Top Trends Impacting Retail in 2020

In the age of Amazon and e-commerce, the news about retail’s brick-and-mortar stores has been dismal. We’ve heard about store closings across the country, big name retailers who have had to shutter locations that simply were not bringing in the sales volume they needed to survive.

Malls — a once vibrant part of a consumer’s daily life — are caught between a rock and a hard place: the number of open stores is declining, and shoppers are not visiting these retail meccas as they once did. Whether the vacancies are causing shoppers to be scarce or the reverse, the two trends are converging.

Added to that, we are now living in unprecedented and uncertain times. As we were preparing this issue to go to press, the COVID-19 pandemic exploded onto the global scene. As many know all too well, the retail community is one of the sectors being hit hard by the coronavirus.

In an interview with CNBC on March 17, 2020, Matthew Shay, CEO of the National Retail Federation, addressed some of the concerns for the retail market. “These are pretty unprecedented times and the retail leaders I’ve talked to are taking pretty dramatic actions to look out for the safety and security of their associates, the public, and their consumers. This is clearly reflected in the closures. I think that everybody recognizes that we are going to have to take some dramatic steps,” he said.

Interestingly, retail spending amid COVID-19 is continuing (57% report the same spending as before) — and in some cases is increasing (29% are spending more) according to a survey by the NRF. It’s the channels and the types of products purchased that have changed.

In a letter sent to the White House on March 21, 90 national and state retail organizations agreed that the paramount issue facing the industry right now is liquidity. The groups urged policymakers to consider proposals that protect and preserve the economic health of the retail workforce and provide sufficient liquidity for small, medium, and large-scale businesses to remain viable through until the end of the crisis.

“We need to take care of the workforce and our consumers, and keep everybody healthy. What people are talking about is access to credit and finding ways to build a bridge and make sure we can get through this period of disruption knowing that we’ll get through it at some point … If we can all stay focused on those priorities, I think we’re going to be in a good position when we get through this. Of course, it will be disruptive in the near term, but we will get there,” Shay said.

What will this all mean for the retail market — and the PSPs that partner with them?

Prior to the pandemic, the outlook showed positive movement. The most recent forecast from the NRF, released February 26, 2020, reported that retail sales during 2020 would increase between 3.5% and 4.1%, to more than $3.9 trillion despite uncertainty from the lingering trade war, the early news of a new coronavirus, and the presidential election.

“The nation’s record-long economic expansion is continuing, and consumers remain the drivers of that expansion,” Shay said in a statement.

Preliminary results from the report show that retail sales during 2019 grew 3.7% over 2018, to $3.79 trillion. The total includes online and other non-store sales, which were up 12.9%, to $777.3 billion. The numbers exclude automobile dealers, gasoline stations, and restaurants.

Based on this new forecast, 2020 retail sales should total between $3.93 trillion and $3.95 trillion. Online sales, which are included in the total, are expected to grow between 12% and 15%, to between $870.6 billion and $893.9 billion.

Interestingly, service-based retailers — entertainment venues, local spa and nail salons, and restaurants surged 20.5% from 2002 to 2017, totaling 1.2 million spaces, a new report from commercial real estate services firm JLL found. Retailers selling goods fell 4.5%, to 1.1 million shops during the period.

According to the report by JLL, service tenants make up 52.6% of America’s retail space, while companies focused on selling goods account for 47.4% of space. Compare that to numbers from 2002, where retailers selling products made up 53.2% of physical retail.

The growth in service-based businesses “will plateau at some new percentage,” said James Cook, director of retail research at JLL in an article on CNBC on March 11. “But [retail] is not going to go back to the way it was.”

“We are looking to services to be the occupiers,” he added.

It’s not a surprise that these service-oriented businesses are growing, while companies that sell “things” are scaling back their growth — or going out of business altogether. We’ve seen that trend over the past several years.

News reports chronicle retailers that have filed for bankruptcy protection and have shuttered thousands of stores. Added to this is the surge in e-commerce. Amazon’s share of e-commerce sales in the U.S. is estimated to grow to 38.7% in 2020, up from 37.3% in 2019, according to data by eMarketer.

Big-box companies are following suit, reporting more purchases on their websites than in their physical store locations. Target’s ranking among the top online retailers in the U.S., for example, has pushed it to the No. 8 spot from No. 11 in 2019, eMarketer said.

Temporary Installations

Brands — and especially those who have brick-and-mortar locations — need to offer something that cannot be bought or experienced on the internet. These smaller, temporary formats — pop-up stores — are beneficial for brands who want to open space for a limited period of time to test a market or new product, without committing to a long lease. The pop-up industry is estimated to bring in $50 billion in annual sales, according to JLL.

According to an article in Bloomberg Businessweek, just three years ago, pop-ups were mostly used for three purposes: experiential marketing exploits, fashion-week stunts, or e-brands making the leap to brick-and-mortar. But that’s changing. Melissa Gonzalez, of the pop-up architecture company Lion’esque Group, commented in the article, “I would get calls from a lot of emerging brands that were on Etsy and barely had their own website, and they wanted to do a one-off holiday pop-up for two weeks.”

Now, direct-to-consumer brands like Nordstrom are looking for 3- to 12-month installations to test the viability of stores in certain markets.

Helping brands with pop-up stores is something that is squarely in the wheelhouse of PSPs.

“Now more than ever, you are seeing the importance of the ... things you cannot replicate online,” said JLL’s Cook.

“One of our big focuses is to create these ever-changing and very exciting elements to continue to drive customers to our stores,” said Justin Berkowitz, men’s fashion director for Bloomingdale’s Inc. in the Bloomberg Businessweek article. “I really think that for the future of retail,” he said, it’s important to make “brick-and-mortar a place where the customer really wants to come.”

