"People are going back to basics with their product selection. People aren't going to restaurants as much, but now they are eating at home, but it isn't elaborate dinners, with less meat and produce being purchased.

"We're not seeing any of our grocer clients pulling back right now in their retail expansion trends but they are monitoring construction costs/supply chain issues that obviously directly impact store development opportunities. The discount operators – Aldi, Save-A-Lot and Grocery Outlet- are gearing up for expansion, something that is reflective of a recessionary or high inflation environment.

'Where is the Stuff I Need?'

Darren Pitts, executive vice president, Velocity Retail, tells GlobeSt.com that in terms of the supply chain, the question is, "Where is the stuff that I need to get my stores built – lumber, bricks and construction materials?"

"It's now also carried over to the things that go inside people's buildings – fryers, subzero coolers, etc. These items are relatively small to the cost of the project, but retailers cannot operate without them. Some retailers and developers are buying in bulk and stockpiling equipment and goods in order to generate more smooth expansion. Some people are waiting to expand to other sites if they can't handle the sourcing for new stores."

Pitts said that fuel is a macro problem that everyone is dealing with. 

"It's not about gas stations overcharging, we have a supply and demand problem, there is too much demand for fuel right now, both the American consumers who are hitting the road this summer, as well as retailers," he said.

"Our retail clients are all transportation intensive – they need to be able to get inventory to locations. The price of gas and diesel impacts the bottom line for retailers. Target's stock got hit hard – there was a 30 percent drop in May due to $1 billion cost overrun on transportation costs. 

Raising Product Prices Three Times in 120 Days

Pitts said that in the long term, this means that costs get passed on to the customer. 

"In the short term, retailers are eating the costs related to higher fuel," he said. "The marketplace is hopeful that some of these macro policies will change to ease the problem. 

"I'm not personally optimistic about this, but it is what the marketplace is hoping for. Over time, it will get passed on to the consumer, which leads to more inflation."

For example, Pitts said, "One taco retailer hadn't raised prices in eight years, and then had to raise prices three times in 120 days. If you're in the marketplace and you haven't raised prices, you're behind the 8-ball.

"With labor, our clients are operating in a more complex environment trying to manage the many things that impact retail – it is keeping retailers up at night. People want "to work from home and the labor force hasn't fully returned following COVID."

Retailers Cautiously Optimistic About Expansion

Justin Baker, founding partner and principal broker, TRIO Commercial, tells GlobeSt.com that, in general, retailers remain cautiously optimistic with their expansion plans. 

"Construction costs continue to rise due to inflation and supply chain constraints, but lessons have been learned through past cycles," Baker said. 

"We're seeing longer underwriting periods to account for changing environment and market dislocation, but retail continues to march forward.

"Our hospitality projects have seen predictable construction material price increases and protracted lead times. It has become particularly challenging to keep accurate FFE stock lists paired with updated delivery schedules."

Baker said that last year he had to charter a private freight flight to hit a deadline. 

"It was the only way to avoid sudden highway and port closures in Southeast Asia," he said. "These challenges mean repeat specification, pricing, and logistics exercises for my staff. Consequently, our project fees have had to increase in kind."