Remember those long-ago days before COVID-19 hit the United States? Back then, retailers were embracing experiences. Offering consumers an experience that they couldn’t get online was one way for brick-and-mortar retailers to battle the Amazons of the world.
But during the height of the pandemic? Consumers either couldn’t, or were too nervous to, go to indoor golf ranges, adult arcades or high-tech bowling alleys.
That led to worries that experiential retail, which had been so strong, would fade away. The fear was that consumers would be hesitant to gather in indoor spaces even after COVID cases began to fall.
The good news? That fear seems to have been misplaced.
Across the Midwest, commercial real estate professionals report that experiential retail in their markets has rebounded in the last six to nine months. People are again flocking to fitness centers, are returning, in slower numbers, to movie theaters and are happy to spend their dollars at bowling alleys, indoor golf simulators and trampoline parks.
The rebound is here
Deb Carlson, director at the Bloomington, Minnesota, office of Cushman & Wakefield, said that experiential retail is bouncing back strong in her market, especially as COVID-19 numbers continue to fall.
“Consumers are looking for interesting ways to spend their dollars,” Carlson said. “They want to spend them on experiences today.”
This is good news for indoor mini-golf spots targeted toward adults or bowling alleys offering gourmet meals and light shows. It’s good, too, for movie theaters with heated seats and meal service and adult playlands that offer retro arcade games and golf simulators.
Carlson points to the trend of revenge shopping. Some consumers waited so long to return to retailers, that they are now ready to spend their dollars with a vengeance.
“We are as anxious in the Twin Cities as anybody to get out of our houses,” Carlson said. “We are ready to get out there and spend our money. The experience piece is going to be more important going forward. We haven’t had many experiences the last couple of years. There’s a real interest now that we are getting out of the house again on what interesting things we can do.”
And experiential retail isn’t just about big chains offering electronic putt-putt and high-end bowling. It’s also about local retailers.
Carlson said that shoppers are aware that local retailers got hit especially hard during the pandemic. They didn’t have the cash reserves of some of the national chains. Consumers, then, are ready to patronize local retailers again. And these locals are ready to provide them with experiences of their own.
When consumers shop at local stores they might meet the shop’s owners. They might get into a conversation with the owner of the local toy shop about what educational toy would be the best fit for their grandchildren. Or maybe they’ll attend the signing of a local author at the neighborhood independent bookstore.
These are all experiences, too.
“More and more retailers are offering experiences like this as a way to fight back against online shopping,” Carlson said. “Some of the malls here have even added more local players. They are adding more local, Midwest-based vendors. They are trying to bring that local experience retailer back in.”
In addition to offering experiences, Twin Cities-area retailers are looking at right-sizing their footprints, Carlson said. This might mean opening smaller locations in urban centers, spaces designed for consumers who want to run into a store, grab a few items and take public transportation or walk home. Other retailers are closing locations that are no longer performing well. Still others are adding additional retailers inside their spaces, such as Target stores adding CVS branches.
Consider Kohl’s, too. This chain has brought Amazon into its stores. Consumers who want to return their Amazon purchases can simply bring them to a Kohl’s. They might then spend some time shopping at that Kohl’s location.
Other retailers are using their physical locations as advertising for their products. They don’t care if shoppers buy their products while they are in their stores. They just hope they’ll buy them online once they return home. This is the omnichannel approach – using both brick-and-mortar locations and an online presence in tandem – that has become a winning formula for retailers, Carlson said.
“That omnichannel approach is so important today,” Carlson said. “Now that we are all expert Internet shoppers, the retailers who are the winners have figured that out. We will never go back to what it was before. There isn’t a strong, successful national retailer that hasn’t gotten good at offering customers a myriad of ways to shop. You can come into the store. You can do it online and pick it up at the store or have it delivered. There are so many ways to access that product. The smart retailers are really good at doing that.”
Cities vs. suburbs
Russell Sagmoen, executive vice president at the Milwaukee office of Colliers, said that the retail market in general and experiential retail in particular have been slower to rebound in downtown Milwaukee than they have in the city’s suburbs.
This echoes the trend across the nation, where the centers of cities have been hit harder by COVID than the suburbs. Much of this is because many workers have yet to return to their offices, hurting the restaurants and retailers serving them.
But retailers in downtown Milwaukee haven’t been hit quite as hard as they have been in other major cities, Sagmoen said.
“It has not been as severe in downtown Milwaukee as it has been in, say, Chicago,” Sagmoen said. “River North and the Loop in Chicago is way down in terms of activity than what I see in Milwaukee.”
Even during the pandemic, experiential retailers showed resilience in Milwaukee, Sagmoen said. He points to the corporate outings that Colliers held here during the last two years, most of them held at experiential retailers. He also saw that families were out and about during the pandemic, taking their children to trampoline parks, gyms and bowling alleys.
“Those spaces weren’t quite as full as they were before the pandemic, but they were still busy,” Sagmoen said. “In the suburbs especially, in places like Brookfield and New Berlin, these places have been pretty busy during the last six to nine months.”
This doesn’t mean that all retailers offering experiences thrived during the pandemic. Sagmoen said that sit-down, white-table-cloth restaurants were hit especially hard during the last two years. Fitness centers and gyms also struggled.