Medtailing

The prospect of browsing the latest fashions in a store while waiting for your doctor’s appointment next door is fast becoming a reality for U.S. consumers as health care providers are adopting new locations in retail centers across the country. Known as “medtail,” the concept benefits developers and managers of retail properties, as well as medical professionals and consumers. The services offered extend beyond the simple pharmacies and optical shops that have long been associated within many retail outlets. Instead, these areas now include checkups, vaccinations, skin conditions, minor injuries, and management of chronic conditions like high cholesterol, diabetes, and blood pressure management.

Working hand-in-hand with health care partners, Walgreens operates more than 230 retail clinics that are run by nurse practitioners. Via the Walgreens website, consumers can make an appointment with a licensed health care professional for a variety of treatments and screenings.

In 2006, CVS acquired MinuteClinic and now operates more than 1,100 MinuteClinic locations in 33 states and Washington, D.C. MinuteClinic health care providers are qualified to help treat minor injuries and minor illnesses. Other services include DOT physicals, woman’s wellness, health screenings, and numerous immunizations. When clinically appropriate, they can even write prescriptions.

CVS also announced plans to remodel 1,500 “HealthHub” stores to treat patients with chronic conditions. Those stores include on-site dietitians, nurse practitioners, lab services, and medical supplies on the shelves.

Medtailing isn’t limited to drug store chains, either. Minneapolis-based nonprofit health system, M Health Fairview, opened a walk-in clinic at Mall of America in November 2019. M Health Fairview combines the expertise of Fairview Health Services, the University of Minnesota, and University of Minnesota Physicians. The clinic is positioned to provide clinical services to employees and tenants of the mall, as well as visitors staying at the many surrounding hotels. In addition to treating minor illnesses and injuries, the clinic will also provide health consultations for those traveling internationally; physicals for school, sports, and summer camps; vaccinations; and employer drug screenings, among other common services.

Walmart has also opened up its own health care services, via Walmart Health. Currently two locations in Georgia offer primary care, but there are clinic services available in various locations in Georgia, South Carolina, and Texas.

One of the driving forces behind this trend is that in many locations, patients need more convenient access to medical care. According to Jim OConor, Walgreens’ senior VP of U.S. health care strategy and development, about 78% of Americans live within five miles of a Walgreens store.

According to a 2019 report by JLL, retail locations are uniquely positioned — both physically and operationally — to capitalize on the idea that as consumers take on a larger share of the health care cost burden, they are becoming more engaged in managing their health. Many seek to curate their own experience, and are approaching health care as they do other goods and services.

Consumers want greater convenience, service, and support from their health care provider; retail centers are disrupting the existing system by offering locations with more hours of operation, lower fees, and access to extended medical services.

Additionally, as mall vacancies rise, these medtail locations could help attract and retain customers. While mall leases for clothing retailers declined by more than 10% since 2017, medical clinics at malls have risen by almost 60% during the same period, according to Drew Myers, real estate analyst at CoStar Group in an article by CNN Business. The growth of medical clinic leases at malls has been the “strongest among all major retail sectors over the past five years,” he said.

Mall landlords also anticipate that when patients visit for a flu shot or an eye exam, they’ll shop around for clothes or electronics. Adding medical clinics also makes sense for mall owners because they draw in doctors, nurses, and technicians who may shop and eat at restaurants, according to a JLL research report. Health care providers are also attractive tenants for mall landlords because they tend to have high credit ratings and sign longer leases compared with other retailers.

For example, Nashville’s One Hundred Oaks Mall, originally built in 1968, was in serious decline and in danger of becoming another casualty of suburban blight. Bringing health care into its retail mix was key to its survival. Of the mall’s nearly 900,000 sq. ft., 450,000 sq. ft. is now dedicated to Vanderbilt University Medical Center’s clinical and administrative support operations. The facility offers 22 specialty clinics with standardized rooms.

The Atrium, located just outside Boston, shuttered in 2013 after years of decline — at its closing, its occupancy rate hovered near 20%. Early in 2017, following a $100 million overhaul, the mall’s owner, Bulfinch Companies, reopened the space as the renamed Life Time Center, a fitness-centric facility, complete with gym, healthy eating options, and doctor’s offices.

Right now, these retail centers are becoming locations for low-acuity patient care and other routine and maintenance health care services. But retail locations are also growing in the type of services the medical facility offers. Primary care, specialty care, and oncology all are finding success in retail centers. An example is the Dana-Farber Cancer Institute’s planned 34,000-sq.-ft. expansion at Patriot Place in Foxborough, Mass., to develop an oncology and hematology outpatient hospital satellite facility.

The Leonard Institute for Cancer Prevention, Treatment, and Wellness at The Shops at Mission Viejo will include shopping, dining, and health care. The Leonard Cancer Institute opened on a former parking lot at The Shops at Mission Viejo, a Simon Property regional mall, in mid-2019. The 104,500-sq.-ft. medical office building is a joint venture between Mission Hospital and Welltower Inc.

Americans’ interest in health and wellness is another motivator. This includes both preventative care as well as the need to manage chronic conditions, many of which become more prevalent with an aging population.

As 2020 proceeds with retail uncertainty as stores temporarily close to try and halt the spread of COVID-19, and medical locations strain under the increased patient load, it is anyone’s guess how the numbers will look at the end of this year. The retail landscape will continue to shift, perhaps faster than originally predicted. One thing to remember — the current crisis will end, and retail will come surging back, so PSPs on top of their game should be ready to jump back in with all of their proverbial guns blazing when the time comes to open once more for business as usual.