VOL. 10 | NO. 48 | Saturday, November 25, 2017
By Patrick Lantrip
Much has been said about the so-called “Retail Apocalypse,” a frightening term that conjures images of a desolate landscape littered with boarded-up malls and shopping centers representing the death of American capitalism.
There is no denying or sugarcoating the large holes left by the once-mighty Sears, Radio Shacks, and Payless Shoesources of the world – in fact, those three chains alone will shutter nearly 2,000 stores across the country in 2017. But is it really as dire as it seems?
“I don’t think that’s an accurate depiction, in fact I think they are cherry-picking the data,” Jack Kleinhenz, chief economist for the National Retail Federation, said when asked about the Retail Apocalypse. “The closure information is what’s getting people’s attention.”
When Franklin, Tennessee-based global research and advisory firm IHL Group compiled a report on all chain retailers in the U.S. with more than 50 locations, it found there were actually 4,080 more stores and restaurants that opened through July 2017 than closed, with total sales among those same companies rising $121.5 billion through the same period in 2016.
The source of the Retail Apocalypse narrative came from a Fung Global Retail & Technology study, according to IHL’s report, that stated there will be more store closings than openings for the first time in a long time.
But the Fung research, while valid, only focused on large public and private department stores, specialty apparel retailers and supercenters, not retail as a whole, IHL revealed.
“Different types of chains are actually adding outlets, while many of the ones that are closing are concentrated among a few,” Kleinhenz said.
Of all store closings nationwide, 16 companies were responsible for 48 percent of the total, IHL reported, while five individual retail companies accounted for 28 percent of the closings.
That isn’t to say the retail landscape isn’t going through massive changes, but according to Kleinhenz, this is nothing new.
“Some concepts are growing faster than others,” he said. “The larger department stores are not necessarily going to be around as much as we have seen. Many of them were developed 30 or 40 years ago based on where the population was.”
Kleinhenz said two of the biggest factors triggering retail changes are demographic shifts and the primary villain of the Retail Apocalypse narrative, e-commerce.
“For instance, the Northeast and Midwest have been losing population or have not been growing, but at the same time in the Southeast and Southwest, population shifts have occurred,” he said. “So while we might see stores closing in northern Ohio or in Indiana, etc., stores are opening in areas where there has been this shift in migration in the population.”
Another impact on demographics is how and where certain groups like millennials shop, which is vastly different from their counterparts 10, 20, or 30 years ago.
“It’s transforming, but it’s overstated that we’re in dire straits,” Kleinhenz said. “Retail is not always just about purchasing a product, it’s also part of social activity and entertainment, so you can’t just decide that everything is going to be so cut and dry.”
HOME SWEET HOME
Whether the retail sector is imploding or just transforming, the main question on many minds in Memphis is exactly how it effects the Mid-South.
Local retail real estate broker Shawn Massey, a partner with The Shopping Center Group, said he’s not trying to downplay the changes going on in retail, but emphatically maintains this is a case of evolution.
“It’s constantly evolving. We’re never going to go to a place where we don’t shop or go out to eat,” Massey said. “From neighborhood shopping centers and grocery stores in the 1950s to the evolution of malls, the big-box category killer era, lifestyle centers, and now moving into mixed-use projects. We’re going to look like we did back in the 1920s.”
Massey said this full-circle swing back to neighborhood-level development is called New Urbanism and can be seen all over the city in projects like the Crosstown Concourse, Parkview at Shelby Farms and the Lake District.
“If you add a residential component or offices to that area, the retailers do even better, and now you’re creating neighborhoods,” Massey said. “Which is ironic, because that was the way it was in the 1920s where you had vibrant downtown areas and main streets that looked like what we are trying to replicate in the mixed-use projects and lifestyle centers today.”
Retailers that are struggling to make profits and closing stores were either too big or too slow to evolve to the changing landscape of urban planning, population shifts and spending habits.
Poor planning, Massey said, was the chief factor that led to urban sprawl and the rise of the big-box power centers that are now suffering the brunt of closings.
“Big boxes had a decline, they’re still out there and there is still some very successful ones, but of all the retailers getting hurt, 50 percent of the retail closings are amongst big-box retailers or junior anchors,” he said.
Now, he said, the retailers who have been able to adapt to the changing retail climate, especially when it comes to incorporating e-commerce and bricks-and-mortar operations, are the biggest winners of the retail evolution.
“Bricks-and-mortar stores are the best thing for that last mile, they can use the stores as fulfillment centers,” Massey said. “At Walmart you can go online, buy all of your groceries, they will go pick it up, put it in a basket, you pay for it online and they come up and put it right in your car. They can’t do that without having bricks-and-mortar stores all around.”
Brian Whaley, a senior associate with CBRE who specializes in retail transactions, said like many things in life, when it comes to the Retail Apocalypse, the truth is most likely somewhere in the middle.
