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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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).

Screen Shot 2016-07-26 at 11.03.22 AM

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
MARKETING ASSISTANT
CRUNKLETON & ASSOCIATES
INFO@CRUNKLETONASSOCIATES.COM

 

The Trend Report: Emerging 2015 Insights

trendreport

According to an industry insight report released by Transwestern last week, there are some interesting commercial real estate trends emerging from the first quarter of this year:

Wage growth is flat, but disposable income is up.


Unemployment has improved since the Great Recession, but employees are not receiving wage increases typical of past recoveries. However, consumer credit is 30 percent higher than July 2010, and consumer confidence is spiking. This could be due to the decline in the price of gasoline: a one-cent-per-gallon reduction in price of gas is equivalent to approximately $1 billion in consumer savings – money that can be spent elsewhere.

The national economy has recovered.

The labor market surpassed pre-recession levels, and the gross domestic product growth exceeded expectations. This growth is expected to continue through 2015, barring a geopolitical jolt. Despite these positive signs, the stagnant wage growth is a cause for concern. With the improving economy, wage growth should be more meaningful in the period ahead.

Consumer behavior is changing.

Immediately following the Great Recession, consumers opted to pay off debt rather than spend money. More recently, consumers have begun taking on more debt – total consumer debt has risen 5.0 percent since bottoming out in second-quarter 2013. This indicates growing confidence in household budgets and job security, so consumers are willing to spend more. Student debt has risen 84 percent since 2008 and totals nearly $1.2 trillion. As these students enter the work force carrying so much debt, they put off homeownership to rent instead. They also put off owning a car, partially prompting the need for companies to seek out transit-served locations.

Tenant behavior is changing.


Densification among office tenants remains strong, with companies taking approximately 10 percent less space per worker, according to a survey conducted by Delta Associates. For some industries, this reduction would likely be substantially greater. Similarly, advancements in technology are prompting retail tenants to lease less space.

Real estate is now an experience, not just a location.


The average consumer is now younger and more informed, forcing developers to adapt. Mixed-use projects are becoming more prevalent as they bring walkability, vibrancy and community together into a unique environment that appeals to the modern urban consumer.

Real estate is a preferred investment vehicle.


Annual office sales volume has risen 528 percent since the market bottomed out in 2009. Commercial real estate in the U.S. continues to be a safe haven for investors seeking higher yields with relatively low risk.

To read the full report CLICK HERE.

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

 

The Trend Report: Urbanization

UrbanHuntsville

According to a recent report compiled by PwC and The Urban Land institute, urbanization will be the number one emerging trend for real estate in 2015.

The report stated that, “no longer is it accepted that only the great coastal cites can be alive around the clock and on weekends.” Instead, it went on to say, “downtown transformations have combined the key ingredients of housing, retail, dining, and walk-to-work offices to regenerate urban cores, spurring investment and development and raising the quality of life for a roster of cites.”

The driving force behind this trend?  Millennials.

Millennials, people born between the early eighties and late nineties, are being cited as the major drive behind the growing urbanization trend.  80 million-members strong, this group is entering the market for housing and jobs and they are opting for the convenience of urban-style live-work-play environments in an effort to reduce time and expense on commuting and transportation.

But what does this mean for Huntsville?

Huntsville, as a major innovation market, where millennials are becoming highly sought after by leading tech firms for their cutting-edge skills, is quickly responding to this growing trend by engineering the type of, live-work-play communities that will entice and retain these talented individuals.

Organizations such as Downtown Huntsville Inc. have formed to help foster the revitalization of the urban downtown Huntsville area by creating a vibrant thriving community of individuals deeply rooted in the history and heritage of their city and invested in it’s future.

The city itself has taken great strides as well in helping to structure an environment to encourage urban growth by offering incentives and rezoning districts to make them more attractive to investors.

And developers are taking notice.

“Increasing numbers of people are desiring to live downtown, due to the vibrant atmosphere, walkability, convenience, and quality of life,” commented developer Charlie Sealy III in an interview with Business Alabama. Sealy, the man behind Belk-Hudson Lofts, led the charge on the Urbanization trend in 2012 and is continuing it with his newest upcoming addition to downtown, The Avenue.

With 21,000 square feet of retail space and 193 residential units for rent, The Avenue will be a game-changing mixed-use development for downtown Huntsville. “I wanted to undertake another development downtown because I believe in the continued growth and popularity of downtown.” Sealy later went on to state, “I believe Huntsville will grow in population and economic activity in the near future, and the appeal for urban living, shopping, dining and gathering will increase, as it is in other leading cities.”

Crunkleton & Associates is excited to have been contracted to perform the leasing for all of the retail space for the upcoming development. “We have seen a dramatic increase in capital being invested into downtown with no real end in sight,” said Wesley Crunkleton, Qualifying Broker of Crunkleton & Associates.  “Most of this investment has been or will be in mixed-use projects that include a residential and retail component.  With this, we have continued to see an increase in retailers and restaurants wanting to be downtown. While urban living seems to be leading the charge I expect to see more hotel and office development to follow.”

With their eye on innovation, desire to capture the talent of incoming millennials, and their willingness to listen to an ever changing marketplace, Huntsville has positioned itself perfectly to take full advantage of an urbanization trend that has proven it’s not about to fade any time soon. SplitLine

404220_10150473102152791_1516819070_nKadie_Sig KADIE PANGBURN MARKETING COORDINATOR CRUNKLETON & ASSOCIATES KADIE@CRUNKLETONASSOCIATES.COM