Retailers Get Aggressive to Expand National Footprints
Savvy and proactive retailers that adopted aggressive national roll-out strategies during the global health pandemic grew market share and are in better positions now compared to competitors who hunkered down or tapped the brakes to see how the Covid threat played out. Retailers who made bold moves and incorporated innovative initiatives were rewarded with more opportunities and they faced less competition for sites.
The uncertainty that arrived with the onset of the COVID-19 pandemic hung over the economy and retail sector for more than a year. Those clouds darkened optimism and caused many retailers to take a ‘wait-and-see’ approach at the onset of the pandemic. But some retailers elected not to take refuge in a bunker or place everything on pause.
X Team Retail Advisors’ President Dave Cheatham of Velocity Retail Group in Phoenix said, “One of the first words out of everyone’s mouth when the COVID pandemic hit was ‘we should get great pricing.’ Ultimately, that never happened. People just didn’t lower their price due to the uncertainty and that didn’t lead to lower prices.” Cheatham notes some retailers pushed the pause button, but he didn’t experience many that got out of deals. “Very few canceled, though many paused and stalled plans,” he said.
Companies that went out there earlier on were rewarded. The environment many proactive retailers found was one in which they could secure opportunities with less competition at time. There were more sites and few competitors since many took cover in a bunker.
Darren Wood, principal of The Providence Group in Charlotte, and a member of the X Team, said, “There are challenges obviously that still need to be addressed, but I think for most part, retailers are back in full acquisition mode, regardless of the brand.”
The key for a retailer seeking to expand its footprint nationally is keeping its pipeline full. The aggressive retailers retained their existing pipelines and even expanded them. As a result, they are today’s leaders. But there are those who didn’t remain active and consequently are now behind. Some larger companies took a cautious approach, restricted travel, and waited. That put them in a position of needing to play catch up. Many are now sorting through the rush or pipeline from 2020 and 2021 with moderate pipelines pushed into 2022.
Cheatham said, “There’s a push to expand now, and the competition for sites is fierce, as retailers now wake up and try to aggressively catch up in an effort to make up for lost time and ground.”
Wood reports demand is robust for any retailers that have essential businesses, such as grocery or drive thrus, banks or fast food. They are armed with capital and are pursing deals, which is creating a competitive environment in the outparcel area.
There are a number of consolidations on the junior anchor side that Wood has observed, but retailers seeking to expand are running into a supply issue, especially for spaces under 30,000 square feet. There is significant tightness in the 10,000-square-foot to 20,000-square-foot user category, mainly because there’s been little new supply coming online. Institutional investors remain largely on the sidelines when it comes to pursuing retail deals unless the site has grocery. Wood believes retailers expansions now must incorporate more flexibility in the size of the space, due to the shortage of decent space.
The lack of supply is an issue facing retailers, as are rising construction costs and labor, though Wood notes it has become harder to staff restaurants or stores now. These are issues that are hampering new construction now and is leading to increased rents at existing retail real estate since there is more demand than supply.
Wood adds, the view that retail is dying is actually disconnected from what consumer spending and shopping patterns reveal. The perception that the retail industry is being swallowed up by online shopping isn’t a true reflection of what retail experts are seeing in the marketplace. There are many examples of retailers that are expanding, such as TJ Maxx. Due to the lack of supply, they are focusing on smaller markets, where they can secure sites under favorable pricing and that have consumer drawing power, making them viable expansion strategies.
“Online shopping is not crushing retail,” said Wood. “It has grown, but retailers are seeking more space options now in which to expand, so comparable sales in existing stores must look good to support that strategy.”
Backed with better research, retailers are now accelerating what was inevitable in a number of areas, points out Wood. For example, the center store, or goods in the middle of a store, has shrunk. Grocers have reduced the number of items in the center store area, such as produce or fresh meat. That shift is being driven largely by the emergence and increasing pressure created by online shopping, says Wood, who notes there’s “always a place for those goods on the outside area, but grocers are carrying less in the middle of the store.”
The strategies of Walmart and Kroger to stock fewer SKUs and shrink their store footprints has also been driven by the fact that shoppers can pick-up orders themselves or are bagging groceries themselves.
A crucial consideration in the evolving retail environment is understanding what a shopper wants. Not only is the shopping experience inside a story changing as people come armed with smart phones to comparison shop, retailers now face replenishment issues, mainly because there’s less on store shelves. That presents challenges for a retailers supply chain.
“Retailers are becoming more careful about supply chains, as they learned early-on in the pandemic when demand surges led to outage of some products. The just-in-time models that retailers have grown accustomed to allow them to reduce inventory on-hand, but the pandemic showed they need a better balance so if there is a run on sales they won’t run out of basic items,” said Wood, who advises retailers to be mindful that the online ordering and pick-up in store programs should not be a detriment to those who actually wish to visit a physical store.
