While offering an ecommerce platform is a reality that all retail stores need to accept in order to build their brand and reach customers, online based retailers are also turning to physical locations to directly connect with their market base.
This article was original published in the April/May 2017 Edition of Expansion Solutions.
Shopping malls have ruled the retail real estate market for the last two decades, but changing consumer preferences, technological advances and ecommerce have significant implications on real estate markets and economic development efforts in communities across the country. Retail stores, including restaurants and bars, are often the hub of the community, a communal commerce center where people come to buy goods, interact with other community members and support local businesses. Yet, there is news of establishments, large and small, going out of business appearing on an almost daily basis. What does this mean for the future of communities who have relied on retail for economic activity in the past?
To answer this key question, we first consider why economic developers should consider a retail strategy as part of a wider economic development strategy. We will then explore the changing nature of retail, current trends and projections for the future. We will close with recommendations for how economic developers can mitigate some of the changes and work collaboratively within a changing retail landscape.
The retail industry is often overlooked in economic development strategies because the industry has lower than average employee earnings, making it less of a priority for economic developers who are looking to boost job growth in well-paying sectors. The average annual earnings for the national retail trade industry (defined by NAICS 44, Retail Trade) are about $35,000, while the average annual earnings for all industries in the United States reaches over $61,000.1 Despite low earnings, retail is a major component of our local, regional and national economy. In 2016, retail contributed $2.59 trillion to the U.S. GDP, making up 16% of total GDP.2 Nationally, the industry employs 16.4 million people (based on the most recent industry data), representing about 10% of total jobs across the U.S. This is an increase of 7% since 2011, nearly mirroring the total percent growth in employment for all sectors in the U.S. during the same period.3
Aside from the economic contributions to the economy, retail industries provide valuable workforce training opportunities. For many teens, their first entrance into the working world is at a retail or restaurant establishment. McDonald’s even calls itself “America’s Best First Job,” promoting that the restaurant chain is a starting point for thousands of teenagers across the country. Independently owned local stores are also a crucial workforce training ground, as individuals working at smaller establishments are often responsible for more than one aspect of the business, filling in whichever role is most needed on a day-to-day basis. These small businesses are a massive force in the retail industry. According to a report conducted by the National Retail Federation and PricewaterhouseCoopers, nearly 99% of retail businesses employ fewer than 50 people and Economic Census data reports that more than 95% of retailers have a singular location, demonstrating the importance of small businesses and their local workforce to the overall economy.
The Changing Nature of Retail
Online shopping has upended the way we purchase both, every day and specialized items. Depending on your location, you can order clothes, cleaning supplies, furniture, and even groceries without leaving the comfort of your home – and they could arrive within hours of ordering them.
Ecommerce has certainly instigated changes within retail, but has it completely taken hold of our shopping habits?
According to the U.S. Census Department of Commerce, ecommerce sales still account for a relatively small portion of total retail sales. In the 4th quarter of 2016, total retail sales reached $1,235 billion, and ecommerce accounted for 8.3% of total sales.4 Ecommerce as a percentage of total retail sales has steadily increased since the 4th quarter of 2015; however, this growth stalled between the third and fourth quarters of 2016. Based on these latest statistics, there remains great potential for ecommerce to control a larger portion of overall retail sales. Ecommerce does not just pertain to desktop computers - mobile apps, interactive programs, and virtual reality are all methods retailers are using to generate interest and sell their products. How are retailers adapting to an industry that increasingly requires multi-channel platforms to attract the attention of the market?
Retailers Take on Ecommerce and Other Challenges in the Market
The seamless integration of technology and physical space has proven successful for retailers. Rebecca Minkoff’s flagship store in New York offers next generation fitting rooms that include dressing room mirrors that act as tablets, where the consumer can swipe through different colors of a handbag and order right from the mirror (this mirror is pictured in the cover photo of this article). Shoppers can also order a drink via the system, which asks for their phone number so store associates can interact with them about potential purchases. This type of expansion and commitment to building an enhanced customer experience led to increased sales in clothing at the store, which is a product the designer is less well known for.5
While offering an ecommerce platform is a reality that all retail stores need to accept in order to build their brand and reach customers, online based retailers are also turning to physical locations to directly connect with their market base. Even online giants like Amazon and Google are engaging customers at brick and mortar stores. Amazon has plans to open a book store in the Time Warner Center in Manhattan in the spring of 2017. This will be one of eight stores the company already has open or has plans to open. The others are found in Portland, OR; San Diego, CA; Seattle, WA and will soon be opening in Chicago, IL; Lynnfield and Dedham, MA; and Paramus, N.J.6 With Amazon and Google entering communities in brick and mortar stores, spin-off possibilities for additional retail real estate will follow. These stores are likely to generate significant foot traffic just by the name recognition alone, opening the door for other retailers to locate in close proximity to benefit from the additional consumers.
