Trend Report For 2018: A Pivotal Time for Brick and Mortar Retail

Possibly not since the first enclosed mall opened in 1956 in Edina, Minnesota, has brick and mortar retail experienced such a pivotal point in its history. Most would attribute the changing retail environment to the effects of e-commerce and the Goliath that is Amazon; however, we believe there are more powerful factors at work.

In-store brick and mortar retail sales accounted for more than 89% of total retail sales in 2016, and early indications seem to point to 2017 being the best holiday shopping season in 4 years. So, if people are still shopping at brick and mortar stores, why do we hear the term “retail apocalypse” every time we turn on CNBC or pick up a Wall Street Journal?

The End Of The Department Store Era—Not Brick And Mortar

What we are seeing is not the demise of brick and mortar retail, but more the end of the department store era. Department-store-anchored malls that sold everything from apparel and electronics to furniture and home appliances dominated the 60’s, 70’s, and 80’s. But specialized big-box retailers have steadily eroded the department store model over the last three decades.

Eventually, we were left with malls anchored by department stores that focused on just a few categories centered on apparel. Does this mean that we will soon see the end of department stores and enclosed malls? Yes and no.

We will continue to see enclosed malls struggle to compete with convenience/grocery-anchored centers, experience-based shopping destinations, open-air lifestyle centers like Bridge Street Town Centre, and local specialty destinations such as The Garage at Clinton Row. Many malls will be able to adapt and survive with the addition of entertainment venues, hotels, and even office space. Others will simply disappear from the landscape to be replaced by a more modern retail and entertainment experience as we are seeing take place at the site of the old Madison Square Mall.

As far as the old department store is concerned, we are already seeing the same type of adaption into a more mixed offering of services and experiences. Many department stores are starting to reduce the size of the sales floor to make room for cafés, salons, pop-up shops, and even fitness concepts. Not all department stores will survive, but the ones that do will be more focused on the high-end specialty categories and customer experience. Instead of existing for exclusively for retail sales, they will provide a total experience and numerous services in one convenient location.

What Does The Future Look Like?

What can consumers expect the retail environment to look like in the future? Currently, the trend is what is called omni-channel retail. This is a combination of brick and mortar stores with online and mobile sales. As evidenced by Amazon’s acquisition of Whole Foods, e-commerce retailers are getting into the physical storefront game. It appears they understand the value of physical storefronts and their impact on the bottom-line. Sure, online shopping is convenient, but does it result in sales?

Research has shown that over 40% of items purchased online are returned. Furthermore, consumers make a purchase at a rate of 20% of the time when they walk into an actual store. That rate drops to 3% when visiting a website. The successful retailer of the future will be able to combine online, mobile/social media, and physical locations to create a positive experience for the customer.

One issue that is flying under the radar is the new tax reform bill and its impact on retailers. A reduction in the corporate tax rate could have a significant influence on the ability of brick and mortar retailers to compete with e-commerce retailers. With the reduction of the corporate tax rate, the savings experienced by the retailers can be used for an investment into omni-channel/mobile platforms, upgrading stores, or simply lowering prices to compete with e-commerce.

A Theme Of Adaptation

In conclusion, we continue to believe that the future is bright for both retailers and landlords. Once again, the theme continues to be adaptation. Traditional retailers are building their online presence and e-commerce retailers are getting into the bricks and mortar game. This environment creates opportunities for landlords that have the vision to meet the changing demands of consumers and the needs of the omni-channel retailer. It’s certainly an interesting time in retail, but one that can bring exciting changes to the benefit of everyone.

 Have questions about the changing retail market? Wondering how you can adapt in 2018? You can contact Zac at zac@crunkletonassociates.com or by calling 256-536-8809.

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Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management, and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.

Zac Buckley
VP of Leasing
Crunkleton Commercial Real Estate Group
ZAC@CRUNKLETONASSOCIATES.COM

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The Trend Report: Emerging 2017 Insights

While just a mere month into 2017, there are already a few emerging trends that savvy commercial real estate investors are taking notice of according to the 2017 Emerging Trends in Real Estate report recently released by the Urban Land Institute and PWC. After reading the report for ourselves, here are our top six emerging trends to watch out for in 2017!

Demographic Shifts

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We’ve gone into great length previously on the impact that the rising number of Millennials and Baby Boomers entering and exiting the work force is forecasted to have on the commercial real estate market, and the crossover point where more Baby Boomers are retiring than Millennials entering the labor force is now upon us. Boomers are retiring at a rate of approximately 10,000 per day and America’s population of persons over the age of 90 has almost tripled since 1980. This, combined with the fact that many younger (millennial) households are falling behind, has left older and younger households competing for housing in many of the same places, indicating that Multi-Family developments with evolving amenities will continue to stay a strong investment.