Online shopping has been accelerated by the pandemic especially in the grocery sector and has impacted the experiential elements of retail. Wood cites eyewear retailer Warby Parker as an example of how online and in-store work together. Consumers want to visit a physical location to see, touch and feel the Warby Parker products but they may not actually purchase at the store, preferring to order online.
The strategies now being executed by big retailers reveals how those trends are driving the sector. Cheatham notes, “One of trends that is coming out of COVID-19 is an absolute focus on being good at online delivery. A number of big retailers rapidly advanced their processes to adapt and capture or expand new revenue streams. They accomplished in one year what may have taken them 5 to 7 years in a normal market, largely because they had to do it out of necessity.”
Change has always been components of the dynamic retail industry, and the process of selling products is constantly evolving. Gone are the days of roving door-to-door salesmen, and each subsequent sales model that followed, whether that be mercantile stores, downtown hubs, or power centers, reflected the sectors’ ability to adapt and try new things. The past 18 months continued in that tradition, but the core focus of getting a product into a consumers’ hands when, where and how they desire at the right price and value point remain intact in a retailer’s playbook. Incorporating technology into the equation has helped some retailers achieve competitive advantages from a pricing and product delivery perspective, too.
Cheatham adds, “Some retailers, like Target, have done an amazing job during the pandemic to catch up through the adoption of technologies. They caught up sooner than expected and are firing on all cylinders like a smooth-running engine. Target is a great example of what retail is all about.”
During the pandemic, grocery stores learned how to implement pick-up strategies or the buy online and pick-up in a store (BOPIS). “Amazon taught all retailers how to use online ordering and delivery to a consumers doorstep,” said Cheatham. “COVID taught us BOPIS, especially in the food sector, but all categories including big box retailers, are catching on to BOPIS. Walmart has created a BOPIS selling machine, and retailers have discovered BOPIS can be a profitable area.”
Another shining example of a restaurant chain that successfully pivoted during COVID was Chipotle, which made it easy to open a smart phone or device to order and then go pick up in the store. As a result, online now makes up 40% of Chipotle’s sales. Part of the reason they grew online sales so rapidly is the fact that this BOPIS model is in line with the buying habits and preferences of Millennials.
The beauty of BOPIS is consumers tell retailers what they want so it removes much of the guess work of what to offer and can help reduce unsold inventory while producing fewer chances to miss the mark on what to stock. That strategy is reflected in Starbucks’ morning crush during which the store, knows exactly what they will need to fill orders. The guess work of what to ship from a store is removed. And when there is a sound logistics and supply chain backing the retailer, products arrive at customers doorsteps quicker, even when an order is fulfilled from a warehouse, or they come to a store to pick it up. BOPIS is a strategy that contributes positively to a retailers bottom-line, too.
The convenience of BOPIS makes it a viable sales channel going forward. Visiting a store to pick-up a product provides another touch point for retailers to capitalize on. Research shows that retailers who have adopted BOPIS also realize additional in-store sales. Roughly 70% of online buyers who come to pick up at a store purchase other items.
That is one reason the return centers opened by Kohls to handle Amazon returns have proven to be beneficial for the retailer. And it is no surprise that the areas where those returns take place are at the back of stores, either. When someone returns a product, they can get a credit or an immediate coupon to use in the store. Returns are an issue retailers must deal with for online buyers, and it is taking on more significance since sellers on the Amazon channel are facing increasing delivery fees.
The retail sector continues to evolve and while the weaker retailers going into the Covid pandemic era struggled or didn’t survive, there were other stronger retailers that thrived. They got stronger because they had built a strong immunity to challenges and now are ready to compete in the next round. In many cases they reinvented themselves and redesigned their store or strategy in order to compete at whole new level.
Cheatham predicts the three future growth areas in the retail sector will be 1-improving the drive thru process, 2-BOPIS and 3-using online food deliver services. An example of a strategy that was met with success during COVID was the introduction or expansion of drive thrus. Some restaurants doubled or even tripled capacity of their drive thrus. Others created pick-up areas and expanded BOPIS options. Now food delivery systems, which brings food right to a consumer’s door, have become mainstream and those advancements are expected to be part of the future retail landscape. That is reflected in the fact that restaurants also incorporated more online ordering services like DoorDash, UberEATS or Grubhub into the mix during COVID, which has resulted in greater adoption of those platforms.
The advice Wood offers retailers considering national expansion plans is to spend the time on research and strategy up front. That best practice allows those executing the plan a clear direction that’s based on what local market and broker experts recommend will work to grow a retailer’s footprint. “By slowing down and incorporating this expertise at the front end, we can collaboratively work with a retailer to develop the concept based on our knowledge of a market and what will work with that consumer base,” said Wood.
The big takeaway in what is considered a landlord or seller’s market is that having local representatives on the expansion team is more important than ever now. A retailer is then able to leverage the skills and relationships a broker brings to secure the best real estate sites, which ultimately serves as the foundation underpinning a national roll-out plan for retailers.