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U.S. Shopping Centers 2014: Not Just Surviving, But Thriving

New ICSC Study Reports Robust Retail Real Estate Trend

According to a decade’s worth of media stories, the American shopping center is on life support, crushed by the rise of online retailing and fading fast from the national landscape. But with a new report from the ICSC, owners and managers of commercial retail real estate can now paraphrase Mark Twain’s famous quote: “the reports of our death have been greatly exaggerated.”

The report consolidates statistical data and trend analysis from numerous sources into an information-packed 18-page report, “Shopping Centers: America’s First and Foremost Marketplace.” The result is a portrait of a thriving industry with a bright future. Among the most upbeat statistics presented are the 2013 figures from the U.S. Commerce Department, indicating that the vast majority of retail sales continue to happen in brick-and-mortar stores, 94 percent last year, for a total annual spend in excess of $4 trillion. Online sales for the same period accounted for the balance of 6 percent and totaled $263 billion. But wait, there’s more good news. You can read it all at icsc.org. And even though you probably have seen bits and pieces of this data, the consolidated picture packs a punch. Here are some points that impressed us.

The Big Picture: The Retail Real Estate Industrys Vital Signs Are Strong

With the recession fading, unemployment receding and consumer confidence up, owners and managers of shopping centers can see a brightening picture for commercial retail real estate. According to the ICSC report, reasons for cheer include the surging US population, with a growth rate of 2 million per year expected to continue into 2050. With that expansion, new market niches and opportunities are emerging (Boomers, Millennials, Hispanics). Retailers want to supply those niches with plenty of places to shop, projecting the opening of over 100,000 stores in the next 24 months. That explosion of new stores, coupled with the slowdown in shopping center construction, will drive competition for prime space and boost rents. It’s little wonder that ICSC president and CEO Michael P. Kercheval believes that “the industry is poised for unprecedented success going forward.”

Consumers Continue to Prefer In-Store Shopping to Online

The shopper’s need to touch or try on merchandise is the prime reason why they rank in-store shopping above its online counterpart. ICSC reports that 75 percent of respondents to a recent survey conducted in partnership with the research firm of Alexander Babbage cited the shopper’s desire to experience potential purchases firsthand as the main reason for choosing in-store over online. That’s a competitive advantage unlikely to be duplicated. Other stated reasons for preferring bricks-and-mortar include the greater ease of finding items in a physical store, immediate satisfaction – no waiting for delivery, the desire to combine multiple errands into one trip, and the fun of shopping with friends and family. Even the digital natives of the Millennial generation state that they shop in stores for entertainment and fun. Statistics regarding the time spent shopping supports those preferences, with consumers making more trips to brick-and-mortars and spending more time and money in those stores than they do online. Mark Toro, partner in North America Properties, summed up the reason for the appeal of in-store shopping when he said in a recent SCT interview: “Humans are social animals. If we want to have an experience, we have to go to a public space to commune. That is what people are craving, because they are so isolated in their online worlds.” Shopping centers die for various reasons, he admits, but they are replaced by better venues – not by the Internet.

Destination malls, like the new Avalon mixed-use venue in Alpharetta, GA, Sarasota’s The Mall at University Town Center, and the Westfield San Francisco Centre, are satisfying those human social needs with diverse tenant mixes that integrate retail and non-retail, along with environments rich in entertainment value. However, the ICSC report indicates, the neighborhood convenience-oriented shopping center is still the industry’s dominant player, comprising 88 percent of commercial retail real estate in the U.S. and supplying basic consumer services that can’t be duplicated online.

Online Brands Venture Beyond the Internet in a New Retail Real Estate Trend

While Traditional Stores Continue to Tap into the Web

Like other trendspotting reports, the ICSC’s publication points out the movement of successful Internet merchants like Bonobos, Athleta, Boston Proper, Piperlime and Warby Parker into the physical world. Even the mighty Amazon is experimenting with traditional storefronts to push sales of its electronics line this holiday season. With in-store sales and conversion rates higher than online performance, savvy web retailers are embracing the omni-channel model. Their brick-and-mortar counterparts are in omni-channel mode as well, embracing the web as a tool instead of a threat. The results are impressive: omnichannel consumers shop three times more often than single channel ones and spend 3.5 times more.

ICSC Report Urges the Retail Real Estate Industry to Stay Flexible

The growth of the Internet has brought the most significant changes in retailing since the automobile and the pace is unlikely to abate. The ICSC report urges the industry to anticipate and adapt to these. The report concludes: “The transformation in the industry is bringing about one of the most exciting eras in the history of the shopping center.”

Get ready!