Retail poised to make a comeback post COVID-19

The return of brick-and-mortar – more reasons now than ever to explore opening stores

Oberfeld Snowcap offers clients their perspective on commercial real estate and retail trends. In this post we examine the lessons and opportunities that the past year of the pandemic has taught us and predictions for the return of brick-and-mortar. The coronavirus ushered in new challenges for retailers with store closures capturing the headlines in 2020 but all is not bleak. With the lockdowns lifted and vaccinations ramping up in Canada there is reason to be optimistic for the future. When surveyed globally 49% of consumers shop more online than prior to the pandemic (Bazaarvoice) which is not surprising however, another study conducted by (Incisiv) states 91% of shoppers say they miss shopping in stores.

The acceleration of e-commerce magnified some weaknesses of retails that failed to keep pace with the evolving digital market. This has led to the need to adapt and shift the landscape of traditional retail. Case in point, large department stores have been struggling to find their relevancy and malls have seen their anchor stores disappear. There is pressure on malls to find new ways to become relevant to attract customers back to the mall. The mix of tenants may shift from national brands to further discovery of direct-to-consumer brands similar to the concept of Hudson Yards or Neighborhood Goods.

The stores have always been a point of discovery for consumers and retails highlighting their strong products. The integration of digital has allotted stores the ability to withstand the headwinds caused by the pandemic. In today’s market, retailers are not just selling a product, they are selling a brand and that is what differentiates themselves from the competition. The role of the stores evolved during COVID-19 becoming less about a point of distribution but more about convenience and service notably with the increase of contactless check-out, curbside pick-up and BOPIS, all of which are trends that we foresee continuing for the future.

The stores in the future will evolve to create experiences that entertain and educate the consumer which is something that online cannot duplicate. People crave socialization and making the store their “third place”; not work, not home, but somewhere to socialize and chill out. The coffee shop, one of the friendliest places to get together has become a feature inside many retail projects associated with brands. Coffee shops are a good opportunity for consumers to mingle and spend more time there. Nordstrom has introduced a martini bar inside their shoe section enticing consumers with an after hour drink while shoe shopping. The latest Puma flagship in New York is a great example of how to make a store entertaining and a testament to the fact that retail is far from dead. Using some of its brand ambassadors like Lewis Hamilton where you can race down the streets in their F1 racing simulator. The store also has mirrors that enable you to see what a jersey in another color would look like instead of the one you are wearing.

In the future, for some shoppers, the store will be the first place they experience the brand but not where they purchase.

During that initial visit the consumer will be exposed to the product and brought into the digital ecosystem. Later, they’ll buy online through any number of channels. Physical stores will likely become a customer acquisition tool, not just a means of distribution. This has led many Direct-to-Consumer brands to open physical stores. Research into the impact of online brands opening their own stores shows that when a company that has been selling exclusively online opens a store, they experience a 37% increase in web traffic.

The metrics of how stores will be measured are likely to be overhauled. Sales per square foot and comp store growth will no longer be relevant. These metrics are relics of the past. Landlords recognize that online sales are driven by store visits and are looking at % of total sales as a metric to negotiate rent. There will be increased collaboration between landlords and retailers for both to thrive in the future. This is where Oberfeld Snowcap can add value to helping retailers navigate the negotiations of lease renewals and partner with landlords to generate the best outcome for both parties.

A real-estate trend observed during the pandemic is the demand for suburban-style living. Consumers yearned for more space especially, outdoor space during the pandemic and went to the suburbs in search of home ownership. With interest rates remaining low it is a boom in real estate sales for first time home ownership. This in turn creates opportunity for retail to expand their reach in the suburbs. We saw Sephora partner with Kohl’s to reach Americans in the suburbs as most of their standalone stores were in urban centers. This does not mean urban life has been eradicated. Smaller-scale urban life will continue to be a significant trend. We will continue to see a proliferation of bike lanes, a focus on living in walkable neighborhoods and a reliance on apps (such as the app Nextdoor) to reinforce our feeling of connection to our neighbors.

For the first time in years, retailers in the US plan to open more stores in 2021 than they close. With the amount of vacant space available in prime real estate, the power has shifted away from landlords to tenants. It is a tenant’s market right now which has allowed brands that could not expand to store the opportunity to test out locations with short-term leases and affordable pricing. There has never been a better time to experiment and test locations. We are seeing smaller-format prototypes of large format stores. There has been testing of “dark stores” that serve solely as hubs for shoppers to pick up online orders. More DTC brands are expanding to store recognizing the marketing value of customer acquisition and discovery as online digital spending has sky rocketed.

In a complex market, Oberfeld Snowcap offers advisory services with significant analytics and insights to help retailers secure the right locations their brands need to thrive. We connect people, places and experiences to help retailers realize their objectives.