Robert Khodadadian – Commercial Observer

While physical retail sales are down slightly from this time in 2021, mitigating circumstances and evolving retail strategies show that brick-and-mortar retail is in a stronger position than many realize.   

This is one of the insights from “Retail Real Estate Lessons from Back to School,” a Sept. 13 webinar on top trends shaping the physical retail landscape that was hosted by Commercial Observer Partner Insights, and presented by Placer.ai.

The panel featured thoughts from Ethan Chernofsky, vice president of marketing at Placer.ai; Emily Heppen, senior director of leasing at Finmarc Management Inc.; and Mike Polachek, executive vice president and managing principal at SRS Real Estate Partners.

Chernofsky and Heppen opened the discussion by noting that, compared to the back-to-school season in 2021, retail was down a bit this year. However, given the circumstances from last summer, this was to be expected.

“In 2021, we really had this outlier year as people were so excited to go back to school, and wanted to do all of the shopping they weren’t able to do in 2020,” said Heppen. “Following that, we were going to have a bit of a downturn this year, as people went back to buying online and tightening their purse strings.”

Chernofsky showed a chart indicating that, compared to last year, weekly retail visits fell off starting in June. By July, visits were down over 7 percent year-to-year, with that number not reaching below 6 percent until late August, when the trend began to reverse. 

Polachek noted that current economic factors, including inflation and high gas prices, had a marked effect on retail and more.

“[These factors] had a tremendous impact not only on retail performance, but the economy overall,” said Polachek.

This led to a discussion on the changing nature of retail evaluation. While the analysis is always evolving and integrating new factors, the economic shifts of the past three years have required analysts to evaluate retail success from a vastly different perspective.

In one sense, these shifts have made evaluating retail as nebulous as ever. 

“The way we look at how a retailer is doing was constantly changing pre-COVID. We really looked at occupancy costs compared to what tenant sales were,” said Heppen. “During COVID, most retailers started to roll out ‘buy online/pick up in-store.’ It’s been a great tool, but there hasn’t been a uniform decision from retailers on if those sales count toward individual store sales or web sales, and the same is true for returns. So it’s harder to measure what tenant store sales really are.”

That said, rapidly evolving proptech tools are changing the game in terms of how detailed and in-depth retail analysis can be.

“The growth of proptech tools, especially with location analytics, really helps us understand retailer performance when it comes to dwell time and rankings,” said Heppen. “Placer has this great feature where I could look up an Alta in my portfolio and see if that’s somewhere in Montgomery County, Maryland. I can look to see how that store is performing against the other locations in Montgomery County, against the other locations in Maryland, and against the locations in the rest of the country. Couple that with sales, and you have a better perspective of how the retailers are doing, where they’re pulling their customer base from, who’s a frequent shopper, and how healthy the store is compared to other locations.”

Chernofsky notes that within retail analysis, “visit duration is a signal for basket size,” and while retail visits have dipped during the pandemic, visit-duration times have been way up, signaling significantly larger basket sizes.

Another interesting aspect of the current retail landscape is retailers that are reinventing, either in slight shifts or major rebrandings, their brand to match the current realities of the market.

Heppen notes that this has been a significant factor in the dollar store category.

“Retailers have been looking for new or relocation space — that hasn’t slowed,” said Heppen. “It’s interesting looking at what some of the discount and dollar stores are doing. You look at Dollar General and pOpshelf as a newer concept they are rolling out aggressively nationwide. They would not say it’s competitive with something like Five Below, but when you walk into a store, it definitely feels like a Five Below. So some of these brands are figuring out how to have a second layer, and find a new customer demographic.”

To the extent that this represents a slight comeback for discretionary spending, Polachek said, retailers must update their offerings, consistently incentivize return visits, and embrace integration with their online presence.

“[Stores can’t stock] last year’s merchandise. Even some of the discounters, like Ross, T.J. Maxx and Burlington, have some private label, but are also coming up with fresh merchandise,” said Polachek. “They also have to embrace buy online/pick up in-store — landlords need to make it as convenient as possible for the retailers to have the merchandise quickly in the hands of the consumer. Best Buy did a wonderful job of this in 2020. No one went into the stores. They used a parking lot with numbers on it. You ordered merchandise online, and it was available within about an hour. And they need to provide incentives to visit and revisit stores as well, whether it’s coupons or something else.”

Chernofsky notes that one positive take from all this is that consumer demand has been resilient — that even in light of hardships, the consumer has been flexible in figuring out how to access a retail environment. This explains why, while consumers are visiting retail locations less frequently to spend less on gas, they are spending more time at these destinations, a positive sign for retail’s future.

“The potential for brick and mortar is great,” said Polachek. “People want to go to the store. They want to feel and see the merchandise. Brick and mortar is here to stay. It’s a relevance situation. From a social creature standpoint, people like to be out. They like to be in malls, and they want to see the merchandise they’re buying.”

While physical retail sales are down slightly from this time in 2021, mitigating circumstances and evolving retail strategies show that brick-and-mortar retail is in a stronger position than many realize.    This is one of the insights from “Retail Real Estate Lessons from Back to School,” a Sept. 13 webinar on top trends shaping the physicalRead MoreChannel, brick-and-mortar retail, Placer.ai

Robert Khodadadian, skyline properties, ground leases

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