Retail industry trends in 2022 are still revealing themselves as we emerge from the pandemic. Everything has changed to some degree — and that isn’t necessarily a bad thing. Recent innovations in retail and its ability to find new ways to pivot could help the industry capitalize on what it’s learned over the past two years.
COVID played a role in helping consumers embrace digital shopping, but that doesn’t mean in-person, brick-and-mortar stores no longer have appeal. Retailers are embracing digitalization, even within their stores, and consumers are looking for both the emotional engagement of physical and the convenience of digital.
KBS recently explored the concept of phygital, or physical meets digital, as a retail trend in commercial real estate (CRE). “Phygital is a compound word used to describe the melding of physical and digital experiences. Phygital defines the intersection between the virtual and real world, shaping marketing strategies and shopping experiences.”
According to CBRE, there were more store openings than closings in the retail market over the past year — with nearly 100 million square feet of positive net absorption. There has been significant activity around all retail property segments, from strip malls to open-air shopping centers. Even enclosed malls, which were facing intense headwinds before the pandemic, have been seeing increased interest from retailers.
Another way the pandemic helped usher in a new way of doing business is to compel retailers to get creative with their use of square footage. Many have begun using locations as fulfillment centers. DSW’s CEO Roger Rawlins, said the footwear company has “fulfilled nearly 60% of digital orders in 2021 from its stores. DSW will be turning 20,000 to 25,000 square foot stores into 15,000 stores to create its ‘store of the future’ and likely dedicate some extra space to fulfillment. This decision requires both physical and logistical renovations, which are costly and time-consuming.”
For retail to survive, CBRE is predicting these bulleted strategies as key:
- Forge collaborations between e-commerce and traditional retail brands
- Use stores to implement solutions for supply chain issues
- Embrace Environmental, Social and Governance (ESG) in the retail sector
Another way to tap into and optimize the value of mixed-use assets is by considering any and all possibilities in one retail space. KBS’ Accenture Tower in Chicago is the ultimate example of this. How do you get shoppers physically into your stores so they browse, impulse buy and drive higher sales? Give them a reason to come inside. Whether it’s as fundamental as putting a Starbucks in a bookstore or grocery store, or it’s a combination of live, work, shop and play, as with Accenture, retailers are able to meet people where they are — and where they want to be.
Timing is key with these strategies, however. The combination of the pandemic and previous retail closures has created an opportunity to move into coveted locations in major markets. And as activity continues to increase, commercial real estate owners with the right combination of mixed-use options, digital infrastructure and square footage will have the most competitive offerings.
CBRE also predicts that companies with a strong online brand — but little physical presence — may find it necessary to explore brick and mortar. On the other hand, traditional stores may need to ramp up a data-driven approach that can help control risk and costs by being savvier and more stringent with inventory and location expansion.
“Instead of 50 new stores, retailers will be looking at 15-20 high-profile sites that target their shopper demographic. Instead of a long-term lease, they will look to start on a shorter lease term to test the waters,” CBRE says.
Other suggestions include location scouting to ensure that there are drivers available nearby to distribute products. Grocery stores and major brands are going to have the most frequent traffic, but maybe it’s more strategic to be in a location with a complementary brand, such as athletic apparel stores near fitness centers? Or, take it one step further and locate an athletic apparel store inside a fitness center. The more inventive you make of a mixed-use property, the more it can work for you.
CBRE’s third trend, ESG, is 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.”
In the end, retailers that can optimize what’s working with technology, solve for what’s not, and get creative with ways to leverage mixed-use options to lead the way. Add strategic location scouting and cross-brand collaboration to the mix and we may see a whole new revival in retail. Learn more about commercial real estate and trends in retail by visiting KBS.com/Insights.