With Stores Closing Down Everywhere, Here’s What the Future of Retail Looks Like

retail real estate
Amrita Marino.

Ready or not, the future of retail is here.

Accelerating expectations for convenience, faster delivery and engaging in-store experiences have sent many footwear and apparel retailers scrambling for a more effective real estate strategy.

“Retailers know [that brick-and- mortar] is still very relevant but are rethinking the number of stores, [their location], their purpose, how to reimagine them and how to integrate all the technologies that are driving new shopping patterns,” said Gene Spiegelman, vice chairman of North America retail services at Cushman & Wakefield Inc.

But the biggest hurdle in creating a thriving marriage between real estate, retail and technology is that each component moves at its own pace.

“When you’re making a real estate decision, you have to consider it, plan for it, then apply capital,” Spiegelman said. “Then — whether it’s a shopping center or a store — you have to build it and occupy it. By the time you’ve completed that whole process, technology has moved the dial again, making what you planned a year ago
less relevant.”

While retail executives have been touting their omnichannel efforts for years, few could have predicted the explosive growth of e-commerce pure plays such as Amazon and eBay and how much they would redefine consumer-shopping patterns. Amazon’s ability to lure shoppers to the web, coupled with its push to offer near immediate delivery, has taken market share from many retail giants, including Walmart, Macy’s, Sears and JCPenney.

An uptick in retail bankruptcies, store closures and layoffs among traditional retailers is evidence
 of the shift, leading experts to conclude that the U.S. is generally overstored. (Macy’s, Sears and JCPenney are among the firms to shutter hundreds of doors in recent months.)

Still, according to Antony Karabus, CEO of HRC Advisory, many retailers’ brick-and-mortar presence — if appropriately optimized — could be their ace in the hole.

“Retailers are under immense pressure to keep up with Amazon,” explained Karabus. “But they do have one advantage over Amazon and that is that [many of them] have hundreds and thousands of stores.”

Is Less More?

“Just because a store might not be performing as well as another store, doesn’t mean that its presence should be eliminated from that local geography,” explained CL King & Associates analyst Steve Marotta. “Given that people like to pick up in store and return in store eliminating every underperforming store might be a net detriment.”

In fact, Ron Offir, founder and CEO of Offir Consulting LLC and former president of retail and ecommerce for Jones Group, suggested that underperforming stores could be critical in helping retailers compete with ecommerce pure plays and maximize online fulfillment.

“The industry has been doing a good job of evolving the algorithms that are being used to distribute orders to the right stores,” Offir said. “I’ve worked with planning and allocation teams to identify stores to do online fulfillment and we [would often choose] stores that were a bit slow [during the current] season.”

Offir said using those stores for ecommerce fulfillment would help firms offload inventory early in the season and ahead of the markdown cycle.

Many large and small retailers — DSW, Nordstrom and JCPenney, among others — have rolled out omnichannel and fulfillment capabilities that bridge the digital divide between online shopping and ultimately trying on and purchasing in store. Platforms such as buy online pickup in store (BOPIS) and buy online return in store (BORIS) allow firms to use their physical spaces as distribution centers and also circumvent expenses that come with offering free and fast delivery.

Brandon Famous, retail leader for the Americas at commercial real estate firm CBRE, said that despite cautionary headlines suggesting that retailers’ saving grace is ditching a large number of stores, his firm has found a correlation between brick-and-mortar store closures and lower online sales.

“[Traditional] retailers are often hesitant to close stores because when they do, they see a dip in their online sales in the general area where they have closed stores,” Famous said.

Still, many experts said that in order to thrive in the digital age, companies will have to shed some doors — albeit strategically.

“If you look at the number of stores JCPenney and Macy’s are closing — they’re closing 10 to 15 percent of their fleet — but that’s only amounting to 5 percent of their sales because those stores are loss-making stores,” Karabus said. “There’s no question: [most] retailers cannot have the same number of stores that they used to.”

Why Size Matters

Experts have suggested that one of the most effective ways footwear sellers can address consumer shifts toward experiential spending is by creating in-store experiences that cannot be matched online or elsewhere.

“Today’s consumers are increasingly turning to the internet for convenience and turning to the store for experience [as well as] testing and interacting with products,” Melina Cordero, head of retail research in the Americas at CBRE, said.

Despite what conventional wisdom has implied, Cordero said larger physical spaces are a prominent fixture in the future real estate plans of many retailers.

“I can think of retailers — Anthropologie is one example — that are actually, as a result of ecommerce and online, going bigger because they want to expand certain aspects of their brick-and-mortar categories and try to create a unique experience in the stores,” Cordero noted.

Similarly, Offir said he’s seeing some retailers shift toward large format stores in an attempt to delight customers with other services such as offering food and beverage.

And, perhaps with good reason: recent data from the U.S. Census Bureau has shown that sales in retail and food services continuously outpace sales in other categories.

(The Census Bureau’s latest report showed retail and food services sales up 5.7 percent year-over-year in February while sales at department stores tumbled 5.6 percent during the same period.)

In other cases, Offir said smaller format stores can be a good idea, too.

“We’re seeing new concepts where retailers are choosing a smaller footprint to cater to — for example — a guy who wants to shop the brand but is concerned about size and fit,” Offir said. “In that situation, retailers [lease or buy a small space] and [showcase] plenty of sample merchandise that he can come in and try on, and the merchandise is shipped to him after.”