The State of Retail Real Estate
How is Retail Real Estate Doing?
So, retail real estate has finally met its match with the outbreak of the COVID-19 pandemic, right? Here are some sobering facts…
· 30k +/- stores closed in the US in 2020
· Vacancy rates Q1 2020 – 9%
· Vacancy rates Q2 2020 – 20% (over 122% increase in 3 months!)
· Ecommerce total % of retail sales Q1 2020 – 11.8%
· Ecommerce total % of retail sales Q2 2020 – 16.1% (36% increase in 3 months!)
All of this means that people have finally stopped going to stores and are instead whipping out their smart phones and ordering whatever they want for a quick and easy home delivery. Retail shopping is dead!
But wait, what’s this? Retail sales increased 2.9% in 2020?
While 16.1% of total retail sales was the biggest amount in US history, 83.9% of all retail sales happened in person?
When most of the country was shut down?! How can this be? (PS – Ecommerce total sales dropped back down to 14.3% of overall sales in Q3, down 11% for that quarter).
Everyone is moving out and closing stores, right? On one hand, kind of, but on the other, not at all.
Let me explain – and bear with me here, I’m going to make a point. I had an epiphany when the pandemic first started, and they had closed all schools last March. Everyone was freaking out and locking themselves in their homes. To break the tension our neighborhood organized a socially distanced cocktail hour. While talking to one of my neighbors, he explained to me that traditional brick and mortar education was over. It was going to be so much more efficient to educate online that no one would ever go back to school in classrooms. From pre-K through graduate school. I listened, but it made zero sense to me, so decided to watch this experiment very closely.
Fast forward a year, we can now see why my neighbor was dead wrong. Humans are social animals. Students need to be around other students to flourish. People crave interaction with others and do rather poorly when we are in isolation (there is a reason prisons save solitary confinement for the worst transgressions – isolation is brutal on our psyche).
Retail shopping and services in person helps satisfy our need to be around, interact with, and be a part of society. We want to explore, talk to a salesperson, see what that outfit looks like on, hear about the daily special from a server, share a comment with another customer, hand pick that best tomato, and dare I say…PEOPLE WATCH! These are the things that make us human and cannot be replicated by mouse clicks.
So, the question isn’t if retail is dead. It clearly isn’t and is going to be around for a long time. The question is what was missing that caused those 30k or so retailers to shutter instead of survive and thrive? The answer can be synthesized down to one word: INNOVATION
What does that mean, you ask? Well, lots of things actually. Brick and mortar retailers need to understand that they are no longer in the selling products business. Anyone now can get that by clicking a mouse or thumbing a box on their smart phone. Retailers now need to understand they are now in the building loyal customers business. They need to create Brand Ambassadors.
How do you do that? By being very different than a website (by the way, all brick and mortar retailers should have seamless websites that compliment (not compete with) their brick and mortar experience).
Things that matter are great location, a well laid out and inviting store, friendly helpful staff that knows their product as well as the competitions, omnichannel integration so you can convert a sale in the store even if you don’t have that product on hand today (or walk in to the store with a return that was purchased on your website and convert that to more sales!), rewards programs, strong social media presence, and so much more. It needs to be a value-ad experience to the customer every time they walk in the door that is miles better than visiting a website.
You see lots of retailers who already do this really well. From Chick-fil-a, to Apple, to Tesla, to Lulu Lemon and many more. They all have that ‘it’ factor that makes their customers not only come back time and again, but actually become ambassadors of their brand and brag about their retail experience to anyone who will listen. These guys all get it, and any other retailer who wants to thrive in this new era of retail needs to figure that part out quick, or they will just end up being another statistic.
Statistics sourced from the following articles: