A recent report on Q4 retail performance in the U.S. from Cushman & Wakefield reveals promising signs for growth in the retail industry. Chief among them is consumer confidence, which has hit a 17-year high and is expected to remain at historically high levels through 2018. Consumer spending has increased with rising confidence levels, and preliminary data shows the 2017 holiday season raked in $598 billion – an increase of $33 billion from the same period in 2016.
Although there were 9,000 store closures in 2017, an all-time high, these were primarily among the general merchandise, apparel and accessories, furniture and other (GAFO) categories. News stories often spelled doom for the retail industry last year, but this doesn’t quite reflect the broader reality. The retail industry is changing, not dying, and there’s plenty of evidence suggesting robust growth in certain retail verticals.
Signs of Strong Retail Growth in 2017
One major change occurring in retail is consumer preferences for experiential retail, which has led to major growth for businesses like food halls that prioritize the shopping experience over all else. Non-mall shopping centers have benefited from this trend, with new developments consistently achieving 80% occupancy upon delivery.
Neighborhood and community centers featuring grocery stores, discount stores and drug stores are proving resilient too. They now account for 63% of all non-mall inventory, or about a third of the total U.S. retail market, and their business model is expected to be highly resistant to disruption from online ecommerce.
In fact, out of the 1,579 major malls and shopping centers currently planning a renovation or expansion in the U.S. and Canada, 562 of these are community centers, which are defined as shopping centers between 200,000 – 499,999 sq. ft. in size. Community centers make up over one-third of all expansion or renovation in the retail industry, more than any other segment, revealing just how successful community centers are in this current economic environment.
Retail Industry in 2018 and Beyond
Consumer confidence is expected to remain strong through 2018, and all signs are pointing to a year of growth in the retail industry. Anchor stores will likely continue to downsize by closing strategic locations, but this will actually be a huge opportunity for landlords to rent to more relevant tenants such as newly popular retailers, food halls or other experiential concepts.
In late 2018, significant levels of mall redevelopment are expected. Landlords will begin to repurpose their buildings as mixed-use properties, renting office space to businesses or allowing medical and hospitality tenants to rent store space. This trend is expected to hit its peak in 2019 or 2020.
Online retailers, such as Bonobos or Fabletics, are starting to invest in brick-and-mortar stores, a trend called clicks-to-bricks. Many online retailers are now seeing the benefits of in-store locations for logistical purposes, but also so they can interact face-to-face with consumers. Online retailers investing in physical locations are typically seeing an increase in sales of 20-40%.
There are plenty of signs that 2017 was a good year for retail and that 2018 may be even better. There have been negative headlines, mostly following the closures of anchor stores, but the retail industry is changing and the most innovative retailers are thriving in a time of historically high consumer confidence.
Data for this blog was supplemented with the Directory of Major Malls | ShoppingCenters.com retail database. If you need major mall and shopping center data to inform your retail strategy, sign up for a free trial of ShoppingCenters.com and see how the latest data empowers your business.