But both types of retailers have experienced a solid bounce-back now that COVID cases have been falling steadily in the United States and mask mandates have been lifted throughout Wisconsin.
Developers, though, are still cautious here, Sagmoen said.
“There has not been a lot of new retail product hitting the market in the Milwaukee area,” he said. “The cost of construction is so high today, it is stalling a lot of deals. The rents in Milwaukee are not quite as high as they are in Chicago and other cities. To get rent high enough to solve for construction costs is challenging here.”
The exception? Quick-service restaurants. Sagmoen said that quick-service owners have pivoted in Milwaukee, as they have across the country, to drive-through and pick-up windows. Chipotle and Panera are good examples. Both chains are now looking for locations in which they can offer drive-through service.
“It seems like everyone is fighting over that one drive-up window,” Sagmoen said. “That causes a problem. You usually can’t have more than one drive-through in a shopping center. Some projects have stalled out because they can’t find a site. Land prices are up. Construction prices are up. Quick-service restaurants are hit by food and labor costs. Sales are up, yes. But are they up enough to compensate for all that?”
What’s the motivation to get that turtleneck?
Tim Henry, principal with the Chicago office of Avison Young, said that the resiliency of retailers during the pandemic largely depended on the type of retail. He pointed to retailers covering daily needs, such as pharmacies and grocery stores, as being more pandemic-proof than other retail types.
For those retailers that aren’t selling products designed to meet consumers’ daily needs? Experiences then become important, Henry said.
“When you are looking at non-drug or -food retailers, the experiential factor is big,” Henry said. “The alternative for consumers is to shop online. If you are a retailer who isn’t covering the daily needs, you need to make the argument to consumers that they should get out of the house, that they shouldn’t be sitting at home. If you can offer consumers some sort of entertainment option, that might keep them from staying at home and shopping online.”
Henry cites X-GOLF as an experiential retailer that is growing quickly, offering several locations in the Chicago area. This retailer offers indoor golf simulators, and is steadily expanding.
Shopping center owners like this kind of use, Henry said, because they attract steady crowds to the retail areas in which they sit. These crowds might then visit nearby shops and restaurants once they are done playing.
“This is as experiential as you can get,” Henry said. “The landlords are very excited about this type of use. They drive customers to a shopping center. They are Amazon-proof. They are exciting and profitable. They also do well in cold-weather climates, which helps in the Midwest. They can offer league play and lessons to keep the crowds coming along.”
Henry said he expects to see experiential retail continue its growth as the country moves out of the COVID-19 pandemic. Before the pandemic hit, this type of retail was booming. COVID-19, especially in the earliest days of the pandemic, slowed this growth.
But Henry said that is already changing in his market.
“What is the compelling reason to go out to a store to buy a maroon turtleneck when you can instead go out and golf or go to a movie in a new theater?” Henry asked. “If you do have the chance to go to an entertainment center, you might decide to get that turtleneck from a physical store if that store happens to be in a center with indoor golf, bowling or a movie theater. Then it’s not just about the sweater. It’s about having fun with your friends or family.”
That ecommerce slowdown? It was more of a blip
Sara Hanke, associate broker with Omaha, Nebraska-based The Lerner Company, said that the slowdown in experiential retail was more like a blip during the height of COVID. Now that mask mandates are falling away across the country and COVID cases continue to fall, consumers are returning to gyms, bocce ball courts, themed restaurants and arcades, she said.
“People want to get out into stores,” Hanke said. “They want to get back to those social connections that they missed during lockdown.”
Hanke said that during the worst days of the pandemic, no one, not even the experts, knew what to expect from commercial real estate. Some wondered if places like trampoline parks and movie theaters would disappear.
That, of course, didn’t happen. After the slowdown caused by lockdowns and nervous consumers, experiential retail has indeed rebounded, Hanke said.
“Everyone reset and took a deep breath,” she said. “In the past year, activity at experiential retailers in the Omaha market has picked back up. It is almost back to pre-pandemic levels.”
Hanke said that gaming concepts have been especially popular, with consumers returning to adult-targeted bar-and-arcade concepts. Rockwall climbing venues, too, are growing in popularity. Then there are the indoor-golf concepts such as Topgolf, a brand that continues to grow.
“From what I’ve seen, people are tired of being at home,” Hanke said. “They can shop online and workout at home. But they want to get out. They want to get that customer service and that social connection.”
And what does the future hold for experiential retail? Hanke points to the new House of Sport concept from Dick’s Sporting Goods. The company has opened two of these so far, one in Knoxville, Tennessee, and another in Rochester, New York. House of Sport offers a towerinng climbing wall, outdoor fields and indoor batting cages.
Puttshack, which has one Midwest location in Chicago and is planning on opening in both Nashville and St. Louis, is another concept that is growing. Puttshack offers indoor miniature golf that is electronically scored and features innovative holes such as one where golfers have to knock their balls into a stack of oversized beer-pong cups.
“Some of our shopping habits have changed during the pandemic,” Hanke said. “But I don’t think we are only going to shop online. It’s up to retailers to get creative and figure out how to capitalize on both the convenience and experience. Amazon is not going anywhere. But even during the height of the pandemic, ecommerce only captured 17% of retail sales overall. There will always be ecommerce. But there will always be brick-and-mortar stores, too.”
