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April 26, 2018

Where Did All the Stores Go?

By Jonathan Zimmerman

I hate shopping. For me, the ability to purchase things online goes down as one of the greatest phenomena of my lifetime. I don’t have to schlep through stores or circumvent big crowds and I can have things delivered right to my doorstep within days? Sign me up! Based on the high–and rapidly increasing–number of vacant retail spaces, it seems many Americans agree with me.

There is no denying the fact that the internet has permanently changed retail forever. As convenient as internet shopping is, however, part of me aches for the shop owners who dreamed of starting up their own store and poured tons of money and time into making their dreams come true.

Here I go dating myself again, but in my youth, there was no internet. Sure, you could order things from a catalog and have them shipped to you but by and large, if you needed to buy something, you went to a store. Malls, department stores, and retail centers everywhere were thriving. Today, legendary brands such as Sears, Kmart, Toys “R” Us, Radio Shack, JC Penny and Carson Pirie Scott (after 160 years in business) are shuttering a significant number of locations or disappearing completely.

The one that really hit home for me was Toys “R” Us. I used to take on whatever odd jobs I could find around the house or in the neighborhood and diligently save up my allowance so I could visit this kids’ utopia and buy video games (on floppy disks!) for my Commodore 64 computer (which was the greatest gaming computer of all time, but that is an argument for another day). Sure, the games were tons of fun to play, but just getting myself in a position to even go to Toys “R” Us was an accomplishment to be proud of and helped teach me the value of hard work.

Now, store owners are facing a dire call to either adapt to the times or find a new line of work. In order to draw customers, retailers need to present an “experience” and a reason to leave the house. These days, it isn’t unusual to see stores add coffee shops, wine bars and interactive events such as live demonstrations and classroom sessions. This is what it takes today to attract crowds and once they come, people will theoretically want to spend their money.

With retail vacancy rates approaching historic levels, landlords have been forced to change direction as well. Big box closings have left massive holes where anchor tenants once dominated. Today, there is less focus on filling these spaces with other big box stores and more emphasis on creating smaller sized spaces for such uses as restaurants, movie and entertainment venues, health clubs, grocery stores and medical clinics. Investors now seek out retail centers that are “internet-proof” and tenanted with users that cannot be threatened by e-commerce. In fact, in some cases, Landlords are even having to go way outside of the box and convert old big box stores into co-working facilities, office space, distribution centers, hotels or residences. All options are in play moving forward.

Downtown Chicago is a convenient microcosm of what is happening nationwide. The old Carson Pirie Scott Building on State Street is now a landmark office building, anchored by Target on the ground floor and a loft office conversion for the upper floors of Macy’s on State Street is up next.

Even the locations that have traditionally been as good as it gets in terms of visibility and obtaining high rents are no longer a slam dunk. Crate and Barrel, which once dominated a five-story building on Michigan Avenue, is out and a completely new Starbucks experience will take over. Their “roastery” concept will far exceed a typical store and genuinely be interesting to visit. While a company like Starbucks can pull this off, it is fair to wonder how many more retailers can develop a similar experience of this magnitude and be able to afford the rents these locations command.

As shopping experiences evolve, expect more and more of the classic stores to go by the wayside. Tenants will need to get more imaginative and give customers a reason to get away from their computers and phones. As we have learned, in all branches of real estate, change is the only constant. So, what will the new generation of savvy retailers create in the next retail revolution?