Colliers Retail Director Discusses Winning Strategies for the ‘Roaring ‘20s of Consumerism’

Despite being one of the hardest-hit real estate sectors during the pandemic, retail is quickly rebounding so far this year.

As consumers received stimulus payouts and small businesses were granted financial assistance, retail and restaurant businesses boomed in the first quarter compared to the prior year. While online shopping can be credited with keeping retailers afloat during last year’s shutdowns, in-person shopping and dining has been ramping back up in 2021.

But it’s not all business as usual in the sector. While physical retail locations still have a place in the market, store owners had to make adaptations to the new needs and behaviors of shoppers during the pandemic —and some of those alterations are here to stay. Retailers that can evolve to juggle in-person shopping experiences with an omnichannel approach (providing services and products through multiple avenues) and continue to provide options such as contactless check out, curbside pickup and delivery and other strategies that reallocate space and more effectively utilize their physical footprints will be oriented for long-term success. Landlords and property owners will also need to be responsive to tenant needs and changes in this quickly developing retail era.

To better understand the current outlook for retail, LoopNet spoke with Anjee Solanki, national director, retail services for Colliers, about the ways successful retail and restaurant owners were able to pivot their businesses over the past year to adapt to the pandemic, and how they’re positioning themselves to be successful moving forward in what Colliers has deemed the upcoming, “roaring ‘20s of consumerism.”

What does the retail market look like right now?

It’s actually really exciting and hyperactive, and has been since about the fourth quarter of 2020. According to our research, the retail industry started 2021 with overall sales increasing by 5.8% in January — the best monthly growth rate since October 2020. Every retail category grew month-over-month, with nearly 11% of spending coming from core retail categories and 22% attributed to online retail. We are starting to see momentum increase in dense urban markets like New York City and San Francisco, for example.

We are really optimistic and think the desire to shop in person is going to return. We’re also seeing that online sales are still strong, but have retreated to their Q2 2020 high of 16.1% of sales as the number of shoppers returning to physical stores increases. Colliers forecasts online sales to represent 16.3% of total retail sales in 2021, as brands prepare for the return of the “roaring ‘20s consumerism.”

Our firm has also seen an increase in retailers asking for, and increasingly receiving, short-term leases since they gained leverage due to elevated vacancy rates amid the pandemic. This greater flexibility on short-term leases could lead to an increase in pop-ups and concept stores.

Are retailers evolving their stores to respond to how consumers are shopping now?

We found that just under half of retailers plan to close or reduce their footprint over the next five years. Instead, 80% of retailers plan to add or extend their services to include an online collection and ship-from-store feature that incorporates the store as a seamless element of their omnichannel ecosystem. More than 60% say they will look to test or open new store configurations to address changing consumer habits.

It’s amazing to see how flexible people are becoming, and that’s the big trend I am seeing for 2021: "retail flex.” The resiliency that I have been seeing from retailers and landlords has been brilliant — not just their partnerships as they work together and find opportunities, but also what the retailers are doing on their own in terms of identifying strength and growth from an omnichannel perspective, and embracing that [approach] as it accelerated due to the pandemic. Landlords are also really embracing the need to have curbside pickup and accommodate those new needs.

How can retailers position themselves to be successful post-pandemic?

I'm really bullish on the mobile storefront, and I’m really bullish for certain sectors of our business that have the ability to have high volume and then turn that into high margin. Coffee shops have the perfect alignment of that, for example, because the product is easy to produce and it allows people to grab and go quickly. You can order and just pick it up at a mobile storefront, and what that does for a retailer is a few things: it allows that retailer to occupy just 500 square feet, plus or minus some, and it reduces their labor costs and overall occupancy costs, so now your margins are going to be higher. They can also take a portion of a large storefront or window space in a mixed-use development, which really helps in a dense urban market because it’s not a huge buildout.

What about smaller and boutique retailers? What should those business owners be considering?

