In fact, Forbes stated in April 2023 that the retail industry has been “shrugging off recession predictions.” And despite the collapse of major retailer, Bed Bath & Beyond, retail real estate proved resilient as other brands were snapping up the company’s leases as soon as the buildings were available. Many companies have shown lasting endurance by leveraging innovative retail real estate options, employing sustainable commercial real estate (CRE) practices, and deploying the latest retail technology. These strategies have enabled retailers to adapt to changing consumer demands, optimize operational efficiency, and create memorable shopping experiences.
According to S&P Global reporting in February 2023, retail sales would be a key factor in the U.S. entering an economic downturn — or avoiding one, as consumer spending accounts for nearly 70% of U.S. GDP. Personal spending declined in November and December of 2022, but spiked up in January and has been positive every month this year.
It has been a reminder for retailers to continue innovation to run more efficiently and expand their customer base. In a Bain analysis of past downturns, it lists which retailers not only weathered the Great Recession, but grew in total shareholder return (TSR) in the decade between 2007 and 2017. They did it by “spending where it mattered most and cutting where it mattered least.” Retailers like The Home Depot, Walmart and Costco led the pack of brands that outperformed during the downturn years. The primary investments that “recession proofed” them were technology and expansion related. And as tech is continually evolving, it’s an area that can provide exponential impact.
Deloitte says in the face of macroeconomic headwinds, retailers can “get tailwinds in the form of Artificial Intelligence (AI), retail media, the transition to renewable energy and the return of demand for physical stores are laying new foundations from which retailers can grow their businesses.” It’s always a good time to increase service and efficiency — not just when you’re in survival mode — so what are the best ways to do this?
Leverage retail technology — Technology plays a crucial role in enhancing operational efficiency, optimizing inventory management, and delivering personalized customer experiences. By embracing retail technology solutions, retailers can adapt more quickly to changing market conditions and consumer preferences.
- E-commerce and omnichannel integration: In a digital world, consumers want immediate awareness, understanding, and access once they’ve decided on a purchase. To compete, retailers must have a robust online presence and that experience needs to seamlessly integrate with its brick-and-mortar stores. Embracing e-commerce platforms and implementing effective omnichannel strategies, allows retailers to reach a wider customer base, increase sales, and provide a positive shopping experience across all channels — website, retailer apps and in-store.
In the KBS article, “How COVID-19 Changed Retail,” we define omnichannel as “increasing the number of content mediums, seamlessly tracking individual customer interactions across them, and then directing them to a sales funnel. Omnichannel has developed by increasing the number of channels from the five basics of e-mail, in-person, phone, website, and e-procurement portal. And, of course, we’ve all grown accustomed to additional channels such as webchat, mobile apps, and video conferencing options.
- Artificial intelligence (AI) and data analytics: AI-driven technologies can help retailers analyze vast amounts of customer data, enabling them to gain insights into consumer behavior, preferences, and trends. This knowledge allows retailers to tailor their product offerings, marketing campaigns, and customer service strategies to better meet customer needs and increase customer loyalty. You can also add AI to omnichannel efforts in ways many hadn’t expected. Inc. says customers are increasingly being introduced to products and brands by ChatGPT. Though it’s still early, some researchers believe it will follow a similar trajectory as TikTok, with recommendations starting from the beginning of the app and quickly growing to a flood.
- Augmented reality (AR) and virtual reality (VR): AR and VR technologies can provide immersive and interactive experiences for customers, both online and in physical stores. Retailers can use these technologies to showcase products, offer virtual try-on experiences, or create virtual showrooms, allowing customers to engage with the brand in innovative ways and make more informed purchasing decisions. KBS took a trip to the Metaverse to examine how retailers and consumer brands are already experimenting with virtual reality.
- Contactless payment solutions: The COVID-19 pandemic accelerated the adoption of contactless payment solutions. Implementing mobile payment options, such as digital wallets and mobile apps, enhances convenience and safety for customers while streamlining the checkout process for retailers. KBS explores some of the current cashless, contactless, autonomous solutions here.
Focus on sustainability — Sustainable real estate practices not only contribute to environmental conservation but also enhance a retailer’s resilience in uncertain macroeconomic conditions. Retailers can incorporate sustainable design elements, such as energy-efficient lighting, green roofs, and rainwater harvesting systems, into their retail spaces. These measures not only reduce operational costs but also position the retailer as an environmentally conscious brand, attracting sustainability-minded consumers.
Retailers have the opportunity to explore partnerships with property developers that prioritize sustainable real estate development. By collaborating with developers who incorporate sustainable practices into their projects, retailers can leverage the positive brand association and appeal to the growing segment of eco-conscious consumers.
In “Green and Clean, the Importance of ESG for the Built Environment,” KBS details how it’s important for retailers as many consumers prefer shopping with brands that are in line with their values, particularly those focused on reducing carbon footprints and waste.
“There is growing consumer demand in the resale market for products that are in good condition. Retailers can take advantage of this trend by marketing their own secondhand products for sale, promoting a ‘circular’ economy and reducing waste,” says CBRE. “Overall, Forrester estimates that 41% of U.S. consumers prefer to purchase environmentally sustainable goods.”
Embracing retail commercial real estate innovations — By strategically selecting prime locations and embracing innovative store formats, retailers can enhance their brand visibility, attract more foot traffic, and drive sales. Additionally, retailers can explore alternative retail formats such as pop-up locations, mobile stores, and experiential showrooms to engage customers and create unique shopping experiences.
Collaborative partnerships —Fostering collaboration between non-competing retailers can be a great way to expand reach. Consider subletting unused space, doing cooperative marketing and promotions to double efforts while trimming your budget. Explore partnerships with property developers to negotiate favorable lease terms, gain access to prime retail locations, and co-create innovative retail spaces that align with evolving consumer preferences.
Additionally, retailers can collaborate with technology providers to develop customized solutions that cater to their specific needs. By working together, retailers can determine the best technologies for enhancing operational efficiency, optimizing supply chain management, and improving the overall customer experience.
By employing these strategies, retailers can empower themselves to weather any macroeconomic conditions. Solutions can optimize physical presence, reduce environmental impact, harness the power of data-driven insights, and create memorable customer experiences. By embracing innovation and forging strategic partnerships, retailers can thrive in challenging economic environments, ensuring long-term success and sustained growth.
Learn more by visiting KBS.com/Insights.