Store closures not the best measure of retail’s health

June 19, 2017  |  Dan Rafter  |  Print Article  |  Email this Article

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The retail market is changing, but this doesn’t mean that physical stores are becoming extinct. Those predicting doom for physical retail? They might be looking at the wrong metrics, says a retail specialist with Colliers International.

The number of store closures isn’t the most accurate indicator of the health of brick-and-mortar retail, said Anjee Solanki, national director of retail services for Colliers International. Solanki says that many closures are the result of decisions that retailers are making to adjust to the changing shopping habits of consumers.

These closures, then, shouldn’t be viewed as disastrous for physical retail, but rather as sound business decisions.

“If we look back at the number of stores that retailers operated back in the 1990s, we see that retailers were more aggressive back then,” Solanki said, in a phone interview.  “Retailers needed more stores and more locations to get their brand in front of consumers. Retailers were looking at various models, opening locations outside of malls, inside malls, as storefronts. The goal was often to have as many locations as possible, to operate like Starbucks operates today. That, though, is changing.”

Today, retailers are paring the number of physical stores they operate. The most successful are then combining their physical locations with busy online portals.

“Retailers are getting more sophisticated,” Solanki said. “They have more tech tools at their disposal. They have learned the lessons on how to be more efficient. They know more about how many stores they should have and how large those stores should be. They have done more analysis on how they should stock those stores from a point of view of what items are selling. Retailers are simply much more efficient today.”

Solanki said that retailers need to pay more attention to their physical spaces if they hope to keep the shoppers coming. She said that a recent retail report from Colliers International found that too many retail spaces are cluttered, with merchandise that is difficult to find.

“I travel quite a bit,” Solanki said. “When I am in other markets, both domestically and internationally, I gravitate to stores where I am seeing a vignette of a story that is being developed, a story that pulls me in.”

Solanki said that clothing retailer Anthropologie is one that does a good job of creating ambience.

“It’s about creating a mood, a feeling,” Solanki said. “There is more here than just the merchandise itself. It creates inspiration for customers. You might go into a furniture store and say, ‘I never knew I could create a living room that looks like this.’ Or you might enter a clothing store and say, ‘I didn’t know I could pair clothing in that way.'”

Solanki points to retailers whose employees are clad head to toe in that retailer’s clothing in fashionable way. Solanki said that she once walked into a clothing store to encounter an employee wearing a blouse from the store’s inventory along with a pair of shoes that caught her eye. Solanki asked the employee if the store sold those shoes.

The store didn’t; they instead belonged to the employee. But the fashion combination did inspire Solanki to start a conversation with the employee. And that employee directed her to similar shoes offered by the retailer.

“That is important for retailers, creating stores that are exciting,” Solanki said.

Reworking struggling malls

Even the largest of malls can succeed today, according to a new report from Transwestern. The report, “Why Mall Reuse is Just Beginning,” looks at the ways in which owners and cities are repurposing struggling regional malls for other commercial uses.

“The assumptions that all purchases are moving online, all retailers are going bankrupt and all Millennials reject the suburban mall and the lifestyle it represents are grossly exaggerated,” said Brian Landes, the report’s author and director of GIS/location intelligence for Transwestern. “Furthermore, we’ve seen that when malls are reconsidered and repurposed for other uses, their value may far exceed their use as conventional retail space.”

The Transwestern report says that regional malls have had positive net absorption since 2010, with the only blip in absorption occuring in 2009, the height of the Great Recession. In 2016, the report says, the U.S. retail market experienced 105 million square feet of net absorption, representing an occupancy growth of nearly 1 percent.

Transwestern reported, too, that mall productivity has remained steady and rose 0.7 percent last year to $465 a square foot.

“While we’ve seen store closures increase in 2017, for the most part, malls are attracting new tenants through strategic marketing and property enhancements,” said Nick Hernandez, managing director of retail for Transwestern. “And in cases where a retail mall no longer makes sense, we have seen many owners successfully adapt to the changes in their trade areas by repurposing the mall for another use.”

Transwestern’s report says that regional malls are today attracting office, medical and community users as replacements for typical retail tenants.

Other owners are redevelopment their malls’ parking lots into multifamily projects, office buildings and hotels, Transwestern says.

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