By: Amnon Cohen, Director, Lever Capital Partners
The two biggest drivers causing shock waves in the commercial real estate retail sector are the proliferation of online shopping and the consumption habits of millennials. As a result, there has been a steep decline of traditional retail malls across the United States. Recent reports indicate that upwards of 20% of stores are at risk of losing an anchor tenant resulting in possibly 25% of them closing by 2024. Developers and investors are now scrambling to find the right tenant mix that will attract more people to shop at their centers, thereby providing a more stable income base.
The ease of purchasing goods online is clearly the main factor why so many name brand retailers are filing for bankruptcy ,or liquidating entirely. In 2019 alone, big name brands like Gymboree, Payless, Forever 21 and Barneys New York have all either filed Chapter 11 to restructure their debt, or close all their stores as part of a Chapter 7 bankruptcy. It is easy to buy baby clothes online, but how about a gallon of Milk? Grocery stores have been a mainstay of in-line shopping centers for years, and are holding their ground, but there has been an uptick of grocery operators shipping locally to consumers thereby chipping away at that sector as well.
Millennials represent 30% of all retail sales, shop 50% online and are the major drivers for the changes discussed above. As they continue to move into urban areas, convenience is an important factor as it becomes more difficult to shop in denser areas. Therefore, millennials are looking to shop with brands that can provide a seamless experience online and off. As a retailer you’ll need to be able to create an experience where consumers can easily find the same products and deals from mobile phones to computers to in-store purchases.
There have been countless articles about the need for retailers to provide more of an experiential store, thereby drawing in people to get an experience they can’t get online. Retailers are adapting by bringing technology to their stores such as automated checkout lines, robots for customer service, interactive price comparison and other services that enhance the consumers shopping experience and provide an alternative to shopping from home. But what do we do with all the retail that’s already been built? We’ve seen malls being converted to office buildings, shared office space, trade schools, colleges, fulfillment centers and other industrial uses which are in high demand.
Finding capital requires a concrete plan by the owners. How are you going to replace the tenants that have liquidated? Are you going to replace them with a stronger tenant who has a better lease guarantee? If you’re going to convert your building to a different use, how do we know you have the expertise to accomplish that? Whatever plan you have, make sure you can back it up with a lot of data and bring in any partners that have an expertise that you’re lacking. The best way to gain access to attractive capital is to have the entire plan well thought out without any holes. Reach out to us if you would like an evaluation of your retail project.
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To learn more about these trends and how they might affect your business, or if you have questions regarding a commercial property, reach out to us and we will evaluate your project.