Retail N Illinois

Physical retail dying? In the Midwest, not always

Physical retail not dying,ph01

Of all the commercial sectors, retail and industrial have been impacted the most by the rise of ecommerce. But these sectors have been hit in vastly different ways.

Industrial is thriving today, partly because of the rise of online shopping. Companies need to deliver their merchandise quicker than ever to those customers who order their goods online. This means that they need more distribution facilities and warehouses, something that has provided a boost to the industrial sector.

But for traditional brick-and-mortar retail? Life’s been more challenging as ecommerce grows in popularity.

The struggles faced by big brand-name retailers such as Sears, Macy’s and Kmart are emblematic of the hurt that online shopping is putting on many retailers.

But other retailers? They have adapted, and they continue to draw in a steady stream of customers. The secret? They’re focusing on experiences, using everything from cooking classes and on-site yoga seminars to bring customers into their shops. The key is to provide customers with something they can’t get online.

Retailers across the Midwest, and in its biggest city, Chicago, are no different. Those that are doing well have learned that they have to offer experiences to attract customers to their physical locations. They also have to use both an online presence and their brick-and-mortar stores to bring in the consumer dollars.

Some retailers, for instance, use their physical stores as more of a showcase for their products. They then encourage consumers to buy their products online once they get home. These retailers don’t care if consumers purchase their products at a physical store or through the Web, just so long as they eventually do make a buy.

A changing sector

The brokers working the retail market say that they are still seeing sales and leases in this sector. But not all areas are seeing the same amount of activity.

This can be seen in microcosm today in the Chicago market.

Joe Parrott, senior vice president of retail services in the Chicago office of CBRE, said that retail in Chicago and its suburbs is strong in those areas with both high supply and high demand.

“There are opportunities out there,” Parrott said. “That is the good news. There are lots of tenants doing deals, expanding and filling space. But we also have a lot of space on the market. Supply is very high in some areas. That is the challenge.”

Which retailers are thriving today in Chicago? Parrott said that experiential retailers are the ones that are thriving today, everything from fitness centers to entertainment centers that offer arcades, bowling, bocce ball and other activities.

Discount stores and off-price fashion retailers are also doing well in the Chicago area, Parrott said. The home-furnishings category is in growth mode, too, he said.

Parrott, though, did say there aren’t many new retailers targeting the Chicago area these days. Instead, those retailers who are already doing business here are the ones driving the market. Those that have adapted to the rise in ecommerce are expanding and leasing new space.

“Those retailers that are doing well are the ones that are well-located and are near major traffic hubs,” Parrott said. “Those that are near other major retailers tend to do better. It helps a strip center to have best-in-class anchors, too, whether it’s grocery or one of the top tenants in another category. Being near a busy intersection is important, too. That’s a good formula for success.”

Fast-casual restaurants, as an alternative to fast-food eateries, are also growing, Parrott said. Dining, of course, is one retail category that consumers can’t duplicate with a visit to a Web site. And today, a growing number of consumers are looking for food that’s served quickly but is healthier and tastier.

So fast-casual restaurants – places like Panera Bread or Chipotle – are putting a dent in the sales registered by fast-food places like McDonald’s and Burger King.

“It’s the natural evolution of the dining category,” Parrott said. “People are searching for something that’s a bit better but isn’t in the traditional sit-down or fine-dining category. Customers are gravitating toward the fast-casual end of the dining business. Fast-casual is a step up. People continue to be time-pressed, so they want quality food in a speedier time frame. That suits today’s consumers well.”

Another big trend in retail today? Parrott said that many retailers in Chicago are consolidating locations. They no longer want to operate as many physical stores as they might have just two or three years ago.

“Retailers once wanted to blanket the whole Chicagoland area with every five miles,” Parrott said. “They Wanted a store in every direction to be very close to every customer out there. They have re-examined that and now realize that they don’t need to be everywhere. Instead, they’re focusing on where they can have their most successful stores. You are seeing those retail areas grow and become more successful. The areas in between these successful strips are the ones that retailers are shying away from today. Retailers are consolidating their stores in better and fewer locations.”