September 26, 2016 | Dan Rafter
Chad Firsel doesn’t hesitate when asked what makes for a successful brick-and-mortar retailer today: Those retailers that are thriving are offering experiences, ones that can’t be duplicated online.
Firsel, president of Chicago’s Quantum Real Estate Advisors, points to restaurants. You can’t replicate the dining out experience online.
“That can’t be replaced by a computer or an iPhone,” Firsel said. “It’s very simple. People still go out to eat. They still want an experience. Those goods and services that can’t be replicated online are the ones that are the strongest today.”
Firsel isn’t alone in this belief. Retail brokers agree that those brick-and-mortar businesses that are adapting to ecommerce instead of fighting it, are those that are most likely to succeed today.
Evolving, not fighting
Erin Patton, vice president of investments and senior director with the national retail group of Marcus & Millichap, said that necessity-based retailers such as restaurants, gyms and grocery stores are the strongest performers today.
That’s because consumers can’t exercise over the Internet or can’t squeeze a peach online.
“It used to be, how can we beat the Internet?” Patton said. “Now, there is a broad-based acceptance from retailers that they have to work alongside the Internet. They have to co-exist with the online world. Many traditional retailers are embracing e-commerce. At the same time, Amazon announced that it is opening something like 100 small-shop spaces. There is a balance there. I think in most cases, brick-and-mortar and online can co-exist. This is the future. Convenience is what is most important to shoppers.”
Patton said that every retailer is meeting this challenge in a different way. She pointed to department store J.C. Penney. Today, this long-time retailer is heavily promoting and focusing on items such as furniture, household goods and makeup. These are items that consumers want to go out and shop for. They are less likely to purchase these items online.
“That’s a great example of how someone is embracing the current environment and working around it,” Patton said. “They are modifying what they sell. They are modifying their approach to meet the ways in which consumers shop today.”
Fast-casual on the rise
Firsel and Patton both agreed that fast-casual restaurants are seeing steady growth in today’s market. Again, it comes down to an experience that consumers can’t get online.
Euromonitor reported that the fast-casual market has grown by 550 percent since 1999, with consumers spending an estimated $21 billion in this segment since 2014. A report released earlier in 2016 by Technomic identified such fast-casual chains as Blaze Pizza, MOD Pizza, Panera Bread, Freshii and Sweetgreen as players who are seeing strong sales growth today.
Patton said that fast-casual restaurants are performing well because consumers today want to spend less money than they would at a traditional sit-down restaurant but also eat healthier and tastier food than they would get at a chain such as McDonald’s.
“It has been a steady evolution,” Patton said. “Providing an experience is becoming very important for consumers. That is what they are going out of their house to do. They don’t want to just pop into a shop or pop into a restaurant. Instead, they want to have an experience. That is driving the push for more fast-casual choices here.”
The fast-casual market is bringing changes, too, to more traditional fast-food offerings. Burger restaurants, for instance, are getting a fast-casual makeover today, with specialty burger chains eating away at the business of traditional fast-food burger providers.
The same is happening at pizza chains, with Patton saying that make-your-own pizza concepts have steadily grown in popularity in both the Cleveland and Columbus markets.
“It’s all about having a new take on a traditional idea,” Patton said. “We are seeing these concepts usually appear in mixed-use developments. In these developments, it is about providing experience.”
Firsel pointed to retailers such as Crate and Barrel and Bed Bath & Beyond as an example of two that have managed to merge their online and brick-and-mortar components together.
“People get married and they set up their registry online. Then 80 percent of the guests go online to buy their gifts for the registry. No longer do they have to go into the store to do this,” Firsel said. “But before the people set up their registries online, they go into the physical store and pick out the items themselves. It’s tough to see if you really like a glass or bowl online. Then, if they need to return something, they go into the store to do it. That is how Crate and Barrel embraces both online and physical stores.”
Firsel said that brick-and-mortar retailers have already suffered through the worst of the damage that ecommerce has brought. Now, it’s a matter of those retailers that have survived to continue to adapt their business models to actually take advantage of ecommerce.
“The Internet will never beat walking into a store and walking out with a good,” Firsel said. “The successful retailers are taking that omni channel retailing approach. The store subsidizes the Internet and vice versa. That is the approach being taken by the ones who are winning and surviving.”
Not all are thriving
It’s little surprise that many retailers are struggling today. Even without the threat of ecommerce, brick-and-mortar retailers face many challenges today.
Yes, the economy has steadily improved. But many consumers are still wary of making major purchases. Others feel as if the economic recovery has left them behind.
Firsel said that electronics and athletics retailers are both struggling mightily today. The shutdown of Sports Authority is a good example. As Firsell says, Dick’s Sporting Goods is about the only major sports retailer still in business today.
“It’s really sad, to be honest,” Firsel said. “Half the clothiers out there are going out of business. Book stores have struggled. Electronics and sports goods stores have all struggled. Even a lot of hardware merchandise is going online. We haven’t seen many new Home Depots opening lately. Target has only built a half-dozen stores in the United States in 2016. It used to build 150 a year.”
Other strong players
The grocery end of the retail market remains strong, but is a market that is broken into three main parts, Firsel said. Stores such as Walmart and Aldi target those shoppers looking for the most affordable of groceries, while mid-tier grocers such as Trader Joe’s, Mariano’s and Jewel target those shoppers willing to spend a bit more for a higher-end grocery experience.
Finally, there are the higher-end markets such as Whole Foods and higher-priced specialty markets, Firsel said.
All of these types of grocers expanded significantly in the Chicago area and throughout much of the Midwest in 2013, 2014 and 2015, Firsel said. Today, though, that expansion has slowed, not because the grocers are struggling, but because they have already completed much of their expansion plans. The exceptions is Aldi, Firsel said. This chain continues to add locations throughout the Chicago area.
Other players that are doing well? Dollar stores. Firsel said that this end of the retail market is especially strong today, in certain locations.
“They do serve a need. We will sell 15 to 20 of these a year,” Firsel said. “Dollar General and Family Dollar stores do very well in middle-class blue-collar retail markets and in under-retailed neighborhoods and rural markets. You can get everything in these stores, from a razor to a box of cereal. Family Dollar is on a tear. The dollar stores are doing very well, absolutely.”