Four trends that will dominate retail real estate in 2020
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The face of retail continues to evolve and retailers have a tremendous opportunity to enhance customer connections and stand out in an increasingly competitive landscape.
Here are my top four predictions for retail in 2020.
Traditional mall formats will evolve to meet modern consumer demands. The state of the enclosed mall in the United States will continue to evolve. Class B & C shopping malls will need to reinvent their business model to stay relevant or completely reposition and redevelop. Several years ago, mall owners created outward-facing retail to activate the building exterior. At that time, department stores were generating traffic into the mall. Today, traditional anchors are no longer a catalyst to drive traffic to support the other mall tenants. We can debate what caused the demise of most department stores, but I think we can all agree that most department store models no longer resonate with today’s consumer. Mixed-use developments are among the most desirable models within the real estate sector as they are lower-risk for investors and they draw a diverse mix of residents, tenants, and patrons providing them with unparalleled convenience. Looking ahead, shopping center owners will likely reduce the amount of leasable retail space.
There are a few local examples of thriving development projects in the Philadelphia area. One is The Collins, a mixed-use community in urban Center City. This development is comprised of approximately 160 residential units and 90,000 sq. ft. of retail that includes Target, PetSmart, Starbucks, and Fine Wine & Good Spirits. The complex also provides 60 dedicated parking spots for residents and customers. Another new project located in the Philadelphia suburbs is The Promenade at Upper Dublin, which is under construction to deliver over 400 luxury apartments, and 128,000 sq. ft. of retail, anchored by Sprouts Farmers Market.
Omnichannel marketing will reign supreme. Retailers will no longer need to “pick a lane.” Instead, they will flourish in an omnichannel model and provide customers with a seamless experience through multiple sales channels including brick and mortar, online marketplaces, mobile browsing, and social media. Omnichannel retail is a natural fit for digitally native brands like Warby Parker and Marine Layer that target millennials and Gen Z. These generations grew up with technology and they appreciate the convenience of shopping online and interacting with their favorite brands on social media. However, these cohorts still crave an immersive in-store experience where they can physically touch and test products. Having the ability to interact with brands across multiple channels is a win-win for the customer and the retailer. It increases brand loyalty and boosts revenue.
Store formats will shrink. Retailers are finding success with small-store formats that are tailored to specific demographics across urban and suburban markets. Through these smaller spaces, retailers can curate their merchandising to better serve their customers’ needs. Target is one of the notably larger retailers that has invested heavily in smaller-format stores. Its smaller-format urban and college campus stores are strategically positioned and carry a product range that is largely geared toward the local demographic. More retailers will continue to right-size their footprints in 2020 and allow customers to purchase products through their preferred channel. Total store sales will be measured by a combination of in-store digital sales attributed to the trade-area.
Technology will continue to change the way we shop on all channels. Retailers are using smartphone shopping apps to provide customers with deeper insights on products and real-time inventory, while also implementing website chatbots to answer customer questions and make recommendations. Leveraging in-store sensors and smartphone technology, micro-location will flourish in centers and stores and provide a highly customized retail experiences to consumers. Kroger is working with Microsoft to enhance its customer shopping experience with an app that guides customers through the store based on their grocery list, with digital shelf signs that highlight each item when they get to the aisle. Customers can scan different products to learn more about nutrition and dietary information, see available promotions, and even get recommendations based on their shopping habits.
James Savard is the executive VP of leasing and management at Metro Commercial, a Philadelphia-based brokerage that represents more than 430 properties.