Over the past few years, JC Penney’s, Macy’s, Sports Authority, and many other big name brands (including Idaho’s own Coldwater Creek) have announced store closures and bankruptcies. If you listen to the media, it may sound like retail is heading to the graveyard. The truth is, they are partially correct.
When having this conversation, I’ve repeatedly heard Amazon is to blame for the closures and bankruptcies mentioned above. Although it’s true that the emergence of shopping, “By clicks rather than bricks,” has put a good-sized dent in the bottom line of retailers, we cannot blame everything on the convenient online merchant. Traditional retailers have themselves to blame due to overbuilding in the retail sector. The United States has the highest amount of retail square feet in the world at 23.5 square feet per person. This is a huge lead when compared with the next 2 highest countries of Canada (16.4 square feet per person) and Australia (11.1 retail center square feet per person). This, combined with the changing consumer purchasing trends is the cause for so many retailers shutting their doors.
So what is next for these regional shopping malls and big box power centers that have suddenly lost their Sears, Barnes & Noble, Hastings or Sports Authority? They are being forced to adapt.
Lifestyle centers and experience-based retail have become the new trend. Developers are creating a model to appeal to the masses, where anyone can come to, “Dine, work, shop and play.” Here in the Treasure Valley, The Village at Meridian is a perfect example of this because not only are there various restaurants and retailers, but also a spa, gym, movie theater and park.
Although it will be expensive for existing large retailers to change with the times, it seems they are finding ways to make the transition smoothly. For example, when Hastings permanently closed last October it brought quite a few large vacancies to the Treasure Valley. These have all been filled by other retailers such as D&B Supply, Ace Hardware, and soon an Idaho Pizza Company among others. In a supposedly dying retail climate, merchants such as these have not only thrived but expanded. They have seized the opportunity to cut their costs and fill these vacancies, rather than build a new location in this difficult construction climate.
Large shopping malls, however, will potentially be a more exciting story. Developers will be faced with the challenge of a 60,000 square foot anchor disappearing, and needing to not only refresh and remerchandise, but focus on enhancing the consumer experience. This is where breweries, sit down restaurants, spas, gyms, bowling alleys, grocery stores and food halls will have the opportunity to fill the gap for people looking for social interaction and a better dining experience than the typical mall chain restaurant. Another Treasure Valley example of this adaptation is the 40,000 square foot former Sports Authority space in Nampa being converted into the CircusTrix Air Sports and Recreation Park.
While these changes can pose a challenge to the large shopping mall corporations, I find myself excited to see what may happen to these places in the future. Along with the future of self-driving cars and improved public transit will come interesting development opportunities. An asphalt parking lot has the potential to become a mixed-use development of office, retail and multifamily that will bolster the performance of its interior shopping mall.
In conclusion, retail is not dying. Simply, retailers are in a learning phase of figuring out how to progress with omnichannel solutions. On a national trend, vacancies are slightly up and rent growth as well as new construction is slowing. However, in the Treasure Valley retail development is moving at a steady pace. We’ve developed 282,478 square feet of retail over the past 4 quarters, vacancy rates have remained flat, and over the same period asking/quoted rental rates have seen a slight decrease (according to CoStar’s Mid-Year 2017 Market Report).