Retail evolving, not disappearing

Much has been made of brick and mortar retail’s demise, but according to Altus Group, it isn’t dying so much as it’s evolving.

“What’s happening with retail is consumer behaviours are changing, demands are changing, and demographics are changing, and that’s driving how retail is changing,” said Altus Group’s Kruti Desai, manager of national research insights and data solutions. “Consumers are now looking more for experiential retail and want to be engaged. We’re seeing stores becoming more innovative, in terms of adopting additional designs and concepts. Store closures may be happening, particularly among larger format stores, but retail is still evolving with regards to how spaces are being used.”

Retail shops are buttressed by e-commerce and, often, act as show rooms. In exceptional cases, virtual reality is being incorporated into the commercial experience so customers can test out products.

“E-commerce is changing how people shop,” continued Desai. “Customers can still shop online, but they can also pick up in stores or vice versa, so I think that’s going to change how stores are used. In terms of inventory, retailers will check how much they need in-store. They can showcase products and then deliver them to customers, which means there will be demand for industrial space. These are trends to keep in mind.”

Grocery stores, in particular, have figured out how to blend e-commerce with brick and mortar. Whether customers order online and either pick up their items at the store or have them delivered, an unmistakable shift is occurring and, as demonstrated by Loblaws and Sobeys, it’s for the better.

“Big-, small- and medium- format grocery stores are trying to figure out the right size,” said Ray Wong, vice president of data operations and data solutions at Altus. “Sobeys partnered with Ocado Group and they’re building two large warehouses in Toronto and Montreal, and that’s going to be their online strategy. They’re going to stock these warehouses and service their online customers from there.”

Traditional retail spaces are, however, lagging behind and institutional investors have started including office and residential space in their holdings, like condominiums and hotels. Desai believes that will continue as retail space continues its decade-long trend of shrinking, and it’s becoming beneficial to tenants.

“We’re seeing a lot of these centres get approved for more mixed-use, so they’re adding hotel, condo, residential, even gym facilities for some of those larger vacant spaces, and then there are the experiential restaurants and pop-up stores,” she said. “A lot of these spaces are becoming more flexible so tenants no longer need long-term leases. It’s flexible for new retailers or online retailers that want to test products in brick and mortar because they’re no longer fixed to these long term leases.”

Traditional retail space is being eclipsed by voracious demand for industrial space.

“We’re seeing how giant retailers like Amazon depend on a network of distribution centres to service their customers, and a lot of these companies are opening multi-tiered distribution centres and housing them in secondary areas outside urban cores,” said Wong. “Amazon and Wal-Mart are investing in these logistics facilities.”