When we talk about and look at smaller retailers, there is still a need and desire for brand alignment. When you look at examples like Warby Parker, Allbirds or Away, they don’t need all the fancy stuff, they’re really just focused on their customer. Brands like that want to cluster together and be in locations where they have heavy footfall and where the market demographics are aligned with their brand, because they pull shoppers from so many different channels and have already built a really successful online marketplace. So, that segment of retail hasn’t changed that much and they’re actually not doing too much that’s really different.

Meanwhile you have some legacy American brands that are really stopping to pause and are realizing they need to create showrooms or highly impactful engagement centers in order to have conversations with their customers, remain on the forefront and tap into the younger generation that will ultimately become their shopper base. And they want retail storefronts. It all goes back to the idea that people want flexibility and convenience to do what they want, how they want and when they want, and shop in a way that feels best to them.

What are some of the biggest challenges still facing retailers today?

Retailers are seeing record-setting merchandise returns from the boom in online shopping, with 69.6% of retailers saying that managing online returns has become a problem. It’s causing a lot of pressure on logistics systems, but some stores have alleviated the problem by using their stores or unused retail space as micro-fulfillment centers. When people think about a fulfillment center, they assume it’s 10,000 square feet or more of warehouse space. But what a store like Best Buy, for example, is doing is just taking merchandise off the shelf or merchandise that's coming into that specific store, and they're basically immediately labeling it for FedEx. Then that gets put on a small shelf and picked up for delivery twice a day or set aside for curbside pickup. There is this rotation happening but they’re only utilizing 50 to 100 square feet of their space. Stores have become an integral component in the retail funnel to reduce pressure on last-mile fulfillment operations and minimize cost to the consumer and, ultimately, the retailer.

The restaurant industry was also hit pretty hard in 2020. Where do things in that sector stand now?

Back in the summer of 2020, we really thought that with restaurants and everything else closing during the pandemic, that there would be much more on the market in terms of second-generation restaurant space. Well, that hasn’t actually come to fruition. There is far less available than what was forecasted last summer, and we saw that percentage actually continue to decline in the first quarter of 2021.

There were a lot of national brands sitting on the sidelines who were opportunistic to take the second-gen restaurants, but they just haven’t actually been available and that’s for several reasons. First, the paycheck protection program loan really helped a lot of business owners. Second, grants to small businesses from the relief package also really helped keep people afloat, and so they've been able to maintain or sustain their business. Landlords also offered rent concessions, so the combination of these three things have really helped. Last summer they were predicting that something like 60% of restaurants would close (mostly smaller, local and regional places) but after the first quarter, we have seen that it’s closer to 15%, so it’s really positive that [it seems like] these places are going to survive.

What have restaurateurs done to be successful in the pandemic?

Restaurants were really successful with the delivery and curbside pick-up model. It varies by brand, but we have seen an average of about 30% of sales coming from delivery for restaurants that have been offering that option. Even though they are expanding and opening more brick-and-mortar sites, we are seeing more and more restaurateurs factor that in as part of their business model and make delivery a component.

We are also seeing a new emerging market of companies purely focused on the delivery model. They’re creating or leasing commissary sites or second-generation restaurants and converting them into non-public ghost kitchens for delivery. Restaurants are really looking at the concept in different formats now.

Is there anything else you think retailers and restaurant owners should be aware of going forward?

Sustainability is really important. Our research shows 48% of shoppers say that ethical conduct and sustainability are important to them; this increases to almost 55% among millennial shoppers. We talk about sustainability, but what’s really critical is how you can actually bring that company vision or practice to the consumer in a way they can experience it; so they feel like they’re taking part in it and their sustainability footprint is being acknowledged, and they’re not just reading a tagline. There is the increase in online shopping, but people really want to see reduced packaging, and 82% of retailers in our survey said they were planning to invest in that initiative. Energy costs are also going to be something retailers will have to continue to look at, especially in warehouses. Finding alignment between being sustainable and reducing waste with this increase in online shopping and distribution will be really important for retailers.

This interview has been edited for concision and clarity.