The Changing Retail Market

In April, CNN Business reported that 6,000 retail stores would be closing in 2019; last week Business Insider increased that closing expectation to 7,000 stores by years end. Some of the retailers include: Payless (2,500 stores), Gymboree (850), Dress Barn (600) Charlotte Russe (520), Family Dollar (390), Shopko (371), Sears (70) and even Jewelry giant Signet Jewelers (Kay, Jared and Zales 159 stores).

A new catch phrase being used by retailors today is to “right size” to individual markets, one size store no longer fits all. Stores that are looking to shrink their existing footprint to save money include: Target, Walmart, Barnes and Noble, Family Dollar, GNC, Walgreens and J.C. Penny. New stores will be smaller. “Digital natives”, (online stores) have recognized the need to also have Brick and Mortar locations and will be opening small local “outposts”.

Some existing stores will be expanding in 2019 one of the most aggressive is Dollar General planning on opening 975 new stores. Other companies adding stores this year are: Aldi Supermarkets (100), Target, Costco, BJ’s, Marshalls, T.J. Maxx, Aerie, Dollar Tree and Burlington.

Shopping Centers and Malls are still challenged with filling vacant former anchor locations. “Creative reuse” is the thought of today, as one developer said, “Nothing is off the table.” Movie theaters, family entertainment, grocery stores and even multi family or senior housing is being considered. There is a trend among younger people to live and work within walking distance, which fits this model perfectly and convivence to shopping would certainly appeal to seniors.

Mall tenancy has changed, what hasn’t changed is the human desire to socialize. Other new tenants are casual dining restaurants with bar service, fitness centers, yoga studios, cross fit gyms. The Health and Wellness industry has doubled in the last 10 years. Customers are being lured into these centers with engagement, entertainment, and opportunities for social contact.

Warehousing and flex space are also providing retail “destinations”. In San Francisco, an “Urban Mini Golf Course” opened. It is considered adult fun with a bar (and tables at each tee to hold drinks while you putt) and a dining facility upstairs.

How will the new tariff’s with China affect the retail market? Many goods will now have a 25% tariff: electronics, machinery (washing machines, air conditioners), furniture, bedding, luggage, handbags, raw materials used to make clothing and footwear (fabrics, buttons, leather). China makes 85% of the toys sold in the U. S.! The real affect will be felt during the upcoming fall buying season with all the major retailers agreeing they will have to reduce profits expectations or increase prices. You can bet on increased prices.

This may have a direct impact on commercial real estate. Increase prices may lead to less sales and more store closings which would create more inventory.

Small business growth is rising. The Small Business & Entrepreneurship Council tracks new business creation by the number of Employer Identification Number (EIN) applications filed each year. From 2012 to 2016 the number of annual new businesses rose 100,000 to 750,000. In the two years between 2016 and 2018 this number has steadily and significantly increased to 900,000 applications each year and the SBE Council predicts it will continue to rise.

The Small Business Administration tells us there are 28.8 million small businesses (defined as businesses with less than 500 employees) in the U. S. which account for 99% of all business in the country. A significant increase in start-up businesses are expected. The SBA says 26% of people starting new businesses do not want to be an employee; they want to work for themselves and 23% of new business owners are pursuing their own passion or idea.

Entrepreneurs are capitalizing on and applying new technology to many different industries and launching new successful businesses. As these small businesses grow the demand for space is expected to increase.

Some stores are shrinking, some are closing, and others are expanding. Mall and shopping center tenant mix is dramatically changing, and new small businesses are on the rise. From our perspective, these are all Commercial Real Estate opportunities.

The way, and where we shop may be changing, but we will all continue to shop!

Edward S. Smith. Jr. CREI, ITI, CIC, GREEN. MICP, CNE and CIREC Program Developer, is a Commercial and Investment Real Estate Instructor, Author, Broker, Speaker and a Consultant to the Trade.

Contact me at:: [email protected]

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