Urbanization / Densification

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This trend, which has been steadily growing over the least several years, seems to have no indication of slowing down any time soon as walkability, extensive live/work/play opportunities and alternative transportation options continue to draw people of all ages into the urban core. Developers are also continuing to follow this trend, preferring to invest in creating high-density mixed-used centers that provide a mixture of luxury living spaces, retail, work, parks, gathering and entertainment spaces. Even the suburbs are feeling the pressure to become more “urban”.

The Suburbs Aren’t Dead

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While urbanization is still a hot trend moving into 2017, it’s important to note that most suburban communities are still flourishing despite the fanfare of the urban movement. In fact, in America’s 50 largest (and most urbanized) metropolitan areas, suburbs account for 79 percent of the population and (despite popular and media perception) 75 percent of the 25-35 year old population. So while many are feeling the pressure of the urbanization trend, it’s important to note that our nation’s suburbs are still poised to maintain their relevance and predominance.

The Rise Of The “Surban” Neighborhoods

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As we just stated, the suburbs are far from dead. However, the market is beginning to see a trend toward the urbanization of existing suburban neighborhoods and new developments that are shifting their focus to provide greater density, diversity, walkability and transit accessibility. This trend is due in large to the Millennial preferences for these qualities, which studies have found they find equally attractive in the suburbs as they do in the densest urban core. This has seen more and more retail stores transforming their spaces into locations that sell experiences, rather than goods and more developments combining housing and retail to satisfy consumer demand for places that offer convenient, car-free shopping.

Forward Looking Strategies

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One trend that has become glaringly apparent as we move into 2017 is a push toward investors and property owners utilization of forward-looking strategies. Whether it be opting for the build-out of dynamically configurable office spaces that can easily be transformed to suit a variety of tenants or the conversion of class B and C shopping centers into last mile distribution centers to help e-retailers tackle the holy grail of same day delivery, investors are looking forward to the future and taking drastic steps to breathe new life into outdated spaces that are rapidly trending towards functional obsolescence. It seems that while often viewed as a “disrupter” for real estate, e-commerce is gradually emerging with a symbiotic relationship beyond the first clicks-and-bricks rapprochement.

Labor Shortages

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As labor shortages in the construction industry continue to rise across the US, demographic projections are indicating that the issue will only intensify over the coming years. As of April 2016, there were over 200,000 unfilled job openings in the building and construction industry. More young people than ever are seeking higher education and therefore remaining out of the workforce longer at the same time that the Baby Boomer generation is slowly leaving the labor force creating a significant shortage of skilled laborers. These shortages are poised to not only reduce the number of projects undertaken by developers (some are already hypothesizing that this may have been a key factor in preventing over building in 2016) and delay the timing of these projects, but may also drive up the cost of new development. This, in turn, may see a push towards developers opting for projects that target the luxury end of the market in order to help cover costs.

screen-shot-2017-02-07-at-10-09-10-am“One thing is coming through loud and clear from the Emerging Trends interviews: you can find opportunities in any of the markets in this year’s survey, whether the market is number-one Austin or number-78 Buffalo. It all comes down to your strategy, risk tolerance, return requirements, and access to deals. If the markets are the squares on the chessboard and the property sectors the pieces, then there is an almost infinite combination of moves that can be made.”

To read the rest of the Urban Land Institutes report on Emerging Trends in Real Estate for yourself, click HERE.

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON Commercial Real EState Group
KADIE@CRUNKLETONASSOCIATES.COM

Trend Report: Brick-and-Mortar Retail Is Not Dead

Over the past couple decades e-commerce has been taking over retail…. or has it?

One of the largest online retailers in the world, Amazon, shocked the world when they opened a bookstore in Seattle’s University Village last November. This single act has brought national attention to a sway back toward brick-and-mortar stores, as well as an “omni-channel” approach to retail (the seamless integration of online stores to physical stores).

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Many other companies like Warby Parker and ThinkGeek have also decided to make the move to adding concrete locations, allowing customers to closely interact with the brand and their products.

But what is causing this trend?

I did a little research and have compiled this list of the top 5 reasons that brick-and-mortar retail is not only alive and well, but superior to e-commerce:

People Prefer to Shop in Person

The simple fact is that the majority of customers still prefer to shop in-store. They want the “experience” of shopping and the ability to touch or try on products.

Customers Spend More Time In-Store

Research shows that customers spend almost one and a half times longer in a physical location browsing products than they do when perusing an online website.

