By Samantha Goldberg
CBRE Head of Retail Research for the Americas Melina Cordero sat down with Commercial Property Executive to discuss the major trends and challenges facing the retail sector and how retail real estate owners and managers, as well as retailers themselves, are adapting. Check out the video above for a sneak peak, and read the rest of the conversation below.
Which retail categories are thriving and which are struggling in the current retail environment?
Cordero: For me, a lot of it comes down to two things: one is category and one is price. First of all, we know that consumers–not just Millennials, but most generations–have shifted their focus on spending from goods to experience. Part of the reason for that is the price of goods has really fallen. Consumers are really interested in spending more on the experience and service categories, which means that a lot of the retailers that are able to offer services or experience alongside their goods—I think it’s not necessarily goods versus experience, but it’s goods with experience—those are the concepts that consumers gravitate towards.
The second point on prices is that we’re seeing consumers trend toward either end of what I call “a barbell”. We’re fleeing the middle and going toward lower price and off-price or going up market and turning up in price. If I want to buy a white T-shirt, the consumer is thinking, ‘why am I going to spend $20 on one when I can spend $10 at an H&M or TJ Maxx or I can spend $50 if I want a high-quality, branded item?’ So a lot of the retailers that are sitting in the mid-range pricing that haven’t defined their brand well are the ones that are struggling. And those are the ones you’re seeing in the retail bankruptcy and foreclosure headlines.
What trends are you seeing emerge in the retail sector in 2018?
Cordero: We’re going to see a lot more experimentation and a lot more new concepts coming up from the retailers and the landlords. On the retailer side, you have retailers coming up with new ideas and concepts and testing, which comes in the form of pop-ups, temporary installations. They’re really trying to test the markets to see what’s going to work with this new omni-channel consumer.
On the other hand, what you’re having for the first time probably ever is landlords finally stepping up and saying, ‘I’ll work with this flexibility.’ Traditionally landlords have wanted long-term leases, high-credit tenants and that guarantee of stability. And now landlords are thinking maybe there’s something they can benefit from in the pop-up, in the surprise, in the fun and new and different. So we’re already starting to see that with a lot of the major mall owners, which is spaces in their malls dedicated to pop-ups, investing in new brands and e-commerce brands in almost an incubator/start-up way. We’re going to see more and more of that and I think that’s really exciting because it’s also changing the game of the traditional shopping mall and taking us from a copy-paste where every mall is the same with the same 90 to 150 tenants to something that’s actually quite unique and fun and might draw the consumer in.