“I would argue that retail is just something that changes,” Whaley said. “It always changes and evolves and it’s just going through another iteration of that. When you look at the stores that are able to incorporate e-commerce with their brick-and-mortar business, they are going be the ones that survive.
"Even the ones that are e-commerce only could probably use a brick-and-mortar presence as well.”
While it’s unfortunate, Whaley said more retailers with antiquated concepts will likely continue to struggle and disappear.
“You’re going to see more store closings and more announcements as the landscape continues to change, it’s just the nature of it,” he said. “I don’t think it’s fair to say that brick and mortar is dead, but I don’t think you can say that e-commerce doesn’t have an effect on it, either.”
The retailers and landlords who are able to adapt to these changes and reinvent themselves will ultimately succeed, he said.
“I think you’ll continue to see retailers continue to do more nontraditional things inside some of their stores and I think you’ll see developers look for more nontraditional retailers,” Whaley said.
For example, as recently as five years ago, fitness centers were shunned in many traditional shopping centers, but because they keep customers on site longer, they are becoming a mainstay.
“The longer you’re there, the more likely you are to spend money on other stores. It’s just a matter of finding a healthy balance of what works in your center and having a variety to accommodate whomever has the most spending dollars right now.”
SOUTH OF THE BORDER
While the assessments of both Massey and Whaley both match up with what Kleinhenz and the IHL report are seeing nationally, the retail landscape in Memphis’ core paints only a portion of the overall picture.
Jason Polley, managing leasing director for StoneCrest Investments, brokers a lot of deals in North Mississippi and says retail activity in DeSoto County is far from apocalyptic.
“DeSoto has experienced pretty rapid growth over the last 20 years, and particularly on the eastern side of the county, the residential growth has been pretty substantial,” he said. “So that has definitely driven demand for convenient areas to shop for goods and services that those residents need, and quite frankly, I think they’d rather keep the dollars that they spend in Mississippi versus coming across the state line into Memphis if they can.”
Which, while on a different scale, harkens back to the neighborhood building that Massey spoke of in the city.
And just like in Memphis, e-commerce is changing the way DeSoto retailers do business.
“E-commerce has definitely become an integral part of the success of just about every retail business out there right now,” Polley said. “The retailers that are doing best are the ones seamlessly integrating their online presence with their bricks-and-mortar presence and are able to pick products off of a shelf at the store and ship it to a customer, or have a customer return a product at a store that they bought online.”
While mixed-use isn’t as ubiquitous in DeSoto as it is in Memphis, Polley expects it will become more integrated into new developments going forward.
“I think the trend is definitely going toward mixed-use in terms of a larger plan of how a community can evolve – the elements of being able to live, work and play, that is a change that we’re seeing in terms of the projects that are going forward in DeSoto County,” he said.
“Now that’s not to say that the traditional anchored shopping centers are not going to be a part of future developments, but they are going to be integrated into the overall fabric of the community.”
While the debate on the Retail Apocalypse continues, some in the industry see the small mom-and-pop shops as winners.
“I think it’s really good for the moms and pops,” Whaley said. “Other than e-commerce, one of the big changes you see in retail right now is a strong push, mainly from the millennial base, to shop and buy and eat local. I think it’s a golden opportunity to be a start-up business.”
Whaley said current shifts in consumer trends are opening up many locations to smaller entrepreneurs who wouldn’t have previously gotten the chance.
“You’re starting to see a lot of these landlords be more open to the mom-and-pop guys who may not have the Fortune 500 rating of bigger groups, but have appeal that gets people to their shopping centers,” he said.
“As recently as five years ago, none of my landlords would be jumping out of excitement if I brought them an Andrew and Michael or Kelly English,” he said. “Now you have an evolution of chef-driven and locally-owned restaurants that bring an authentic environment to a shopping center or a mixed-use project and is highly sought after.”
One of the main reasons behind this shift was many landlords only picked tenants based on their national credit. But as some of the larger, less internet-resistant companies fold, it creates a culture change that local retailers are capitalizing on.
“At Crosstown I turned down about 150,000 square feet of retail that didn’t fit the vision,” said Massey, who was charged with helping bring retailers to the 1 million-square-foot, mixed-use urban village at Cleveland and Watkins streets. “They wanted local, minority and women-owned retailers. I could have brought them some very high-paying, great block tenants – they didn’t want that, they wanted more of an authentic environment.”
Even in North Mississippi, Polley is seeing the same trend.
“What we have seen is that the entrepreneurs out there are still thriving, and those are the businesses we actually take great pains to try to seek out, incubate and grow,” he said. “I can think of a couple of retailers, in Olive Branch for example, who are organic, homegrown kind of businesses. It’s been exciting to watch those businesses grow.”