Photo:
Getty
Amid reports of bankruptcies, store closures and declining sales, the news has been filled with doom-and-gloom accounts covering the struggles of the retail industry.
However, it would be disingenuous to paint the entire sector with a broad brush, given that total U.S. retail sales in 2018 were $3.68 trillion, according to the National Retail Federation via Reuters. Yet, that’s what many observers do: falsely extrapolate from the struggle of department stores and category killers that the entire business is failing.
Perhaps because the department store sector was dominant for so long, it is easy to believe that its struggles reflect the struggles of retail overall. But even as department stores and some big boxes struggle, other companies and categories are doing well.
So, what makes the difference between failure and growth? The answer is flexibility and focus.
From my perspective, the retailers that are struggling are doing so because of a long-standing resistance to change. As the department store industry consolidated in recent decades, companies streamlined (or homogenized) their merchandise mixes, which can cause them to lose their differentiation in the process and slow their ability to adapt to customer needs. As a result, their customers have gone elsewhere to get what they need, including online retailers and newer, more agile specialty stores.
The same is true for category killers, which also have been affected by e-commerce. Big boxes are still evolving. However, because of their size and consolidation, department stores are having a much more difficult time figuring out how to navigate the new retail landscape.
Meanwhile, TJ Maxx, which department stores initially dismissed, has had a lot of success creating experiences for shoppers. It, too, sells a variety of goods, but I observed that it responded to shifting consumer preferences in multiple ways — namely, by not making items available online and by having an unpredictable assortment of goods. TJ Maxx has, in effect, created a treasure hunt. Some days, shoppers might not find anything they like; other days, they might find dozens of items. But because they can never be sure, they keep coming back.
Then there’s necessity-based retail, which comprises the majority of my company’s portfolio. A shopper might be able to postpone the purchase of a sweater or sofa, but they cannot do the same with bread, milk, eggs or medicine. My company found that shoppers visit supermarkets some 1.5 to 1.7 times per week, and that is why the largest retailers in the world, including Walmart and Amazon, have incorporated groceries into their offerings. New players such as Aldi have come in, as well.
The result is that this sector, which copes with razor-thin margins daily, is becoming even more competitive. Grocers have not been complacent in the face of e-commerce. They are succeeding by focusing on business fundamentals and what customers want, such as premade meals and other new items that offer convenience.
In our company’s almost 30-year history, many new concepts have emerged, while others have faded away. What’s really taken hold across neighborhood shopping centers in recent years is a drive toward health and wellness, and we don’t see this trend abating any time soon. There are a number of complementary retail types that fall within this category and present a compelling merchandise mix when located in the same shopping center – for example, fitness studios and medical offices. More recently, urgent care has become the biggest driver of this trend and is highly desirable for its ability to offer convenient access to basic healthcare. This desire for fast, hyperlocal access to healthcare is also informing an increase in drugstore medical clinics.
These retailers are responding to strong consumer demand for easy access to health and wellness facilities, which makes grocery-anchored shopping centers a natural fit. Over the past five years, my company has doubled the percentage of space dedicated to these uses. At the beginning of 2019, we predicted that 15% to 20% of our leases that year would be medical-related, and that ended up being the case.
For retailers, the opportunity is clear: If you can identify a well-located shopping center populated with complementary retail concepts, each shop can support and be supported by the others. This is referred to as the “halo effect,” which can support sales activity, drive increased foot traffic and result in greater success for each retailer as well as the landlord.
When it comes to shopping centers, the whole should be greater than the sum of its parts. Brands can and should leverage their own consumer data combined with insights that property owners can provide to create strategies that best position them for long-term success. With the rise of social media and other technologies, there’s been a proliferation of data providers that are able to offer granular and hyperlocal market perspectives. For instance, my company is working with a group to leverage its platform to better understand the social and psychological makeup of the neighborhoods surrounding our properties.
The retail industry is enormous and fascinating, and it’s impossible to assess its success without taking a deeper look at its various sectors. As with any business, companies come and go as the industry evolves — and change creates difficulties and opportunities. At this point, grocery-anchored shopping centers and their necessity-based retailers are showing strength and resistance.