In retail real estate, it’s out with the ‘new normal’ and in with the old. Michael Weil, The Necessity Retail REIT’s president and CEO, calls the current state of the market a full-on retail renaissance, as retailers and their stores rebound for a better balance with the e-commerce side of business. The leader of the newly rebranded REIT spoke about what’s changed and how we got here.
“Retailers have embraced the fact that consumers will use e-commerce, but over the last couple of years the healthiest companies have married the online access with the convenience of bricks and mortar in a balanced and growing omnichannel strategy,” said Weil. “Stores have really become that ‘last mile’ interface between the customer and retailer.”
Consider that 72% of US retail transactions will occur in physical stores, according to Forester. And ICSC found that 62% of online orders are fulfilled at physical locations. From shopping preferences — ICSC reports that 64% of consumers have returned to pre-pandemic shopping habits — to future robust leasing projections, the numbers fully support a healthy omnichannel future.
“The pandemic tested the omnichannel model, which has evolved over the last decade, and showed the value of e-commerce,” Weil said. “Remember though with necessity retail our tenants provided a lot of services that were essential. Omnichannel allowed people to shop online but then use retail’s physical locations as the last hub.”
Five years ago there were strong doubts about retail’s traditional bricks-and-mortar approach, but successful landlords worked with their tenants and understood the social-psychological aspect of on-site shopping, Weil asserted. Good products are always important — necessity-based offerings even more essential — but customers also value retail convenience and the social experience of shopping. And, of course, there are products that people want to check out and evaluate in person, such as produce at the grocery store.
“There are lots of things that people can order online, but that’s not really how Americans like to shop,” Weil said. “We like to see goods, touch them and even try them on. We’re seeing that more and more coming out of pandemic.”
Of course, omnichannel strategy can’t be optimized without the right site selection and operations approach. Retailers can take the most advantage of the inelastic demand of needs-based offerings by choosing convenient, attractive, well-managed locations in high-growth markets, such as suburban Sun Belt areas that are being fueled by substantial job and population growth. Thoughtfully designed open-air retail centers help the cause considerably. The Necessity Retail REIT has ridden this approach to major success, including the recent 81-property, $1.3 billion retail portfolio acquisition.
“You can’t ignore the value long-term of omnichannel, and bricks and mortar [retail] continues to become an important aspect of that strategy,” Weil said. “A retail renaissance, that’s what we’ve been talking about. I think we’re living in it right now.”