Throughout the last couple of decades, there have been many predictions that brick-and-mortar retail was destined for obsolescence. For years, it’s seemed like each new quarter saw an entire merchant category made redundant by the growth in e-commerce. The reality is that retail competition has always been as much a story of struggling operators, failing concepts, and unfortunate economics as it has been about breakout successes.
As the initial outbreak of COVID-19 quickly reached the level of a global pandemic, retail tenants and property managers with retail portfolios were hit with a tidal wave of shifting market forces that upended an already disrupted sector.
But as long as retail businesses and those of us managing retail properties are willing to pivot and adapt, the retail industry will not only survive, but thrive. The year 2020 certainly taught us all a thing or two about what such dramatic change can entail.
Pivot to profit
Everything around us was shifting. The way we worked (at home), whom we worked alongside (our families and pets), how we sought entertainment (inside the home or outdoors), and how we’d shopped (more ordering online and using PPE in physical stores) all looked different than the experiences we had just a few months prior. Many predicted that the forced closures of in-person businesses and subsequent penny-pinching by consumers would be the final nail in the coffin for brick-and-mortar stores.
The good news is that this doom-and-gloom forecast didn’t actually come to pass; brick-and-mortar retail is alive and well. It’s critical that we as real estate managers pick up actionable insights from the many success stories of retail operators who have thrived through the pandemic—and beyond.
One such success story comes from Tamara Chernomordik, senior director of environmental, social, and governance (ESG) at Kimco Realty Corporation, a REIT that owns and operates 537 shopping centers and mixed-use assets comprising 93 million square feet of space across the U.S.
“When the pandemic hit, Kimco implemented our Tenant Assistance Program (TAP), which provided tenants with free legal assistance in applying for government-sponsored relief funding,” Chernomordik says. “It focused on the Paycheck Protection Program (PPP), which was providing thousands of retailers with a financial backstop that saved them from going out of business.”
Kimco also accelerated its curbside pickup programs, enabling retailers to conduct partial business operations in their parking lots. Kimco implemented its own proprietary Curbside Pickup® program at over 300 of its shopping centers nationwide.
At most Kimco properties, this level of service has now become standard. This perfectly illustrates how the retail industry has rapidly and permanently adapted to the new shopping habits that emerged as a direct result of the pandemic.
Change that lasts
Also here to stay is the growing demand for outdoor restaurant seating at Kimco’s retail properties. The outdoor imperative was initially driven by restrictions placed on indoor dining but is now permanent, especially with the enduring shifts in retail patrons’ preferences and comfort levels. Anyone who lives in cities with outdoor “parklets” has seen this dynamic on display.
But perhaps the most significant evolution over the last two years is how Kimco enhanced the level of its communication and collaboration with tenants.
At the onset of COVID-19 in the U.S., the company informed tenants about what Kimco was doing to ensure their safety and continued success, such as enhancing cleanliness and safety protocols.
With mechanisms successfully in place to assist and learn from their tenants—like Kimco’s 24/7 National Call Center to support tenants—greater collaboration between retail owners and tenants is likely to continue in the long term as the new norm.
Identifying the new opportunities
Mark Sigal, CEO of Datex Property Solutions in Calabasas, California, explains more about the opportunities that have arisen with the new norm. Datex offers a real estate portfolio management system that integrates with portfolio owners’ MRI or Yardi property management and accounting data to improve operations for their teams.
Datex’s clients include large public retail REITs, owner-investors, and third-party fee managers, who utilize the integrated software to manage thousands of retail tenants and properties across the U.S.
“Despite the doomsayers, brick-and-mortar persists, and when done well, when successfully differentiated, it thrives,” Sigal says.
This is where the notion of harnessing big data to make better decisions comes in. With so many of Datex’s clients owning and managing shopping centers, they had access to real-time, highly structured data. This allowed Datex users to track and analyze the changes both within their portfolios and across the shopping center sector as the pandemic unfolded.
For example, the data revealed:
- Because fitness centers are inherently social, they initially took a back seat to sporting goods retailers in terms of operating performance. But as COVID-19 stabilizes, customers are returning to the gym.
- People love their pets. This is seemingly good for pet stores, though occupancy cost metrics raise some questions.
- The food, drink, and grocery segment shined during the pandemic. Yet drug stores, the co-anchor in supermarket- and drug-anchored neighborhood shopping centers, showed some decline. This suggests that even drug stores may be feeling the effects of Amazon gaining additional market share during the pandemic.
Sigal also believes that there are other opportunities that have sprung up from the pandemic for improving the performance of retail properties, such as the demand for more drive-throughs.
The drive-through is obviously not new, but the demand for the service model catalyzed by COVID-19 is. Drive-through/drive-up service has become a must-have for retail businesses, and it will likely incentivize municipalities to issue more permits, as consumers value safety and convenience more than ever.
Another aspect of the retail economy that Sigal believes will continue to evolve is the in-store experience. Pre-pandemic, lifestyle retail was the fastest growing segment in the retail sector, specifically because it leverages proximity, place, and people—social connectedness. Post-COVID-19, this trend should pick up again, with many implications for how retailers make their stores more experiential and how they leverage omnichannel sales to deliver a more frictionless shopping experience. It also dovetails with retailers’ need to build tighter direct-to-consumer connections via mailing lists, customer loyalty programs, and subscription-based offerings to lock in billing relationships with consumers.
“If the pandemic has taught shopping center owners anything, it’s that the days of laissez-faire relationships between landlords and tenants are over,” Sigal adds. “Retail property owners are more focused than ever on understanding their trade areas and targeting strategies. They’re achieving this by utilizing location analytics tools, as well as evaluating merchant health by requiring sales reporting and negotiating more percentage-rent tenant leases.
“The bottom line is that the winners in retail are being more proactive on shopping-center marketing, and specifically by programming seasonal and recurring events to drive community engagement.”
Change is a constant reality in retail, but as long as those of us working in the sector are willing to adapt, it will continue to thrive.