Research - JUNE 19, 2017

Not dead yet: The retail market is undergoing a transition

by Loretta Clodfelter

“The mall isn’t dead, but the traditional mall model is,” says Melina Cordero, CBRE Americas head of retail research.

But while reports of retail’s demise may have been greatly exaggerated, there are challenges facing the sector, especially as a wave of store closures hits the market. A recent research note from Credit Suisse estimates more than 8,000 retail stores will close in 2017 and predicts as many as 25 percent of shopping malls in the United States could close in the next five years.

Although some of these malls are poorly located, as their surrounding market has evolved or changed since they were constructed, others are in need of capital for redevelopment and repositioning. But there is a window of opportunity for such revitalization, explains Cordero, after which the wider market will have shifted its shopping habits and competing products will be developed.

Cordero points out the United States is not necessarily over-retailed, but certain segments or markets have more retail space than they require. For retail investors, the challenge is to have stores that offer differentiation. While price and convenience are still the top priorities for consumers, notes Cordero, shoppers also want to have experiences that are surprising, authentic and local.

The rise of e-commerce is another factor for retail, though Cordero notes brick-and-mortar stores have become major players in the online retail space. “Is brick-and-mortar taking over e-commerce?” she asks.

There are synergies between online platforms and physical stores, allowing consumers to research products, click-and-collect or return online purchases in-store. Difficulties remain, however. Reverse logistics — sending returned items back to warehouses — continues to be a weak spot for retailers, and online sales result in considerably more returns than in-store sales. A different challenge exists for property owners — capturing a piece of the online revenues of their brick-and-mortar tenants. Cordero says the industry needs accounting standards for how online sales and returns are measured, which are reflected in rents.

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