"Consumer not dead, just smart"
San Francisco, CA (PRWEB) August 9, 2010
Ralph S. Epstein, wrote the following featured retail article for Integra Realty Resources’ annual forecast magazine during his consultation period with them in 2009-2010. His predictions therein about the real-estate market have been proven to be remarkably accurate during the first half of 2010. Mr. Epstein recently launched his own San Francisco-based consulting practice. Full article (from IRR- Viewpoint 2010) is reprinted below:
The Future of Retail (From IRR- Viewpoint 2010) by Ralph S. Epstein
The “Great Recession” has accelerated a wave of retail failures, including such notable names as Linens ‘n Things, Circuit City, KB Toys and Mervyns. Thousands of local, regional and national retailers have also shut their doors. Others, such as Toys R Us, Borders Books and Music, Dick’s Sporting Goods, and Gap, (who recently announced it will close another ten percent of its US stores over the next five years, and focus expansion plans on its online and international divisions) are adjusting their merchandise offerings, store counts and business models. These rigorous actions are required to compensate for the chunks of core businesses siphoned off over the last fifteen years by Wal-Mart, Target, Home Depot, Costco, and other off-price, discount and category killer retailers. Online retailers and shopping sites that are growing at lightning speed contributed to the problem, along with the plunge in consumer confidence in the wake of the housing, financial and credit crises of the current recession. As a result of these trends, vacancy rates will continue to rise in shopping centers, strips and one-off retail buildings across the country for all but the best of class “A” properties and urban streets for the foreseeable future.
While the recession may have pushed some retailers over the edge and others to the brink, it was overbuilding and store expansion over the past years that were finally exposed during the current economic downturn. Even the consumer with cash to spend is choosing savings and prudence. But, she’s not dead, just smart. Stores once visited only infrequently for their lack of product depth, merchandise focus and value have been forever removed from the shoppers radar screen while products like the iPhone from Apple, powered by technological advances and iconic style, have altered how the retail marketplace is defined and functions.
Geographical boundaries no longer control where consumers shop. Purchases in virtual stores are only as far away as the nearest personal computer or smart phone. Internet book sales have increased seven percent in the past two years, but the biggest increase has been in online clothing, accessories, and shoes - up by 20% to 36%. These last three major merchandising categories have in the past occupied millions of square feet of leasable area in shopping centers and department stores across the country. Today’s consumer knows the best place to find value. Be it from “bricks and mortar” or “point and click”, Wal-Mart, Amazon, E-Bay, Apple or Tiffany, it’s the consumers changing spending habits and lifestyle that will dictate when and where a sales transaction takes place. More often than before, that point of sale is not the suburban mall or strip store.
This new marketplace is not designed to fit into retail categories or traditional retailing footprints or boxes, and in fact only the “best of breed” will eventually occupy the bricks and mortar, leaving vacant space of all types in its wake. Most moderate-priced department stores are now consolidated under the Macy’s flag. Nordstrom is best of breed in the better department store category, anchoring many of the timeless Class A properties, along with other specialty department stores such as Neiman Marcus and Saks Fifth Avenue.
As a result of urban sprawl, retail over-expansion, a consolidation of brands, lifestyle changes and the continued erosion of market share from bricks and mortar retail, there is simply too much unoccupied anchor and shop space in too many geographical locations across the county, with too few legitimate retailers to occupy it. These are the areas where the current housing crisis has taken its worst hit in recent years. Market demand is the reason why those well located Class A properties and urban centers have endured the stress test of this historic economic shakeout. They are what people want currently.
Market demand has driven the redevelopment and revitalization of many downtowns across the country, and has begun to change the core suburban areas themselves into a variety of consolidated urban-like places. Higher density suburban villages, with many urban-like amenities, are proving to be a successful model, such as the one found at Broadway Plaza in Walnut Creek, California (26 miles from downtown San Francisco), which boasts mostly stable home values nearby, while at the same time providing a lifestyle experience more attuned to San Francisco’s renowned Union Square without the commute. This is in sharp contrast to the suburban fringe, where the highest and best use for vacant or nearly vacant shopping centers and strips is unknown. Their prospects are bleak. It’s this evolving “reverse” trend reflecting the economic reality of each market independently, which will dictate how and when excess space will be finally absorbed and by whom.
There will be an array of temporary uses in between, some good and others not so good, such as pedestrian parks, public markets, schools and community buildings. In many cases there will be no uses at all, with only the bulldozer as the solution. The majority of the well-positioned space not absorbed by traditional uses will eventually be woven together with inventive new concepts crafted through the entrepreneurial eye of visionaries such as the late Donald Fisher, who opened the first Gap store in 1969, or Steve Jobs, the Apple co-founder, who returned to his struggling company in 1996 to create today’s most important retailer. This retail of the future along with today’s “best of breed”, will prosper without geographic boundaries, be “right sized” to accommodate the demographic realities of the modern consumer, and will thrive from sales driven by the market, wherever it may be.
Visit Mr. Epstein's new San Francisco-based consulting practice website.