If you work anywhere in the proximity of the retail industry, you have definitely heard all of the doom and gloom surrounding the closing of big box stores and retail giants as e-commerce continues to grow. Many people lament that this is the end times for the retail industry as we know it, calling this the retail apocalypse. After all, according to UBS, it’s possible that more than 75,000 stores could be forced to close up shop by 2026. However, there are true believers that see this retail apocalypse as a media hoax drummed up to incite panic and generate clicks. Who do you believe? Investors need to know that they aren’t risking their money on something that’s certain to fail while tenants are relying on a shrunken investment pool to take a risk on their business venture. Will the retail apocalypse affect commercial real estate? Certainly, but not in the ways that might seem obvious, especially if people start to notice that the end times might just be a hoax.
Are Closing Businesses A Sign Of The End Times?
As Amazon expands its reach further and further, more and more people are choosing to shop online rather than visiting a retail location in person. Retail business staples such as Toys’R’Us, Sears, JCPenney and Macy’s have all fallen victim to the retail apocalypse. However, this isn’t a sign of the stars falling as some might suppose, but rather a changing of hands in the retail market. The massive mall store retail giant model might not work in 2019, but there are players that are stepping into the vacuum left by bigger retailers that have not made changes to their model as the digital landscape carved out new paths. Many experts in the retail industry believe that the retail apocalypse is a good thing, allowing for businesses that are more connected with their customer’s needs and preferences to rejuvenate properties that big box stores have abandoned.
What Does This Mean For Landlords?
The words retail apocalypse are strong and spooky enough to strike fear into any landlords heart and investors also get scared by this impending “end” to retail. Bigger retailers and box stores are attractive to commercial landlords and investors because of the return on their investment, the effect that one anchor tenant can have on a given area and the potential profit that a landlord could make if they sold the property with quality tenants. The retail apocalypse throws that balance into question. How do landlords know who to trust with their property and how do investors know who is worthy of funding? However, savvy landlords and investing partners are taking notice of the same things that many retailers are: the customer base is shifting. In today’s retail market, a focus on experience over quantity of sales is what tends to drive customers to continue coming back in.
The Retail Apocalypse and Small Business Owners
So as a small business owner and a possible tenant, how do you weather this so-called retail apocalypse? First, don’t be afraid. The sky isn’t falling and the world isn’t ending. While the modern set of customers requires a savvy retailer to understand their needs in order to be successful, successful retailers just need to get into those needs and model their business on a changing customer base. With the availability of products online for prices that typically beat or at least match a retail store, what is it about your business that makes a customer want to put on their shoes and come to your location? Despite the doom and gloom or the predictions of a retail apocalypse, many customers still prefer an in-person experience and many retailers are seeing great returns on an investment into experiential retail.
How Does the Retail Apocalypse Affect Me As A Tenant?
Despite the fact that many experts in the retail field are shaking off the potential downturn of the retail industry, there are still landlords that might be concerned. Retail is still a growing and thriving industry and one of the biggest employers in the nation. If you’re a retailer, you may have more power than you think when it comes to your lease. Occupied tenancy in a building increases its worth to a landlord and makes the location more desirable for foot and vehicle traffic. Vacant stipmalls and buildings can be so off putting to local traffic that people may even be enticed to move away or seek goods and services elsewhere. If you are looking for space to operate a retail outlet, you need to focus on the opportunity that you bring to the area and how that can drive your sales and the sales of tenants around you.
If you are a strong retail tenant that’s got a good customer base, your lease might be worth more to your landlord than you know. Check out what LCI helped one of their clients do recently that will blow your mind: