WASHINGTON, DC–Much has been written about the death spiral that the real sector has supposedly entered. Not everyone agrees with this analysis, however — a minority of experts are making a strong case as to why retail is still a viable investment.
Now we can add John Rabenhorst, a principal in the retail practice of A.T. Kearney, to the roster of experts that insist retail's future is bright. The difference between Rabenhorst and other retail contrarians, though, is that he believes the sector's problems are not due to e-commerce but rather to a more fundamental issue.
Following are excerpts of GlobeSt.com's interview with him.
What The Core Problem Is
E-commerce is only a secondary factor in this massive rethink of physical retail. We believe a much more important factor is the shift in spending power to the millennial customer and the fact that retailers haven't yet figured out how to properly serve this new customer. What we have here is a change in the target customer, not the death of physical retail. Retailers are just struggling to figure out how to best serve this new customer.
What Nut Retail Has To Crack
We've learned millennials are less concerned with what they own and more concerned with what they do, less focused on value and more focused on values, less transaction based and more trust based, less static and more dynamic.
The mass-market of the past 30 years has been characterized by affluence (the accumulation of possessions), seduction (marketing) and scale. Retailers built store networks to service the suburban, affluence-centric Baby Boomer and Gen X generations at the peak of their spending. Stores were built large, numerous, and their floor space packed with product. That's how we reached the present point, and this is the model that needs to be reinvented.
The influence model is characterized by the ability to move markets through the outsized power of an individual voice, and that voiced shaped by the relationship between the customer and the brand.
Going forward, constant connectivity and a radically different set of values possessed by Millennials and Gen Zs will continue to reinforce the emerging influence vs affluence model.
Read The Creative Re-Use of Empty Retail Space
Is Physical Retail Going Away?
No, it's not. Remember, 90% of all retail still occurs in the physical store and we don't expect that to change — especially with the millennial customer's need for experiences and interaction with others.
Why I Think Physical Retail Will Have A Comeback
Two things will happen to physical store networks in the next 10 years:
Large retailers will continue to work to crack the code on the millennial customer to deliver experiential value. Once the new model is vetted, retailers will continue to invest in their physical presence to maintain proximity to their customer.
Pure play online retailers will continue to grow, organically or inorganically, and capture scale. As they grow, they will reach an inflection point where continued investment in online growth slows and falling real estate prices make a physical investment economically viable.
In either scenario, the future for retail real estate is bright. Brokers, agents, REITs and others in the industry just need to give retailers time to adjust and learn to cater to this new customer.
WASHINGTON, DC–Much has been written about the death spiral that the real sector has supposedly entered. Not everyone agrees with this analysis, however — a minority of experts are making a strong case as to why retail is still a viable investment.
Now we can add John Rabenhorst, a principal in the retail practice of
Following are excerpts of GlobeSt.com's interview with him.
What The Core Problem Is
E-commerce is only a secondary factor in this massive rethink of physical retail. We believe a much more important factor is the shift in spending power to the millennial customer and the fact that retailers haven't yet figured out how to properly serve this new customer. What we have here is a change in the target customer, not the death of physical retail. Retailers are just struggling to figure out how to best serve this new customer.
What Nut Retail Has To Crack
We've learned millennials are less concerned with what they own and more concerned with what they do, less focused on value and more focused on values, less transaction based and more trust based, less static and more dynamic.
The mass-market of the past 30 years has been characterized by affluence (the accumulation of possessions), seduction (marketing) and scale. Retailers built store networks to service the suburban, affluence-centric Baby Boomer and Gen X generations at the peak of their spending. Stores were built large, numerous, and their floor space packed with product. That's how we reached the present point, and this is the model that needs to be reinvented.
The influence model is characterized by the ability to move markets through the outsized power of an individual voice, and that voiced shaped by the relationship between the customer and the brand.
Going forward, constant connectivity and a radically different set of values possessed by Millennials and Gen Zs will continue to reinforce the emerging influence vs affluence model.
Read The Creative Re-Use of Empty Retail Space
Is Physical Retail Going Away?
No, it's not. Remember, 90% of all retail still occurs in the physical store and we don't expect that to change — especially with the millennial customer's need for experiences and interaction with others.
Why I Think Physical Retail Will Have A Comeback
Two things will happen to physical store networks in the next 10 years:
Large retailers will continue to work to crack the code on the millennial customer to deliver experiential value. Once the new model is vetted, retailers will continue to invest in their physical presence to maintain proximity to their customer.
Pure play online retailers will continue to grow, organically or inorganically, and capture scale. As they grow, they will reach an inflection point where continued investment in online growth slows and falling real estate prices make a physical investment economically viable.
In either scenario, the future for retail real estate is bright. Brokers, agents, REITs and others in the industry just need to give retailers time to adjust and learn to cater to this new customer.
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