Real estate professionals know that the retail and restaurant industries are constantly changing. Those changes can have big implications for retail real estate strategies.
While there are many trends influencing the retail and restaurant industries today, there is one overarching theme running through all of them: changing consumer behavior.
“The trend [in 2019] will be that customer behaviors and preferences are changing,” shares Stephen Polanski, senior vice president at Buxton. “The companies who understand and engage their customer and understand how their customer wants or needs their products or services will be the winners.”
Retailers and restaurants are experimenting with a variety of strategies in response to these consumer behavior changes. Not all the strategies affect real estate decisions, but some do.
In this blog, we will share updates on three of the key trends that will continue to shape retail and restaurant site selection in the coming year as outlined in Buxton’s 2019 Retail and Restaurant Real Estate Outlook.
Trend #1: Omnichannel Strategies
Developing an omnichannel strategy was a primary challenge for retailers a decade ago. But now, industry insiders say that challenge is in the past. Most retailers have developed some sort of multi-channel sales capability.
Where we see omnichannel strategy development having the most influence today is in the restaurant industry. As Buxton Senior Vice President Chris Briggs observes: “Restaurants, especially fast casual concepts, are learning (and to be fair, have been learning for a few years) first hand just how important it is to have their omnichannel strategy on point and effectively executed.”
A few short years ago, the restaurant industry was heralded as being one of the few untouched by e-commerce. The introduction of third-party delivery platforms changed that.
Many brands are responding by rolling out delivery services through the most popular third-party applications. Subway announced in October 2018 that it is offering delivery at 9,000 U.S. locations through partnerships with UberEats, GrubHub, DoorDash, and Postmates. McDonald’s has rapidly grown its delivery services from 200 test sites to 5,000 locations in less than two years.
Other brands are experimenting with new prototypes designed specifically for fulfilling online orders. Chick-fil-A is testing dedicated catering and delivery locations in Nashville and Louisville. Pie Five is also rolling out a new prototype dubbed “Goldilocks” as part of the brand’s turnaround efforts. It’s smaller; focuses on efficiency by serving a limited menu; and emphasizes carry-out, online ordering, and third-party delivery.
But delivery isn’t a great fit for every restaurant brand. LongHorn Steakhouse president Todd Burrowes remarked at the 2018 MUFSO Conference that it doesn’t make sense for his brand, as steakhouse menu items do not travel well.
Still, omnichannel strategies are expected to have a big impact on the restaurant industry in 2019. In response, restaurant real estate teams will need to adapt store layouts to reflect how customers are interacting with them today, says Polanski. This may mean adding pickup windows for online orders and reducing the number of seats in the restaurant.
Trend #2: Clicks to Bricks
Once upon a time, everyone thought that online retailers represented the future of the retail industry. But as these brands have matured, they quickly discovered that physical stores have an important role to play in reaching new customers and driving sales. Couple that with increasing competition, rising online advertising costs, and declining mall rents, and suddenly brick-and-mortar stores have become an attractive growth channel.
The once “pure play” online retailers are now rolling out aggressive strategies for brick-and-mortar expansion. While this trend has been taking place for several years, it has recently gained momentum. According to Bloomberg Businessweek, online brands are expanding beyond major metro areas on the coasts to reach suburban America. These retailers now operate more than 600 U.S. stores and are being courted by landlords looking for exciting new brands to reinvigorate their malls and shopping centers. Examples of online retailers who are opening stores include Amazon, Casper, Chubbies, Madison Reed, Warby Parker, UntuckIt, and Bonobos.
As online retailers build a real estate strategy from the ground up, it will be critical to lay the right foundation. Many of the woes facing traditional retailers today were caused in part by overexpansion and poor market planning.
Online retailers’ expansion into physical locations will help to fill vacancies left by retail closures and bolster the retail real estate market in 2019. Traditional retailers will need to be aware of these new competitors seeking retail space and account for them in their real estate strategies.
Trend #3: Experiential Retail
One of the most important trends that has shaped the retail and restaurant industries over the last decade is a renewed emphasis on the customer experience. Brands and shopping center owners are seeking ways to encourage visits and to increase customer loyalty.
The real estate industry has responded by incorporating non-retail tenants in traditional retail spaces. Since shoppers who use service-oriented tenants tend to visit shopping centers more frequently and stay longer, mixed-use developments can boost visits and dwell time. In their U.S. Retail Outlook for Q2 2018, JLL predicted that both malls and open-air centers will see an increase in non-retail tenants.
Retailers have experimented with adding classes and special in-store events to encourage customers to stay. Recently, health and wellness initiatives have emerged as a new way for retailers to connect with customers. Forbes reports that CVS is testing layouts that pivot from being a place you go when you are sick to a place aimed at keeping you well, Eileen Fisher is introducing meditation classes, and DSW is introducing custom made orthotics.
Meanwhile, Macy’s is enhancing the customer experience by redesigning 50 of its busiest stores. Changes include adding on-site Starbucks cafes, expanding the dress department, and adding more fashion advisers.
Restaurants are wooing customers to visit their locations by trying to provide Instagram-worthy experiences in addition to good food. Strategies include selecting unique locations and incorporating trendy on-site activities like axe-throwing. To further fight back against competition from meal delivery kits and other incentives for consumers to stay home, restaurants are serving unique, eye-popping food that can’t be re-created by home cooks.
In the coming year, retailers and restaurants will continue to seek real estate options that foster the interactive customer experience today’s consumers seek. Mixed-use developments, historic or unique architecture, and space for in-store classes and gathering places will become site selection priorities.
Want to Learn More?
Want to learn more about retail and restaurant real estate trends to watch in 2019? Download Buxton’s 2019 Retail and Restaurant Real Estate Outlook for additional information, updates on real estate market fundamentals, and proprietary market rankings.