It’s been quite a busy end to the summer for those of us watching the so-called “Retail Apocalypse.” After months of body blows from online competitors, brick & mortar retailers couldn’t wait to get the word out that reports of their death have been greatly exaggerated. Retailer after retailer reported positive earnings for Q2 2018, some producing comp sales increases that haven’t been seen in more than a decade. TJX Companies, Home Depot, Lowe’s, Target, Wal-Mart, Kohl’s and DSW all reported surging sales and topped Wall Street expectations.
While the rising tide of a strong economy is certainly helping lift these retail boats, the retailers themselves deserve much of the credit for adapting to the sea-change in consumer habits. Retail companies have gone all in on omnichannel by increasing mobile engagement with customers and offering convenient in-store pickup options. It’s not surprising that digital sales account for a large portion of these positive earnings as brick & mortar retailers adapt and prove their mettle in the online world. However, as retail real estate advisors, what we find particularly interesting is that physical retail stores not only still matter, but they are critical to this surge as they offer experience and value that online retail cannot match.
Take Target, for example. They have spent much of the last four years completely re-inventing how they develop new locations. When they embarked on their “Flexible Format” program, they did so to bring a curated retail experience to convenient locations where their guest lives. As a recent article from Seeking Alpha noted, “the designers at Target are testing, learning, and adjusting to create stores unique to the neighborhoods they are a part of.”
The remodeled store experience is drawing more and more customers in. Vice President of Store Design Joe Perdew stated, “We have to use all of our assets—the building spaces, fixtures, interior design, lighting, products—to tell a story and make the whole shopping trip as easy and inspiring as possible for guests.”
The consideration for an elevated customer experience is successful at driving traffic to the stores. As a recent Chain Store Age article notes:
The shopping experience is more pleasant and engaging with many more points of inspiration and interest. In essence, Target has given people reasons to come and visit and is encouraging them to spend when they do. We have always supported Target’s view that having a modern store base is a critical component of success.
The in-store experience is only one factor contributing to Target’s resurgence; real estate decisions are also having a major impact. Gone are the days of 135,000 SF stores anchoring massive new suburban developments. Potential store sizes have shrunk by a factor of 10 and the company has become adept at taking over existing space, often in urban and dense suburban markets that had been unreachable before. “They are giving Target access to markets and constituencies that it previously didn’t serve and, as such, they add to revenue rather than cannibalizing sales from existing stores.”
Atlantic Retail, in close cooperation with the Target real estate team, has led this expansion strategy in New England and seen this programs’ success first hand. Target has always been known as an innovative and creative company and that culture has benefited the real estate strategy helping them reach guests in neighborhoods which had eluded them for years. We’re excited about Target’s future as this program evolves.
Brick & mortar retail locations continue to offer advantages over online retailing. From the expert in-person service at Home Depot and Best Buy, the “treasure hunt” of TJX and Burlington, to the localized inventory and convenience of Target, retailers are giving customers a reason to put down their phones and walk in the door. We expect these positive results to reinforce earlier decisions to reinvent and expand their brick & mortar offering and continue that trend forward.