The death of brick-and-mortar retail predicted during the pandemic, it turns out, was greatly exaggerated. But not every retail company made a comeback, and if you’ve taken a trip to your local strip mall in the past two years, you’ve seen some considerable changes in look and tenancy.
When the world was locked into their homes during the COVID outbreak, direct-to-consumer (DTC) companies grew exponentially and retail landlords were trying to do the math on which of their tenants were most likely to be able to pay their rents when it was over. But the current brick-and-mortar comeback has surprised many investors in commercial real estate and even the death of some well-known brands like Bed, Bath and Beyond and David’s Bridal have quickly found their spaces rapidly occupied by other brands.
“Basically, the consumer has demonstrated that they want to consume, and as long as low unemployment stays at its historic levels and wages maintain, I don’t see that changing,” said Chris Kenny, co-founder and managing partner of Atlanta-based next-generation growth equity firm L5 Capital Partners, which invests in consumer retail businesses.
According to the U.S. Census Bureau, advance estimates of U.S. retail and food services sales for April 2023 were $686.1 billion, up 0.4% from March and 9% since 2022. Kenny told Benzinga that brick-and-mortar retailers moving away from business centers is one of the most significant retail shifts occurring since the pandemic.
“There’s a land grab right now for retail space near the home and you’re going to see secondary centers that once had tenants like a crummy nail salon or pizza place retenanted and become primary centers very soon,” he said. “Landlords want specific buckets for their retail centers with a high mix of companies like T.J. Maxx and Shake Shack with a good balance sheet behind them, so they can also add local tenants.”
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Kenny also pointed to the disappointment many consumers found in ordering goods from platforms like Instagram during the pandemic, where “only 1 in 4 purchases actually arrived in time or not at all.”
Even companies that built their brands online or in media advertising have realized their customers want to touch, feel or experience the products they buy. In a recent interview with Retail TouchPoints, Alec Zaballero, managing executive at TPG Architecture, discussed how his firm took Boll & Branch’s luxury bedding brand, moved it to a retail space and built a “feel wall” that encouraged consumers to touch the company’s fabrics.
Kenny says that one of the most significant consumer and retail shifts occurring since the pandemic is the end of the central business district, which was being sustained by four- and five-day-a-week foot traffic, decreasing to one or two as people spend more time at home rather than the office.
“The one constant is that the consumer wants to discover new things,” Kenny said. “They aren’t doubling the number of nights they spend at dive bars. They want an experience for multiple senses.”
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