What’s next for retail: Unwrapping changing expectations for the shopping experience
- February 1, 2022: Vol. 9, Number 2

What’s next for retail: Unwrapping changing expectations for the shopping experience

by Beth Mattson-Teig

Experiential retail was all the rage heading into 2020. As the retail sector continues to gain momentum in its recovery, are consumers and landlords ready to pick up where they left off prior to the COVID-19 pandemic?

The simple answer is “yes.” Strategies across discretionary retail assets, such as malls and lifestyle centers, that focused on increasing food and beverage offerings, entertainment, placemaking, and densification are still very much in play today. The broader answer is a bit more complicated because the “retail experience” is ever changing and means different things to different people. Shopping center owners are keeping a close eye on shifts in consumer demographics, behaviors and preferences, along with the continued ripple effects of omnichannel retail strategies. What types of retail experiences will consumers want in the future, and how does retail need to reinvent itself to meet those demands?

“The three things that get people into stores and shopping centers are convenience, value or experience,” says Garrick Brown, COO and director of advisory services at the Lockehouse Retail Group, a premier full-service commercial real estate firm. The disruption retail has faced for the past 15 years, and which was further cemented during the pandemic, is that nothing is more convenient than sitting at home and shopping online, he adds. Retailers and landlords are once again leaning on experiential retail and a pent-up demand for “normalcy” to draw people back to brick-and-mortar stores and shopping centers.

“What is going to drive retail demand in the future is all about what the retail experience offers and how it fulfills the value proposition,” says Ana Leon, retail property specialist at DWS. And that experience is more than puzzle rooms and golf simulators. People are rating their shopping trips on a variety of factors: Did it save time and money? Was it convenient and frictionless? Did it provide a variety of differentiated products or create a “treasure hunt” experience? Was it interesting and, importantly, was it fun? “Shoppers will continually critique retail experiences on many levels as needs and wants change post-pandemic,” adds Leon.

Overall, retail has weathered the past two years relatively well, with occupancies that have fared better than many expected. According to the Urban Land Institute’s Fall 2021 Real Estate Economic Forecast, retail vacancies inched 70 basis points higher in 2020 and are expected to hold steady at 9.3 percent in both 2021 and 2022. The pandemic did, however, accelerate the demise of weaker retailers and obsolescence in some segments of the market, namely class B and C malls. According to the Mall Index, visits for September 2021 were still down compared with September 2019, at –6.5 percent for indoor malls and –5.2 percent for outdoor malls.

“The mall used to be at the top of the pyramid for retail, and now it is the most disrupted part of the retail ecosystem,” says Scott Crowe, chief investment strategist at CenterSquare. That shift provides a good lesson for real estate investors. Demographics and preferences are changing rapidly, which in turn drives rapid change in demand patterns, notes Crowe. Understanding those changing demand patterns is important for both reimagining retail and underwriting retail real estate investments.


If anything, the COVID-19 pandemic seems to have created a bigger appetite for experiential retail. “Whether it’s axe throwing or experiential restaurants, or a soft-goods retailer that is including a runway show inside of a dress shop, that kind of retail is here to stay,” says Matt Ramsey, a senior vice president at JLL. People want those experiences now more than ever because they were stuck at home during the height of the pandemic, he adds.

Retailers and shopping center owners also recognize Gen Y and Gen Z consumers have different expectations. Millennials, for example, don’t simply want those interesting experiences, they expect them, notes Ramsey. “So, as we go forward, I think we are going to see more experiential retail and more creativity,” he says. Anyone can sell a shirt or a blouse or a pair of socks. The pandemic forced more people to shop online for everything from groceries to clothing. Consumers want a reason to go to a store and experience the brand, as opposed to going to a website.

Some soft-goods retailers are incorporating event space where they can better engage with customers in stores, while others are discarding cookie-cutter prototypes. Foot Locker, for example, is rolling out a community-based “Power Store” that features event space and art from local artists incorporated into the store design. Bloomingdale’s also has launched Bloomie’s, a smaller-footprint store with a highly curated, interactive shopping experience that offers everything from virtual and in-person styling sessions to cocktails at its in-store cafe.

Shopping had become a little like being on a treadmill, in terms of seeing all the same stores no matter where you were. Now, people might be able to go into a branded store in Detroit that is radically different from one in Los Angeles. “That gives people an opportunity to see different products and different presentations,” says Ramsey.

