Retail real estate is emerging from a period of unprecedented change. Fueled by the pandemic and rapid technological advances, it’s a landscape full of new priorities, altered perceptions and fresh concepts.
The trends coming out of the pandemic have drawn shoppers back into stores, highlighting their desire to be among people and get a tactile sense of the in-store shopping experience. This includes new markets that have opened amid population growth, as well as the rise of different store formats influenced by the customers’ shopping habits and time allocation in a given area.
However, these innovations have created a disconnect between brands and their stakeholders, including consumers and landlords. How can retail site-selection professionals reassess and reconnect with their brand while getting a genuine sense of the landscape? Here are six strategies to consider.
Over the past few years, real estate professionals have become accustomed to doing business remotely. Zoom calls, virtual tours and conference calls replaced many face-to-face meetings. However, nothing can take the place of in-person visits to existing retail locations and new potential sites. These reinforce an understanding of how a brand interplays within a market and a trade area, as well as the dynamics that surround each location.
In addition, in-person visits offer valuable context and perspective for the site-selection process from an experiential and tactical perspective. This can further enhance and strengthen a brand’s connection to its customers. In-person visits answer questions such as who is shopping at successful and less successful stores? What do those consumers have in common? Is the customer profile the same as three years ago? How do customers access the site/store and/or the development where it’s located?
The sheer volume of information now available — credit card data, traditional demographic research, cellphone data, traffic patterns and more — can build many forecasting and traffic models. However, that is just the beginning. It is critical to talk face-to-face with actual customers and learn as much as possible about them, because their words can reveal what data cannot. When engaging with shoppers, consider asking:
Where does a regular customer want to experience the brand? While many retailers want their next store at a sleek new high-end mixed-use center, that may not be what the typical customer wants. They may prefer to get in and out quickly and aren’t really interested in the fancy fountains and pretty landscaping that retailers pay a rent premium to be near.
How does a customer want to experience the retail offering today? While it may make sense to think everyone is looking for convenience, some customers prefer a more in-depth, drawn-out in-store experience. Maybe they want a larger, more curated experience, and they are willing to pay more for that. For example, in an urban central business district, a customer might prefer a smaller, more efficiently sized store format that allows them to shop quickly and move on with their day. Conversely, a shopper accustomed to a larger regional retail area might prefer a bigger store, where they can spend more time browsing and learning about new products. Some stores are even doing ghost kitchens, digital only or pick-up-only store locations to service customer demand and to shift their labor to other stores where it might be needed more.
How does a customer perceive the brand? With so many new concepts being launched, understanding how customers perceive the brand in each market is essential. While customer demographics may be similar, how they view a brand may be different depending on the market.
It’s natural to have opinions on a location and to consider a brand’s retail experience from a personal viewpoint, but that perspective can be skewed by individual experiences, demographics, perceptions and context, which may not align with the brand or its customers. For example, a specific location might seem inconvenient or uncomfortable to one person, but another one may find it matches the experience they are seeking.
When entering a new market, shopping center or trade area, it’s crucial to consider the perspectives of other stakeholders. For instance, a retailer might prefer a sleek new open-air shopping center, but the landlord might want a more high-end concept, better financial credit, a different merchandise mix or an edgier concept. With limited availability in today’s marketplace and less new retail construction coming online, there’s a lot of competition for space, and landlords usually have multiple options to fill it.
Other stakeholder perspectives for a brand to consider include neighboring tenants and businesses, residents, community organizations and local officials.
A retailer’s tenant rep broker is the brand’s face in the marketplace. They should be knocking on doors, actively building trust with landlords and brokers, and sharing the brand story through high-quality marketing materials and one-on-one conversations. This familiarizes relevant stakeholders with the brand, creates excitement around the concept, opens doors to new sites and opportunities, and expedites the process when a desirable site is found.
Data can be an important tool in this process. For example, it can showcase how much traffic a tenant generates, their annual sales volume or the demographics of their customer base.
Sharing success stories from other locations can highlight how the development, landlord and other tenants will benefit. For example, if a retailer wants to be in a Whole Foods-anchored center, draw parallels between the current site and their other sites at similar centers across the country. This can build instant credibility, especially when entering a new market.
If there is no relevant support story, create brand correlations to stand out as a competitive contender. If there aren’t any natural correlations, accept that a particular space might not be the right fit for the brand and instead focus on finding a more suitable location.
In site selection, retailers must consider not only who they are competing against for customers, but also who they are competing against for a site. What other operators in the market are looking for a site with similar specifications? How do the landlord and neighboring tenants, businesses and even residents perceive the brand compared to potential competitors? Is the brand and merchandise considered more appealing and valuable than what competitors offer? Having this information on hand during negotiations can provide a significant advantage.
Despite media reports about an overall slowdown in commercial real estate, retail is thriving, and available space is scarce. (The national retail vacancy rate in the second quarter of 2023 was just 5.4%, according to research from Cushman & Wakefield — the ninth straight quarter of positive net absorption.)
This disconnect between retail tenants and the reality of the market can cost retailers the best available space. At any point, a retailer may be competing against a dozen other brands for a particular space. Flexibility is essential.
This is particularly true for sites in the 2,000- to 6,000-square-foot range, due to the number of tenants in that space category. That’s why the first five steps listed above are fundamental to even being in the running. The best impression must be made before others arrive at the starting line.
Then, once a site is found that meets most of the criteria, it’s vital to move quickly. This can alleviate many of the landlord’s remaining concerns while strengthening credibility.
Finally, as the site-selection process moves along, a motto to keep in mind is, “Don’t let perfect be the enemy of good.” While everyone wants the perfect site, it’s important to consider whether it is good enough for the brand to achieve the required returns on investment and if the story of the location strengthens or weakens the brand in the long run.
Andy Misiaveg is a partner in TSCG’s Charlotte office.