Baseball is often referenced as America’s favorite pastime, but recent trends in U.S. retail suggest that shopping is giving the sport a run for its money. And despite the boom in e-commerce, U.S. consumers do most of their shopping at physical stores. But in order to attract and captivate consumers, shopping centers have become much more than just places to buy things—they’re social centers, places for entertainment and employment hubs.
In its recent Brick by Brick: The State of the Shopping Center report, Nielsen examines the trends affecting the size and shape of the shopping center industry, as well as some of the shifting consumer factors affecting the strategic direction of this powerful retail sector.
As the U.S. population has diversified, the lines have blurred between shopping, entertainment, and community. This blending of experiences has created an opportunity for retail to strengthen social ties within communities looking for communal experiences. Lifestyle centers, a newer entrant to the shopping mix, have met this opportunity head on, as they blend traditional retail tenants with upscale leisure uses that offer shoppers a place to buy as well as an experience and a place to gather.
This trend is most visible at the regional level, where operators are shifting away from the traditional enclosed mall and opting for smaller, specialty lifestyle centers. Lifestyle centers tend to be more heavily concentrated in urban areas, while the larger regional and super-regional centers tend to be more heavily concentrated in suburban and rural areas.
Go Big or Go Small
Size is a key consideration for shopping outlets, and Nielsen reports diverging trends in store footprint: they’re either going very big or very small. The decision often reflects where the shopping center is located or what a specific retail company’s overall goal is. Wal-Mart, for example, has supersized many of its stores to create one-stop, one-basket shopping destinations.
On the flip side, bigger isn’t always better. Notably, many big box retailers have downsized their formats to better meet shopper expectations and desires for more of an experience destination. The smaller footprints are also aimed at creating more of an intimate neighborhood shopping experience. Target’s City Target stores, launched in places like Chicago, Los Angeles and Seattle emphasize creative design and easy access for urban shoppers who don’t want to travel long distances to grab necessity items, electronics and groceries.
In looking at the overall shopping center market, C-stores is where the real growth is. These outlets, which tend to be located within smaller shopping centers, have grown popular for quick trips, potentially drawing consumers away from larger shopping centers. Nielsen reports C-store growth of 4.9 percent for the 52-week period ending Aug. 4, 2012, well ahead of the 3.7 percent rate for the overall market. And the growth is sparking new C-store development as well, indicating that there is room for large and small shopping centers to coexist in the retail landscape, as well as new formats and concepts.
There are still places where traditional, large-scale shopping centers thrive, particularly the major metro areas on the East and West Coasts that serve large and dense consumer populations. And the demand for a more traditional experience showed no sign of slowing, as the number of large shopping centers (200K+ gross leasable area) jumped 65 percent between 2008 and 2013. These malls only account for roughly 7 percent of the total malls/shopping centers in the U.S., but they make up 46 percent of the total mall/shopping center gross leasable area.
The E-Commerce Opportunity
Although e-commerce is growing, consumers still spend most of their retail dollars at physical stores. Shopping center sales account for over half of retail sales in the U.S. People like to touch the merchandise, compare items and participate in the store experience. E-commerce is growing, but sales at physical stores continue to dwarf online sales. In Q4 2012, 5.4 percent of retail sales came from online channels, up from 3.6 percent in Q1 2008.
Affluent suburban families are the biggest online spenders. They’re more than twice as likely as the average U.S. household to spend more than $200 online per year, yet they still manage to shop at luxury retailers in the mall too. Comparatively, older consumers are more likely to shop at brick and mortar locations rather than in cyberspace.
From a growth perspective, several channels stand out, including club, dollar and supercenter options. However, Nielsen believes E-commerce will lead the pack, continuing the trend of the past five years. E-commerce poses a unique opportunity for shopping centers and their tenants—one that should involve embracing this change and employing cross-channel real estate and marketing efforts.
For more insights, download the Brick by Brick: The State of the Shopping Center report.