Discretionary shopping for apparel and home goods needs to focus more on a specific and unique experience that can’t be replicated in many other places. “I think that has been a major problem in retail over the past 20 years, where we were serving up people with the same experiences over and over again,” says Leon. Retail got very crowded with similar concepts, so the ability to aggregate centers with different retailers, and something that is new and more innovative and unique, is what Gen Y and Gen Z shoppers really want. They don’t want to have the same experience over and over, she says.


The big headline trend the retail sector focused on during the pandemic was the surge in online sales. Another trend that was further accelerated by the response to COVID-19 is the shift in wallet share away from physical goods toward the consumption of services. “We spend more money as a percentage of our wallet on a cup of coffee today versus a pair of shoes than we did 10 to 20 years ago,” says Crowe. Although certain parts of the retail market are still soft, services continue to be something that people desire and have returned to pretty quickly once they felt safe, he says. From a landlord’s perspective, the services segment of the market is seeing the most growth, particularly in categories such as fast-casual dining, health and beauty, and wellness and medical.

In addition, apparel and soft-goods retailers that have been slowly shrinking their footprints created opportunities for landlords to bring in more services. Those tenants like the convenience of retail locations, and it allows landlords to provide more convenience to customers through more of a “town center” mix of stores, restaurants, entertainment and service businesses, notes Ramsey. “I think that’s what young people are looking for, and they’re the ones that are going to drive the next generation of retail,” he says. “People don’t want to drive to that isolated big-box store sitting on its own.”

Class B and C malls are at the forefront of reinvention as they look for new uses for their large box vacancies. “Inevitably, the best use for a lot of those empty department stores is housing,” says Brown. Virtually every single market in the United States has a housing shortage. What better way to reimagine those properties than as denser, highly amenitized communities? he asks. Creating new mixed-use neighborhoods also opens up opportunities to add more service-oriented tenants to serve the residents of that community.


Investors are well aware of the bifurcation occurring within the retail market, with sectors such as grocery-anchored centers and net-lease properties still in high demand. Yet, uncertainty on the recovery — and the potential for more of a shakeout still ahead — has created a “risk-off” mentality for other areas of the retail market.

“For the most part, a lot of investors have painted retail with a broad brush as an asset class that isn’t really attractive right now, but I think we are starting to see some opportunities and more clarity on where those opportunities are,” says Leon. “While we do like grocery-anchored retail, there is a place for really high-quality malls, which we own and will continue to invest in, because they are really strong assets and have a lot of growth potential in the future.”

DWS has been investing in reimagining its Manhattan Beach Village mall in Southern California, for example, with phased improvements over the past four years. The center includes a Macy’s-anchored enclosed mall and a grocery-anchored neighborhood center. In addition to an interior renovation of the mall, DWS is completing a $250 million redevelopment. The newly added Village Shops and Plaza consist of open-air dining; boutique fitness, health and wellness concepts; and curated retail spaces that will open their doors at the newly reimagined center in spring 2022. The property added a collection of destination restaurants, as well as more parking, and created better circulation, all of which helped in securing new contemporary lifestyle and clothing retailers. “Even post-pandemic, we’re seeing really good traction with leasing, which speaks to the strength of this asset,” Leon says.

“We have had 15 years of this retail apocalypse story. Then we go through this deeply challenging time of COVID. So, investors are understandably wary,” says Brown. “The interesting thing here is that I see retail as being in a stronger spot emerging from COVID than it was.” Growth in ecommerce has been one of the big disruptors to retail; however, for a lot of categories, the surge in ecommerce is nearing stabilization. Retailers have adapted with omnichannel platforms. In addition, those concepts that survived the pandemic and did well, such as home goods, sporting goods and QSRs, are being opportunistic. Growth is returning to the market.

Despite the challenges, investors are seeing stability in retail that perhaps they didn’t realize was there. Despite pockets of weakness, vacancies have held up across the broader market. In addition, landlords are seeing a bounce back, with tenants that are aggressively expanding and looking for space, and retail has not seen the cap-rate compression that has occurred in other sectors, such as industrial and multifamily. In short, opportunities exist for savvy investors who are willing to take risks in retail right now.


Beth Mattson-Teig is a freelance writer based in Minneapolis.

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