August 2, 2017

More than 100 years ago, Mark Twain famously remarked “The reports of my death are greatly exaggerated,” upon learning that one American newspaper prematurely printed his obituary while he was still alive. It seems, today, we could draw the same parallel with respect to retail. But, retail is not dead or even dying; it’s changing and reinventing itself.

“A big problem that underlines the retail headlines these days is journalists using Sears, J.C. Penney, and Kmart to represent all retail, but they don’t,” says JLL Executive Vice President Nat Heald. “These are traditional retailers that haven’t been able to adapt and evolve to how people want to shop. They’ve been suffering for decades and haven’t made the fundamental changes necessary to attract today’s shopper.”

“The terms we hear these days are ‘retail apocalypse’ and ‘retail Armageddon’,” added James Cook, JLL’s Americas Director of Retail Research. “There may have been several thousand announced store closures – an increase over last year – but stores reaching a new equilibrium is not the same as retail going away.”

It’s undeniable that many retail stores are closing; Ann Taylor, Bebe, and Michael Kors are just a few who recently announced plans to shut some or all of their physical locations. But far from signaling a death sentence for retail, these closures are evidence of a paradigm shift.

“People are worried about store closures, but a lot of what we’re seeing now is really just streamlining,” explains Arielle Einhorn from JLL’s Retail team.

“Yes, bankruptcies do exist, but others are actually taking precautions and making sure to create a robust retail platform for themselves as opposed to maintaining numerous properties all over the country and waiting for some to inevitably underperform. It’s really been more of a choice for many retailers than some people give it credit for.”

Nationwide, retail vacancy rates sit at just 4.9 percent and some savvy retailers, like Massachusetts-based TJX, are actually expanding in this time of change and uncertainty. The company said earlier this year that it will add 1,800 stores for a global total of 5,600 over the long term, and is also launching a new home concept, HomeSense, later this year.

“TJX is arguably the best soft goods retailer in the world,” says JLL’s Chris Angelone. “Their model is built on what is essentially a treasure hunt around their stores, making it very hard to replicate the experience of going into a TJ Maxx, Marshalls or Homegoods. It’s a fairly internet-resistant concept because the merchandise is different every time you go into the physical store, providing the element of surprise.”

But not all models are internet-resistant, which has led many to question whether e-commerce will eventually kill the in-store retail model? According to JLL, the answer is still no. While e-commerce is unquestionably growing, more than 90 percent of purchases still take place in a physical store. Comparing online vs. in-store, misses a key component of the future of retail, the blending of the two into one seamless experience.

“Often, the pendulum swings too far one way or another” says Angelone. “But the reality is that, for many retailers, their stores are dependent on online and online is dependent on the stores. People can pick up and return merchandise in stores that they ordered online, or research online before going into the store. It’s all about omni-channel marketing and distribution.”

An omni-channel distribution that, in fact, has meant many internet-first retailers – such as IndoChino, Bonobos, Warby Parker – are even starting to open physical stores.

“Many retailers that were born online realize that, at a certain point, they’ve saturated that particular sales channel. In order to continue growing, they need to engage new customers in a new way, which means expanding to brick and mortar locations,” said Heald. “The retail ‘experience’ cannot be replicated online, and that is one of the massive advantages of brick and mortar stores; they can carefully curate the shopper’s experience and allow them to develop a relationship with the brand or services in-person that is impossible to do online.”

“We’re seeing pop-up shops spring up everywhere, including places like Newbury Street, as online retailers test out physical space,” said Einhorn. “And often, these pop-up shops are the first step in a broader physical rollout plan.”

So, if retail isn’t dead, what lies ahead?

“I think people are nervous, and I think they are uncertain as to what exactly the future looks like,” says Angelone. “Whenever there is change, fear and uncertainty are present, but I think it’s exciting. There’s a lot of dynamic things happening that will create a lot of opportunity over the next 10 years. It’s kind of a change or die mentality and, inevitably, we’ll get to a point where people feel good about it again – it’s just going to look different than it does today. Those that recognize where the opportunities lie will be very successful.”

“It’s going to get harder before it gets easier,” added Heald. “But I will tell you that retail in the future will be much more inspiring than it is today. I think the future of retail is a really vibrant experience that validates the idea that it can be fun and energizing to go shopping.”

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Chris Angelone

Managing Director, JLL

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