential demand for online products and services is driven primarily by value, convenience and cost savings. If we focus on developing our competencies in providing a better customer experience, competitive cost and way more value than online competitors, we can handily generate a devoted local following.
Retailers can internet-proof their locations using strategies including:
1. Have an online component to your retail model: Offer online and mobile ordering and payment options. Leverage social media, and build positive online reviews. Use email drip campaigns, e.g., a monthly newsletter, coupons and an events calendar.
2. Offer convenience, affordability and flexible payment: Introduce monthly and annual subscription plans. Accept online payments including Apple Pay, Google Pay, PayPal, Venmo, etc. Partner with consumer credit providers like Acima, Progressive Leasing and PayPal Credit to offer in-store financing. Provide layaway and payment plans.
3. Offer decision-determining incentives: Take your specialty to a new height by focusing on a precise niche and knowledge set. Provide comprehensive technical, sales and educational support (on-site training, events, seminars).
4. Give clients a sense of your offering before they visit or buy with augmented reality (AR) and virtual 3-D tours.
5. Apply artificial intelligence (AI) to improve ROI from operations, sales and marketing.
6. Provide superior customer service: Emphasize irreplaceable in-person contact. Build a brand on service, and make it a core value and driver of your value chain.
7. Build community goodwill and loyalty: Donate to charity. Sponsor a local event. Administer raffles. Develop a customer loyalty program.
Choosing A Location To Thrive
More than ever, choice of location is crucial. If we’re going to draw consumers away from one-click purchasing, we need a location that offers sufficient vehicular or pedestrian traffic (per our prospects’ preferred means of transport), convenient access from any direction and easy-to-navigate, free parking.
Select a space in a community with median income, tastes, and other demographic and psychographic qualities that fit what you’re offering. As well, look ahead through due diligence and research regarding local social trends impacting your industry, and any upcoming zoning or regulatory legislation that may adversely affect the operation and economic goals of the development.
Let’s review some considerations for retailers and investors to determine whether a potential storefront location will be successful and best position them to reach their target customer:
• Presence of strong foot/vehicle traffic levels.
• Ease of entry and exit from the property.
• Availability of free and convenient parking — a major factor for many consumers in the decision to shop local or order online.
• Synergy with local industry and suppliers.
• Zoning trends and anticipated changes.
• Local demographics (income, age range, education).
• Psychographics (lifestyle, buying habits, tastes/preferences).
• Demand factors (local industry expansion, population growth, labor demand, availability of labor).
Finding New Life
Despite the shift in technology, consumer behavior, vacancy and the closings of many retail chain outlets nationwide, business owners and retail development investors are finding ways to keep retail commercial real estate relevant and thriving. Retail continues to grow and find new life by integrating technologies and strategies that yield the same and superior benefits and incentives for local customers.