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Why predictions of a ‘retail apocalypse’ are overblown

  • A retail apocalypse is upon the American retail market, prognosticators say.
  • Big-name store closings have prompted dire proclamations and forecasts of further doom.
  • Brick-and-mortar is not in fact defunct. Instead, it is evolving, and successful retailers are embracing a new kind of shopping experience.
A Sears store about to close in the Bronx, New York.
Richard Levine | Corbis | Getty Images
A Sears store about to close in the Bronx, New York.

The prevailing viewpoint today is that a retail apocalypse is upon the American market, that it will bring the death of shopping malls, and that e-commerce is largely to blame. A series of big-name store closings have prompted dire proclamations and forecasts of further doom. But the headlines and store closings do not show the full picture of the health of the U.S. retail sector. In fact, nineteen brands have announced the opening of a total of 2,861 stores in the first half of 2017.

When taking a look at Manhattan as an example, one of the hottest real estate markets in the country showed that average asking rents declined in 11 of the 17 retail corridors according to the most recent (fall 2016) published Real Estate Board of New York's (REBNY) Manhattan Retail Report.

When looking closely at the data, one can quickly see that the numbers don't tell the full story of the evolving market and it's something that we have felt for a long time. According to REBNY's analysis, the asking rent adjustments are indicative of a natural correction in a market that had been soaring ever since the 2008 financial crisis.

Brick-and-mortar is not in fact defunct. Instead, it is evolving, and successful retailers are embracing a shopping experience that blends a variety of platforms and that ultimately creates the engagement necessary for a brand's success.

As shown by the renewed appeal for showrooming in the apparel retail industry, digital retailing and brick-and-mortar are complementary. Consumers enjoy the shopping experience without actually shopping: in many cases, they won't bring home a purchase but instead buy online after enjoying the shopping experience. In the end, brick and mortar assist the transaction that would not otherwise have occurred.

"Restaurants and food halls are among the strongest drivers of foot traffic and adding them to retail environments can be one of the most effective ways to appeal to consumers' senses."

The concept of showrooming is not new—the automotive and furniture industries have been doing this for ages—but consumers' increased appetite for a variety of shopping options has caused several brands to make strategic shifts and embrace a new approach. Beauty retailer Sephora has revamped its stores to integrate digital approaches, with its Beauty Workshop and Color IQ services and new group classes. Target allows shoppers to buy online and have their items delivered to the local store of their choice.

These brands recognize the new world of engagement, entertainment, excitement, and experience that the new shopper seeks. Experiential retail is key, particularly for the highly-coveted millennials who seek inspiring shopping experiences.

Restaurants and food halls are among the strongest drivers of foot traffic and adding them to retail environments can be one of the most effective ways to appeal to consumers' senses. They not only boost high streets and other retail corridors but malls as well.

Starbucks opened in Uniqlo's Fifth Avenue location. Nobu, the globally renowned Japanese restaurant, and Fig & Olive, an upscale Mediterranean establishment, both announced plans to open locations at The Galleria in Houston. The two restaurants will occupy space at the mall that was formerly occupied by a Saks Fifth Avenue store, which relocated within the mall.

Entertainment has historically led the way in helping to generate foot traffic and enhance a destination's retail appeal and it will do so again. We have seen this with many of the family-focused entertainment and edutainment concepts that have begun expanding into the brick and mortar space throughout the country. They are proving to be formidable opportunities for developers and owners to boost foot traffic and replace what is becoming increasingly costly remnant, yet highly coveted anchor space in key malls and in select urban markets.

In addition to including food and entertainment options to the retail mix, pioneering brands are ramping up their experiential offerings. Samsung 837, in Manhattan's Chelsea neighborhood, boasts a virtual reality tunnel, interactive art installations, a mini museum, DJ sets, yoga classes and sweat sessions.

The Sonos space on SoHo's Greene Street features home-like listening rooms. Keeping the apocalypse at bay, these savvy retailers know it is their job at the store level to establish and deepen the consumer relationship and ultimately provide a greater connection with the brand that can last beyond the sensory engagement of the in store experience.

Commentary by Robert K. Futterman, chairman and CEO of RKF, the leading retail real estate brokerage firm in the U.S.

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