Retail Property Owners, Managers Watch These 5 Trends as Year Ends

Retail Property Owners, Managers Watch These 5 Trends as Year Ends

2017-11-15

PWC recently released its Emerging Trends in Real Estate® Report for 2018 in which it identified five trends in retail that commercial real estate professionals should watch as 2017 draws to a close. Here, we unpack these trends to consider their impact on retail property owners and managers.

1. Department store deconstruction and obsolescence.

Identified by PWC as the single most significant factor affecting U.S. retail is the tail end of a decades long trend in which big-box retailers and super-regional malls have replaced most full-size department stores. The report states, “Today, after more than 40 years of this slow and deliberate process, former full-line department stores have reduced product offerings to three primary product categories—apparel, housewares, and cosmetics and fragrances.”

2. Retail industry maturity.

With the industry having reached full buildout albeit with some exceptions, the retail industry will continue to experience slow growth, although overall the outlook remains strong for the industry. The numbers speak for themselves.

The U.S. retail industry accounts for more than 24.5 square feet of retail space per capita (more than five times Europe’s average of 4.5 square feet), which includes over 8.5 billion square feet of retail. PWC shares the wisdom of a longtime retail executive, saying, “Retail is more difficult than ever, and it’s always been difficult. The pace of change is fast and furious. You used to have time to fix your mistakes; now you don’t have that luxury.”

3. Historic changes in apparel spending.

Apparel spending is low on the shopping lists of baby boomers and millennials alike, which may be why fast discount fashion is now the dominating force in apparel. This shift has resulted in shorter design time, faster production, and lower manufacturing costs, which are in turn resulting in bankruptcy for many mid-market apparel chains.

4. Changing consumer demographics and preferences.

While baby boomers and millennials may differ in specific preferences, their behaviors and attitudes toward retail converge in some key areas. Boomers, the largest single consumer group, consume less and continue to downsize assets, yet they spend a higher percentage of their income on dining out, entertainment, and travel. Millennials too are spending more on entertainment and dining out, and less on apparel, housewares, and even automobiles. As retailers vie for shoppers’ time and money, CRE owners and managers will need to create, market, and maintain properties that attract traffic and facilitate human interaction and socialization within their properties.

5. E-commerce and other changes in retail technology

In efforts to find new ways to engage shoppers and maximize shopping experiences, omnichannel strategies and retail technology continue to present retailers with new and exciting options. Nevertheless, brick-and-mortar stores continue to dominate the retail industry in terms of sales. The 2016 U.S. Census reports sales distribution as follows: brick-and-mortar stores 89.4%, ecommerce 9.3%, omnichannel (online sales fulfilled in stores) 1.3%.

Retail property owners and managers can use this information to inform decision-making on lease renewals, prospective tenants, and portfolio management. In addition, they will be wise to utilize real-time data to assess tenants’ risk in this competitive market using tools like (RE)meter’s TIL Industry Report.