Experiential Retail Avoids Internet Apocalypse

E-commerce has changed shopping habits, and some bricks-and-mortar retailers have been shuttered as a result. But retailers are finding a way to compete, banking on experiential retailing — turning stores into brand and product showcases that offer omnichannel shopping experiences — as a way to avoid the internet apocalypse.

The purpose of these types of stores is to generate brand excitement. Retailers also are using them to engage new customers, particularly millennials, in different ways. Retailers realize they can offer experiences that virtual stores can’t, such as listening to live music, trying on clothes and dining.

Digital-native brands are jumping in, too. Farfetch, an online fashion retailer, offers a bricks-and-mortar store in London where customers receive a sign-in screen to search their purchase histories and wish lists. They offer smart mirrors in fitting rooms to let shoppers view different sizes and products. Shoppers can even pay for their purchases from the dressing room, Forbes.com reports.

Commercial experts note that experiential retailing will work best in certain locations, likely near major transportation areas and high-density residential and commercial districts. “Be prepared for more department store closures, as well as the closures of many other mall staples,” Forbes.com reports. “They’ll be replaced by smaller stores and digital-native brands like Warby Parker, Buck Mason, Glossier and Revolve (to name a few) that are seeking to add the convenience and experiences that come with bricks-and-mortar locations.”

‘Click-and-Collect’ Boosts Retailers

The assumed demise of bricks-and-mortar retail stores in the age of e-commerce doesn’t appear to be playing out the way the real estate industry thought it would. In fact, a melding of in-store and online services – even for some brands that started out as digital-only – seems to be a winning strategy aiding a retail resurgence, says Todd Caruso, a senior managing director at commercial real estate brokerage CBRE.

“We are really seeing an upstart renaissance” within the retail sector, adds Garrick Brown, vice president of retail research at Cushman & Wakefield. Still, plenty of challenges remain for retailers, including oversaturation of physical stores and not enough investment in online platforms or in-store shopping experiences, Brown says. “You can’t compete with the likes of Amazon when it comes to convenience. You have to give consumers a reason to come into your store.”

Some bricks-and-mortar operations are tapping into consumers’ desire for instant gratification by offering online shoppers a faster in-store pick-up option and online returns. Such a tactic appears to be boosting traffic at physical stores: More than 53% of Americans say they use “click-and-collect” options which enable the online purchase of a product and an in-person pick-up at the store, according to the International Council of Shopping Centers. Of consumers who use click-and-collect shopping options, 61% report using them at least once per month. Further, 67% say that when they go to a store to collect their online purchase, they end up buying additional items from the retailer.

“The use of click-and-collect demonstrates the ongoing convergence of physical and digital,” says ICSC President and CEO Tom McGree. “Consumers want options when making their purchases, and the retailers who are offering the most channels are seeing more purchases being made.”

That may help explain why foot traffic at physical stores is climbing. Nearly 80% of consumers report visiting physical stores as much or more than they did two years ago, according to ICSC, with entertainment and dining venues seeing the most traffic.

The Face of Business Is Changing

Big name retailers – Sears, Macy’s, J.C. Penney, for example – are struggling as the rise of e-commerce propels Amazon and even Wal-Mart to consume ever larger shares of the retail pie. But are traditional brick-and-mortar businesses en route to the graveyard?

The International Council of Shopping Centers (ICSC) says 1-in-11 jobs are related to shopping centers and retail is the largest employer in more than half the states in the U.S. “Retail is very healthy,” says Tom McGee, President and CEO of ICSC. Despite all of the upheaval, McGee notes that “more than 90% of sales still happen in a store.”

Some commercial real estate experts echo McGee’s optimistic outlook.

“E-commerce can’t paint your nails, cut your hair or serve you a burrito,” says Travis Carter. “Consumers still need to see, touch, and feel those tangible goods.” Carter says the biggest change in retail he’s seen in his Greensboro, NC, market is visible in the dynamic of the shopping center tenant mix, which continues to shift towards businesses that provide services.

“I can see the pendulum swinging back away from everything happening online,” says John Propp of Denver where the market is in the midst of a commercial real estate boom unlike anything he can remember. He feels the last real impediment is the issue of sales tax. Purchases made online don’t typically include a state sales tax, a decision stemming back to a 1992 Supreme Court decision. “Once this is settled there will be even less conflict between the two.”

Transwestern recently highlighted three commercial trends in its first quarter Insights report covering the retail, industrial and multifamily sectors.

1. Retail: The Rise of Mobile Data
Retailers are getting more sophisticated in how they’re collecting mobile data about their customers. Many businesses are using mobile apps coupled with monitoring devices in their stores to track and interact with customers. If a consumer has that business’s app on their phone, it allows the retailers to engage with them by offering coupons or product suggestions.

2. Industrial: New Demands for E-Commerce Distribution Centers
Demands for faster shipments in online sales and massive increases in e-commerce business are causing companies that have large fulfillment centers to rethink location. Previously, these online retailers chose industrial warehouses in lower cost areas outside of population centers. Today, there is a new demand for large commercial space closer to metro areas in order to more quickly and efficiently store and ship commodities to customers, according to Transwestern.

3. Multifamily: Micro-Unit Apartments in Urban Markets
As renters flock to urban centers for the live-work-play lifestyle, entry-level lease rates are becoming unaffordable for many recent college graduates, service workers and young professionals. One way of providing more affordable living space is through micro-unit apartments.

Reports on the death of traditional retail may be greatly exaggerated. Anchor stores continue to change, pivoting from big-box retailers to smaller service providers, medical facilities, restaurants and multi-unit residential. National chains are downsizing and refocusing on personalization, catering to more specific clientele rather than trying to be everything to everyone.

Shopping Malls On Road to Extinction

Over the next 25 years, most shopping malls will be extinct, according to the experts. The world of the American shopping mall, said Kenneth Riggs, president and CEO of Real Estate Research Corp., “has been a Darwinian environment since the 1990s with the advent of big-box retail and the ‘Wal-Marting’ of the world – and it will stay that way.” In other words, expect malls to continue their decline due to the rise in e-commerce, with only those consistently producing very strong revenues still doing business in 25 years.

VacantMallAs the J.C. Penney’s in the U.S. and Sears in Canada and the U.S. continue to lose market share to online retailing, “you’re going to see more dead malls where the anchors go dark and ultimately are worth only the land they’re built on,” said Tom Bohjalian, executive vice president at Cohen & Steers, the first investment company to specialize in listed real estate.

Teardowns may not be the only way to capture value in defunct malls, though, said

Rick Fedrizzi, president, CEO and co-founder of the U.S. Green Building Council. He predicts that with re-purposing, they’ll be a useful resource when our way of life swings back to revolving around more compact communities. “Established places like shopping malls will become like town centers, where people can come together, where their doctors and day care will be, where they can gather after major devastations.”