The Grand Rapids Business Journal recently published a very informative article by the W.E. Upjohn Institute for Employment Research. The article discusses a rise in big-box retail brick-and-mortar store closings, including “Sears (265 stores closed this year), JCPenney (138 stores) and Macy’s (100 stores)” — and the list continues to grow. While this signals financial challenges for those retailers and landlords, it may also create opportunity for those landlords or investors who are able to purchase these properties as vacant, value-add assets.
If we are indeed heading for a retail ice age, here are a few strategies you can use as a landlord or investor to keep warm during chilly times.
Re-size and re-tenant
The most common knee-jerk reaction is to transform the larger big box into slightly smaller big boxes to attract more service or recreationally oriented retailers. Examples include Planet Fitness, SkyZone and many other similar, smaller footprint retailers.
Possibly the second most popular retail conversion trend popping up recently is the process of “de-malling.” De-malling is the process of reducing large, costly common area hallway space by rotating the shopping experience to the outside area rather than the interior. This process creates more frontage and less dead space, which attracts national retailers who already have adapted to this format. This all spells higher bottom lines for landlords and investors.
Prime local examples are the Shops at CenterPoint, Breton Village and The Shops at Westshore. Are Woodland Mall or RiverTown Crossings next? Tanger Outlets is a great example of a mall intentionally built this way to keep costs low and attract strong tenants.
Reduce, reuse and recycle
The City of Grand Rapids has a fantastic recycling system in place for its residents, and perhaps it’s time to create a program for recycling big-box retail space. There are examples across the country of highly creative strategies repurposing big-box retail space into public sector and nonprofit places.
The McAllen, Texas public library system’s main branch now is housed in a 123,000-square-foot former Walmart building. City hall in Westland, Michigan was relocated from its dilapidated office space to a repurposed 64,000-square-foot former Circuit City building. Locally, Mars Hill Bible Church has been located in the defunct Grand Village Mall since 2000, meaning Mars Hill was de-malling before it was even cool.
As cliché as it may be, real estate is primarily about three main components: location, location and location. Big-box retail properties that are located in areas with strong demographics and school districts could potentially be slated for re-development into residential apartment or condominium units above existing or reformatted retail space. Many of the “lifestyle center” concepts around the country had a residential component incorporated from the start. The convenience factor creates a built-in customer base to keep sales growth strong despite the Amazon effect.
Hybrid retail distribution
The most innovative solution is to evolve the way we purchase goods, and use digital tools and the Amazon effect to our advantage. Retail space occupancy and size of footprints have decreased while distribution and warehouse space occupancy has increased in recent years. This would partially explain the explosive growth we’ve seen in the light and heavy industrial sector.
What if retailers were able to use their existing space by reducing the retail/showroom footprint and expanding shipping/receiving footprints? We already see this type of innovation utilizing off-site distribution centers in Apple Stores where you can try products before you buy, or at IKEA where you can purchase flat-packed products after seeing the real thing on the sales floor. Could it then be possible to handle on-site and web-based product fulfillment orders in current locations? Perhaps it’s time to rethink the way we format big-box retail spaces into distribution hubs with a smaller, linear retail presence. This way, retailers can preserve an active first floor frontage with flexibility to compete in a changing economy.
There are still products consumers want to see, feel and touch prior to purchasing, and the activity of shopping still elicits an endorphic experience for the consumer. Ultimately, as landlords and investors, innovation and creativity will be the tools providing the greatest warmth during a retail ice age.