Retailers like Amazon and Google may be able to rent a space in New York City without serious concern for their business stability, but opening a storefront is a major hurdle for small retail businesses. To mitigate this risk, the idea of short-term pop-up shops are ideal to gauge market reaction. This type of entry to market allows small businesses to invest more in their products and less on long-term leases, unnecessary square footage, and get an opportunity to interact directly with their potential customers. A Chicago company, whose tagline is “Between Startup and Storefront,” offers entrepreneurs a 200 square foot prefabricated structure along with other sources to test out their business. The company, cleverly named “Boombox,” is a combined effort between the Chicago Department of Transportation and a local architecture firm to reanimate public space while providing valuable resources for micro-retail endeavors.7
But pop-up shops are not just for entrepreneurs or small businesses entering the market, big name brands that represent beverages, liquor, ice cream and other items also are taking advantage of smaller interventions on street corners and temporary spaces to reach customers. While a company may already have brand recognition, short term spaces can be a strategic way to test the market for a specific new product.8
Retailers are also experimenting with different ways to sell items as part of a larger collection of products that build an entire lifestyle. This kind of experiential retail is key to the success of establishments in the industry. A prime example of a retailer capturing more market share by integrating their products into a lifestyle brand is furniture retailer, West Elm. The company is moving to open and manage boutique hotels furnished with their products in the next two years. The hotels will open in Michigan, Minnesota, Georgia, North Carolina and Indiana. Without opening any other retail locations, the furniture vendor hopes to continue growth through their hotel venture. Hotel dwellers will be immersed in an environment built and created by West Elm, with the goal of creating an experience that visitors will not want to part with, and encourage spending on furniture and other pieces used to create the ambience of the hotel.9
Today, we have seen that retail stores can no longer be standalone entities. Successful retailers have positioned themselves in strategic real estate locations where they will benefit from their surrounding tenants, events, transportation and a variety of other factors.
Suburban shopping malls that were ubiquitous in the 1990s, struggle today to retain consumers as they are drawn to other shopping environments. Once shopping meccas, an entire generation grew up as mall rats, hanging out at the food court. These days, malls across the country have shuttered as shopping habits and preferences shift. One professor estimates that we have “twice as much square footage in shopping centers per capita than the rest of the world.”10 How are communities coping with this excess space?
Malls are being repurposed into everything from medical spaces, residential units, additions to educational institutions and churches. In Austin, the Highland Mall covered 81 acres and 1.2 million square feet and was nearly empty by 2010. The nearby Austin Community College ended up purchasing the mall to create a “learning emporium” for its students with computer stations, library, offices and additional learning space.11
Based on the trends that we have observed here, we offer recommendations for how communities can work within an evolving retail reality, how to adapt outdated retail spaces and how to anticipate changes in the retail sector in your community.
- Identify areas where there is low cost, high-impact opportunities for retail space. Is there a mall in your community sitting vacant and a school that needs more space for after school programs? Are there partnerships that can be formed to share available space? Outpatient health care centers have also taken advantage of empty spaces left by vacated chain stores. Would a health care facility fit the needs of your population? Reach out to your local hospital to check-in on future plans for expansion or need for outpatient facilities.
- Make sure the local zoning codes are flexible enough to accommodate retail and other businesses that do not fit the traditional mold. This will be especially important to encourage entrepreneurial growth, as they often have new ideas that will not fit typical zoning measures.
- Think about building neighborhoods or corridors more than individual retail stores. It is key to attracting a critical mass of stores, which will increase the chances of each retailer’s success and help build a stronger sense of “destination.”
- Conduct a retail audit of your community. Are some small businesses planning to close their doors soon? Are any businesses having trouble keeping up with utility payments? Taking stock of the retail community in your town or city will help anticipate future problems and allow leaders to proactively plan for solutions. Perhaps a business succession plan would help a retail store owner understand their options at retirement. Without knowing the issues that exist, it is impossible to find strategic resolutions.
This article is based on a larger white paper, The Case of Disappearing Main Street Retail, authored by Jim Damicis (Camoin Associates), Hrishue Mahalaha (Innovation Economy Partners) and Alexandra Tranmer (Camoin Associates). Please email firstname.lastname@example.org or visit Camoin Associates’ website to find the entire white paper.
 2017.1 – QCEW Employees, Non-QCEW Employees, and Self-Employed
 The Economic Impact of the U.S. Retail Industry, PricewaterhouseCoopers - retail industry is defined to include retail, food services and drinking places.
 Based on data from EMSI, Retail Trade NAICS 44
 U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, 4th Quarter 2016, http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf. Figures refer to seasonally adjusted totals.
 “How tech in Rebecca Minkoff’s fitting rooms triple expected clothing sales,” by Hilary Milnes, September 2015, Digiday, online. http://digiday.com/brands/rebecca-minkoff-digital-store/
 “Amazon to Open Retail Store in Manhattan at Time Warner Centers,” by Nick Wingfield, January 2017, New York Times, online. https://www.nytimes.com/2017/01/05/technology/amazon-to-open-retail-stor...
 “Pop-ups: An essential part of the modern retail strategy,” by Natalie Holmes, January 2017, JLL Real View, online. http://www.jllrealviews.com/industries/pop-ups-an-essential-part-of-the-...
 ”Bedrooms to showrooms: Blurring the boundaries between hotels and retail,” by Kelsey Burgess, October 2016, JLL Real View, online. http://www.jllrealviews.com/industries/bedrooms-to-showrooms-blurring-th...
 Ellen Dunham-Jones, an architect and professor at Georgia Tech, cited in “A New Life for Dead Malls” in The Atlantic.
 A New Life for Dead Malls,” by Alana Semuels, March 2015, The Atlantic, online.