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Real Estate Technology, Industry News & Events

Rethinking Retail: “The End of the World as We Know It”

This begins the first in a series of ongoing conversations about the current state of commercial retail ownership, along with opportunities to remain successful as the landscape continues to change. No one knows the future, but we do know that the way we used to build, present, and experience retail will never be the same.

Six months into 2018 according to news outlet CNBC, nearly 2000 acres, more than 70 million square feet of retail space was vacant.  Mall anchors are dying, and retail as we know it is dying along with them. In order to survive, retail real estate owners must reevaluate outdated or irrelevant notions and start fresh. 

As the 2018 holiday season wound down, store closures sounded a death knell to shopping experiences of generations past, to the tune of 12,000 US locations (and counting). Victims of the so-called retail apocalypse for more than ten years, big-box retailers suffered a sad, slow, bitter fate.

By the first half of 2018, according to news outlet CNBC, over 70 million square feet, or nearly 2000 acres of retail space was vacant.  Mall anchors are dying, and retail as we know it is dying along with them. According to Reis, mall vacancy rates in the US continue to climb. They are nearly as high now as they were following the Great Recession. Credit Suisse anticipates that 1 in 4 malls will close by 2022.  

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While holiday shopping once accounted for nearly a third of all annual retail revenue, according to the Retail Insight Network,

“Retail consumers spent less than in 2017, with 2018 seeing a -0.7% year-on-year change in like-for-like sales; Christmas 2017 retail sales were up 1.4% year-on-year. The report shows that while retailers were generous in discounting, this had no effect on consumers’ December spending.” 

According to industry analysts, BAD retail is dead. Surviving this turbulence requires commercial real estate owners in retail to consider the right new models while reimagining their role and purpose in a changed world. Leveraging technology will be critical in evolving old models for long-term success.

Retail CTA-Catalyst 2019

The Rise of the Shopping Center: A Brief History

Regionality and seasonality distinguished products, delivery, and services, once upon a time. Consumers were brand loyal and routinely engaged with producers.  

Standalone specialty shops grew more expensive and less convenient. Expanding markets and increasing competition made sole proprietors and small businesses less compelling.  Consumers became increasingly mobile, chains predominated, and malls proliferated.

Southdale Center, the first enclosed modern shopping mall, opened in Edina, Minnesota in 1956. It became, according to Business Insider, “a national symbol of car-centric, consumerist, postwar suburbia.”  

Anchors

Sears, Roebuck, and Company, (Sears) began retailing 70 years before the mall era. It’s name recognition and reputation positioned it as an early and enduring draw. Similar marquee department stores serving as anchors were once a critical element to entice niche retailers and potential shoppers.  With name recognition and broad appeal, attaching them to projects attracted smaller vendors potentially benefiting from their largesse as well as shoppers eager to experience major brands.

Given the perceived value of anchor stores, lease deals traded rent discounts and tax incentives for predictable revenue streams for mall owner/operators. It’s not that owners didn’t consider maximizing the value of their real estate, the practice was to offload primary responsibility for it to tenants. Offloading responsibility for the success of an asset of that value is no longer acceptable.

132 years after its founding, Sears closed in bankruptcy at the end of 2018. In a last-minute reprieve, in early 2019 a bankruptcy court judge approved the sale of most of Sears’ assets to a hedge fund controlled by company chairman, Eddie Lampert. As CNN reported,

"The decision will keep 425 stores open and save the jobs of about 45,000 employees." 

It won't be the store that opened in 1886, but it’s a second chance, nonetheless. Indicative of so much happening across the retail landscape, commercial real estate owners must reevaluate outdated or irrelevant notions and start over. 

What does starting over look like?

According to the Dayton Daily News,

“While the number of national tenant closings during the past 12 months has been significant, it certainly does not spell the end for the industry...” said Dave Duebber, general manager of the Dayton Mall. “This is an exciting time for shopping centers...as we reinvent the retail experience by adding new uses over time.”

Retail CTA-Catalyst 2019

Long-term repositioned retail success requires reinvention. Stay tuned as we discuss emerging models and opportunities, including Marketplaces, Food Halls, and Experiential Retail,  to stay ahead of evolving consumer preferences and habits as we look to retail’s future.

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Rochelle A. Carter-Wilson

Written by Rochelle A. Carter-Wilson

Rochelle is the Content Marketing Manager for Honest Buildings. a Procore Company. She creates stories and other on-brand content to inform and engage owners and other members of the Commercial Real Estate industry.

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