Demand for retail properties has taken quite the hit in the wake of rapid e-commerce growth. Companies like Amazon continue to eat up industrial spaces, while brick-and-mortar retailers seem to lose foot traffic by the day.
As that demand has washed away, however, a sturdy foundation has emerged for real estate developers to rebuild and reinvigorate the retail industry as a whole. It has become clear that value remains in the development and reuse of retail spaces across the country.
A Gloomy Year
It’s not much of a secret: 2017 was not very kind to the retail industry. The year on its own saw roughly 8,000 store closures — a steep increase compared to the year prior, which saw closer to 2,000. And even though 2018 may see store closures at a similar rate to that of 2017, recent success stories show there are still avenues for retail stores to thrive — success simply looks a little different than it did in the past.
Ironically, Seattle, the city that is home to Amazon’s headquarters, serves as a great example of how to succeed in retail.
Amazon’s effect on Seattle retail is multifaceted. While their services have vastly undercut the available business for retailers overall, the existence of their headquarters has generated high amounts of foot traffic since its inception. Retail in Seattle grew by more than 19 percent annually from 2010 to 2015.
Unsurprisingly, on top of all of that, Amazon’s presence in Seattle has also had a largely positive effect on the local commercial real estate market. The city’s median commercial property sale value has more than doubled since 2010. Overall, Seattle sits as a city with a lot of shoppers and a very healthy commercial property market.
Enter: Experiential Retail
While the general prosperity of Seattle certainly has had an effect on its retail market, another possible reason for success lies in the city’s adoption of experiential retail.
No matter where, when, or even why, people simply love a great in-person experience. With that, entertainment, education and interactivity are being integrated into the retail environment — bringing new, expanded value to consumers.
At the onset of 2018, Amazon became directly involved in new retail experiences by opening the first Amazon Go cashierless grocery store. In Seattle’s progressive retail market, however, Amazon was not the first to reimagine in-person shopping.
Starbucks and Nordstrom, two major Seattle-based retailers, began adopting the trend of experiential retail ahead of the curve, leading the charge in making it a Seattle norm.
Starbucks Reserve Roastery and Tasting Room
Starbucks took their retail experience to a new level in 2014 by opening the Starbucks Reserve™ Roastery and Tasting Room. Starbucks refers to the location as “an immersive, dramatic, theatrical expression” of their passion for coffee — adjectives one would not typically use to describe coffee or retail.
While the options may be more extensive, this Starbucks is selling the same thing that any other Starbucks is selling: coffee, beverages, food and merchandise. The difference is in the intricate interior design, artwork and a completely separate marketing strategy (the roastery has its own website). All of these things dramatically affect someone’s experience with their products.
Nordstrom, Downtown Seattle
Nordstrom is another company headquartered in Seattle that is making strides in adopting experiential retail. In 2015, the company remodeled their downtown Seattle flagship with the aim of making it an “international destination” on top of being a place to shop.
According to Nordstrom, the changes were inspired by the Galeries Lafayette, a highly renowned, extravagantly designed shopping center in Paris.
The elaborate interior designs give shoppers something much more than products to look at, thus improving their experience in the flagship exponentially.
While much of this serves only as proof of Seattle’s overall success, the city’s experiential ventures lay the groundwork for what other markets could be doing to bolster and refuel their retail property markets, and could even signal what other Starbucks and Nordstrom locations may look to do in the future.
All of this points to the fact that modern retail development is simply reliant on different factors than it was in the past. Retail may no longer be able to just be retail. It has to be retail “plus”: Retail plus entertainment. Retail plus art. Retail plus any other enjoyable experience.
Whatever the case may be, the one certainty is that it’s not time to throw in the towel on retail development. In the right environment, there is still plenty of room for retail properties to thrive.