When it comes to real estate, investors are often skittish about the retail sector, and with good reason. While sectors such as industrial and multifamily are easier to navigate, retail is the most dynamic and complicated property type in the real estate business. So, why, despite the complexity, is it still worth investing in retail?
While property types such as office and warehouse have the same end user, retail real estate has an array of sub-property types, including regional malls, outlet malls, lifestyle centers and grocery-anchored centers. That said, retailers can strategically decide which of these retail models allow for the most innovative and profitable use.
Today, consumers are interested in wellness. In a 2022 consumer report, 43 percent of people leaned toward wellness as an amenity in the retail experience. As a result, more “medtail” retailers, fitness centers, spas and healthier restaurant concepts with plant-based and local ingredients will be placed in retail centers. Food is especially critical as it brings people together, is an engaging activity, and drives traffic beyond typical store hours. In addition to the increase of wellness-oriented concepts, the actual physical space and architecture of retail complexes is being reinvented. With a focus on outdoor spaces, sustainability, greenery and calming decor, retail centers are attempting to make the shopping experience more elevated by incorporating different aspects of wellness, serenity and shopper experience.
The rise of social media means retail will only adapt at a faster pace. This is caused by the velocity of information, propelled by internet and social media platforms, creating new trends on top of old trends. For example, TikTok and Instagram can encourage demand for certain products or stores by riding on the wave of the latest trends. There are 34.3 million views alone for the term “restaurants in Manhattan,” and places like Carbone, made famous by viral clips of its spicy vodka rigatoni, benefit from the visibility. That said, trends move fast, and soon enough people are moving on from one viral moment to the next.
Though retail trends are moving at a previously unseen speed, a successful retail management team can use technology to monitor and anticipate these ever-evolving trends and get out in front of them, rather than play catch up. The onslaught of social media and technology, while adding another layer of intricacy to retail trends, can also allow one to know and understand their customer base at a deeper level. This is key, as knowing target customers’ identity, interests, income and age is among the best ways to stay on top of retail trends. Retailers who don’t know their customers are at risk of falling behind. For example, social media-targeted ads can draw customers to in-store shopping for those products, especially those with longer than normal shipping speeds. Social media posts from friends, family and influencers draw customers to brands more than retail ads or billboards.
Another aspect of technology’s benefit to the industry is its impact on managing inventory levels, which creates the best margins and ensures profitability. Finding the right financing and lending partners to effectively manage the business is another crucial aspect of retail chain management.
In addition to technology, one must take into account the blend of retail tenants that fill shopping center spaces in a way that creates synergy rather than discordance. As convenience becomes more important to consumers, retailers must find innovative ways to partner with other players in the industry. Accordingly, companies such as Whole Foods and Kohls are strategically placing Amazon pickup centers in their stores to create greater foot traffic and exposure to the retailer’s available inventory
Retail isn’t going anywhere — and investors should take note.
Moe Puri is vice president at RCS Real Estate Advisors.