It was once believed that e-commerce would be the end to brick-and-mortar, but today’s narrative is a little different. The in-person experience is proving necessary to closing an online sale.
The key to success in today’s climate, and the future of retail, is both. Newmark Senior Managing Director, Chicago Retail Jim Schutter called it “balanced coexistence”.
It’s true that COVID-19 boosted online sales, but the tide has started to change—people are again yearning for the in-person experience, though businesses must strike an equilibrium between brick-and-mortar and e-commerce to survive, and the most successful have done just that.
We’re seeing it more and more. A company may not have the size or color a customer is looking for in store, but a wider selection is offered online. Businesses like Warby Parker and Away have store fronts, or showrooms, for customers to come in and “try before they buy”. Customers can find the product that works for them but must then place the order online.
“Retailers need to have both [a brick-and-mortar and online presence] to effectively compete,” Schutter said. “For a company to only offer storefront might put them at a disadvantage relative to competitors who are able to offer both avenues. Traditional retailers should have an online presence, and vice versa.”
This strategy has unintended benefits, too. Customers might need to go to a storefront to return or exchange a product purchased online. While there, there’s a chance that they’ll purchase another product they happened to see on display, a transaction that wouldn’t have occurred if the company was not maximizing their strategy.
Malls were struggling long before the onset of COVID-19. Post-pandemic, stores traditionally found in regional shopping malls were having to shift in case something like that were to happen again. During 2020, Schutter said most of his time was spent working with existing clients, trying to figure out how to structure a deal to keep the retailers open. What kind of rent reductions could we put in place that would give them a break right now and maybe a longer lease term at the end of the day? How do we restructure? What would make sense for both the owner and the tenant at that time?
Businesses were concerned with including a precautionary COVID clause into new leases, but this has changed. Many are looking at COVID-19 as a stand-alone event, and things seem to be looking up for the future of the shopping mall—even in Chicagoland—which is something that couldn’t be confidently said in, say, January of 2022.
Oakbrook Mall, for example, has an outdoor concept that works well regardless of climate. Crowded and vibrant, it offers a mix of affordable and high-end stores that maximize sales with a complementary online presence. The secret sauce to a thriving mall is made with two ingredients: (1) a central, bustling location and (2) innovative, adaptable tenants.
Secondary malls with weak anchors, on the other hand, may go by the wayside soon. Department store anchors, in some cases, are being converted to senior housing, medical facilities or other ancillary uses. A few well-located regional malls in Chicagoland have already been demolished to make space for non-retail development, and this will continue to be a trend.
A similar trend is known as “medtail”, which refers to medical facilities located in retail shopping centers—Aspen Dental, Heartland Dental, Athletico. Many of these businesses have been occupying remaining retail shopping malls, which wouldn’t have been the case 10 years ago.
All of this begs the question. It’s no secret that Downtown Chicago has faced more of a challenge getting on its feet in the last few years, compared to suburban retail, but how do the two markets compare today in terms of strength of the market?
Suburbia still going strong. There’s been a decent amount of activity in 2022, but not as much new construction as seen in previous years.
“The cost of new construction is very high right now, so it’s hard to build new retail cost effectively,” Schutter said. “Due to vacancies generated after the pandemic and because of the normal life cycle of retail, retailers are signing leases in existing retail.”
As for Downtown Chicago, Michigan Avenue and State Street leasing is still pretty slow, due to workers still not having fully returned to the office and the slow return of convention business, but Schutter remains optimistic.
“I have always enjoyed retail because of its ever-changing dynamic. Just when you think you’ve seen the latest retail concept, somebody comes out with something new that’s interesting and entertaining.”