Increased Sales

Browsing in a brick-and-mortar location results in one in five customers actually making a purchase. Whereas according to “Instore vs. Online” by icsc.org, online shopping is closer to 1 in 20 customers making a purchase after browsing a website’s products! Not only does shopping in an actual store result in more completed purchases, on average people also tended to spend a lot more in person than they do online.

More Cost Effective for Brand Awareness

It’s true that e-commerce has grown exponentially, but with it, its competition has grown exponentially as well. That’s because every company is trying to reach customers through the same Google search results. This has caused online advertising and keyword purchase prices to skyrocket. According to the Guardian, “Macy’s and Nordstrom’s spent an estimated $6.4 million and $4 million respectively, in paid search listings for the top 1,000 apparel-related keywords in the first quarter of 2015.” This has led many online-based companies to start using brick-and-mortar locations to expand their customer base and awareness. These companies have shown that physical stores can increase sales, brand awareness, and online traffic all at a fraction of the cost of Google keyword purchases.

In-Store Growth Rates Equal $144 Billion

In this handy infographic published by icsc.org,  they explain some of the confusion around e-commerce’s seemingly huge growth. E-commerce’s current growth rate of 17%  is calculated from only a tiny portion of total retail purchases, about 6%. And this 17% comes to about $38 billion in growth for e-commerce. In contrast, in-store retail only has a 3.5% growth rate, however they account for 94% of total retail purchases yielding about $144 billion in growth! This explains why people may think e-commerce is growing more quickly than in-store retail, but in fact, brick-and-mortar retail is still the king.

© ICSC In-Store Vs. Online

© ICSC In-Store Vs. Online

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LINDSEY POPPE
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CRUNKLETON & ASSOCIATES
INFO@CRUNKLETONASSOCIATES.COM

 

The Trend Report: Emerging 2016 Insights

The Urban Land Institue recently released their annual report on the emerging trends in Real Estate for the year! Here are just a few highlights from their findings on the trends we can expect to see emerge nationally over the course of 2016!

Second Tier Cities Take Center Stage

Second tier cites such as Austin are booming, and according to the report, these cities are only getting started. In addition to their reputations for hipness, cities such as Nashville, San Antonio, Portland, Austin and Raleigh-Durham are also attracting attention for their lower costs of living, and their increasing ease of staying connected far from main hubs, more upside from affordable and available investment opportunities, and increasing sophistication from realtors and investors.

Will Millennial Parents Move to the ‘Burbs?

A generation traditionally known for their obsession with urban living, a growing number of Millenials are becoming parents and looking to find homes and good schools for their children. While this generation has put off having kids longer than previous generations, recent studies suggest that a larger number will soon become parents, and could quickly fuel a suburban boom. However, these won’t be the suburbs of yesteryear. Studies show that young millennial parents will be drawn to more mixed-use, walkable developments, offering a mix of urban and suburban benefits with quick easy access to the city’s core.

Investment in the Changing Office Landscape

The continued recovery of the US economy has led not only to job growth, but also a strengthening of the commercial sector. Open office plans still dominate the market and the average SF per worker, which was 253 in 2000, is predicted to shrink to 138 by the year 2020. Showing no signs of slowing down, investors can expect to see continued development and redevelopment of existing spaces, as well as a continued rise in coworking.

Pulling Up Parking Lots?

As many young Americans opt out of car ownership, and tech trends such as ride-sharing and autonomous cars begin to change transportation patterns, many urban planners, government officials, and real estate owners are questioning if parking lots are the best use of downtown real estate. Trends suggest that “existing parking represents a suboptimal use of land,” and as cities change zoning regulations to reflect these shifts, developers are asking how they can take advantage. Are surface lots and parking structures potential development opportunities?

Increasing Investment in Infrastructure

America’s crumbling infrastructure has been in the news for years, yet the need for new mass transit, better roads and highways, and improved aviation and rail facilities hasn’t been met: the American Society for Civil Engineers estimates that $3.6 trillion would be needed by 2020 to meet the backlog of much-needed repairs. This suggests there’s a great upside in new models for infrastructure funding, including public-private partnerships and real estate investment trusts (REITs).

Urban Agriculture Is On The Rise

While conceding that we’re not likely to see silos dot the skyline anytime soon, the ULI report suggests that an increasing number of viable urban farms and rooftop gardens, including Brooklyn Grange in New York, large urban farm operations in Detroit, and a forthcoming vertical farm in Newark, New Jersey.

CLICK HERE to read the full report and discover the rest of the exciting emerging trends for this year!

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Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON & ASSOCIATES
KADIE@CRUNKLETONASSOCIATES.COM