The Retail Industry: How Bob Dylan Had It Right
I know most of you don’t follow retail business and retail real estate as close as I do, but I am sure you have seen the headlines in recent years: “Why the Physical Store Model is Dead,” “The Retail Apocalypse,” and “Sick Stores: These are the Chains That are Dying off Fastest”.
The truth of the matter is that retail is not dying, but rather it is changing and evolving as it always has and will continue to. Did you know that ~90% of retail sales transact in brick and mortar? Of course, online retail sales are going to continue to grow, but businesses like Amazon and Ebay will not annihilate traditional retailers. For example, Wal-Mart, Costco, and Target are still doing very well. They provide great prices, convenience (in most metros you can get to a Wal-Mart and buy your good in 20 minutes compared to waiting for hours for your good to arrive from Amazon), a wide variety of items in one location, etc. On the other hand, brick and mortar stores like Sears and Toys R US are businesses of the past. They failed not because they were brick mortar, but rather because they failed to deliver an experience in their stores that was memorable, they failed to run their businesses efficiently, and they failed to adapt and innovate.
There is one particular area of retail that I think will continue to perform very well: the last mile of delivery or also called neighborhood retail. So, what is neighborhood retail? These are typically unanchored centers with smaller, service-based tenants such as beauty, food/beverage, fitness, and business services. Other businesses can still succeed in a neighborhood center; they just have to compete at a high level through unique offerings. For example, a bookstore can be successful through providing an experience and/or books that are hard to find. A hardware store can still compete due to friendly service, knowledge of products, and convenience. In my opinion, online retailers are not going to disrupt this model anytime soon.
At IVP we own Crestwood Village, a shopping center for residents of Crestwood, Avondale, Irondale, and Mountain Brook. Over the past two years of ownership, we have had little to no vacancy. What we have found is that people still enjoy personal interactions, thank goodness! Customers like to talk politics over a locally well-crafted beer at True Story Brewing. Customers enjoy shopping for furniture (among other items) in Urban Suburban, as their inventory is unique and can’t be found anywhere else. Customers have fun at Crestwood Pharmacy because they can have a coke float and bump into their neighbor while waiting on a prescription. Plus, the same pharmacist is there every day and knows the customer’s needs and preferences. The proprietors are very passionate about their businesses, and it makes for a sense of community that can’t be found online.
In the future, I think urban retail will keep growing and become robust, possibly providing the next major wave of change. Just take a look in our own backyard here in Birmingham. Thousands of people have moved into our city center over the past seven years, and thousands more will move in over the next two years. Where are these folks going to get their prescriptions, haircuts, etc.? When it comes to retail, I think the great philosopher Bob Dylan phrases the industry well,
Your old road is rapidly agin’
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’
Until next quarter, I wish you a wonderful close to the year and a wonderful holiday season! RC.