While large retail stores are gaining headlines with their closures, there are numerous retailers that are growing and even thriving in this environment. Suburban retail centers that are not malls and street retail stores are doing better than their counterparts. Their visibility, close proximity to customers and diversified tenant mix provide a more stabilizing effect. One noticeable standout is the lack of apparel in these types of businesses.
Weingarten Realty learned its lessons from the financial crisis of 2008-2009 and purposely only has 1% of apparel retailers as tenants in its properties. They instead focus on supermarkets, basic goods and services such as pet stores, spas, exercise studios and phone stores. GGP which also operates retail properties, has reduced its exposure to apparel retailers to better position themselves too. Grocery and food stores have the added benefit of higher volume, bringing consumers to shopping centers several times per week.
While the retail sector was in fear of e-commerce taking over and making brick and mortar irrelevant, the pandemic provided us with insights into areas that are more immune to their reach. The tenant mix of forward looking real estate operators also provides a cushion away from e-commerce. Food sales are less than 1.5% of all e-commerce transactions and services are very difficult to transfer to online sales. Curbside pickup service provided by many retailers offers faster access and elimination of delivery charges as opposed to online orders. In this manner the store becomes the distribution channel for customer purchases.
Incorporating New Features
Developers who are identifying the current trends should incorporate more space for patio seating, curbside pickups and even drive-thrus when possible. Restaurant chains with drive-thrus typically generate approximately 70% of their business through the window and have 30% higher revenues than restaurants without them. In addition to fast food, other retailers are considering adding drive-thru or enhanced curbside services.
Another design consideration is that the overall unit sizes at shopping centers are expected to be smaller for regular retail tenants. While traditional real estate favors larger spaces, to survive property owners need to find innovative solutions to more easily subdivide spaces. Coworking spaces that worked well for short term office space is something that landlords should consider implementing. Small boutiques, handmade items and other small retail stores can take the place of larger spaces that would otherwise go empty. The only exception to the smaller space trend is for larger (grocery related) anchor tenants who are growing in this economy.
Large enclosed malls can begin modifying their existing properties to incorporate some open air concepts in the shorter term. Increased access points, potential drive-thru, curb side service and other related features can help keep retail tenants going. However, in the long term, mall operators will need to remodel and adjust to the new consumer behaviors if they want to survive. The key takeaways for real estate investors are accessibility, convenience and social distance.
While COVID-19 has certainly changed consumer behavior and the way we live our lives, we can adapt to the new reality and incorporate new design elements. Some of these changes are easy to implement, while others may require an entire new set of designs for developers. Ignoring the lessons and trends of this latest pandemic is a sure fire way to failure, so businesses, real estate investors and developers need to adjust their plans for future retail projects.