Retail Forecast Heading into 2016

Retailers are banking on the confidence of U.S. consumer spending on retail goods and services heading into 2016. It is also foreseen that demand for physical retail space remains strong with a modest level of new store construction and deliveries. However, it is not only enough for retailers to expect a good location to attract shoppers. According to JLL's James Cook, Americas Director of Retail Research, retailers and shopping centers will have to focus even more on value and entertainment to attract shoppers. The trend is changing towards “going small” with large anchors developing smaller footprints, while creating a more lifestyle oriented approach to the mall and shopping center.

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Most shoppers are looking for low prices and a memorable experience. They want a “treasure hunt experience” that is surprisingly fun and entertaining when obtaining a discount. Brick-and-mortar stores have to work harder than ever before to combat sales lost to e-commerce and online purchases. Several economists predict that Amazon will surpass Macy's as the top U.S. retailer of apparel by 2017.

Although aggregate gross demand for physical stores will be trending slightly upward, there will be a lot more mergers and consolidations to accommodate omni-channel retail. The trend of merging and consolidating is evident to the anticipation of rising retail sales and growth. “We expect core retail sales to grow 5.3% in 2016,” says Scott Hoyt, senior director of consumer economics for Moody's Analytics, a research firm based in West Chester, Pennsylvania. (Core retail sales exclude volatile revenues from auto sales and gas stations). This is good news for retailers since it is more than the 4.2% rate anticipated in 2015, which was slightly better than the 3.9% growth in 2014.

What seems to be the main theme this New Year is that value for shoppers seeking bargains coincides with value for investors shifting from “malls and large shopping centers down to smaller strip and neighborhood centers,” as stated by CoStar Portfolio Strategy Senior Real Estate Economist, Ryan McCullough. Small centers are now where the growth is at with an improving housing market and low unemployment. The “going small” trend will increase the number of large anchor and big box spaces being re-purposed into smaller footprints, to house multiple junior anchor uses moving ahead.

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