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C+CT

Stores Are Getting Smaller, 4 Retailers in the News, Retail Properties Are Becoming the Hot Ticket, and More

February 10, 2023

Retailers continue to squeeze into smaller spaces to reach their target customers. The average new retail lease declined 3% year over year in the fourth quarter to 3,185 square feet, according to JLL. That’s significantly smaller than the 4,500-square-foot average recorded in 2006. The players shrinking their footprints include department store giants like Macy’s Inc. with its Bloomie’s and Market by Macy’s concepts. Best Buy also piloted a smaller format last year. Class A Space is harder to find, and given rising costs, many retailers will look to make every square foot of store space count.

Along those lines, store-within-a-store concepts like Toys R Us in Macy’s, Ulta Beauty in Target and Petco in Lowe’s have accelerated. Such arrangements boost both parties’ sales. The concept isn’t new, but recently, niche brands like Claire’s in Macy’s, Starbucks in Safeway and Apple in Target have used stores-within-stores to implement new marketing strategies.

More on Smaller Stores

Does Store-Within-a-Store Work, and Will It Last?
Meijer’s Two Small-Format Stores in Michigan Now Open
Bloomingdale’s to open Small-Format Store in Seattle
Restaurant Operators Cut Costs with Smaller Stores
Are Small Stores Smarter?

4 Retailers That Made News This Week

Amazon appears to be rethinking the brand’s push into the supermarket arena. The company will close a handful of its 44 Amazon Fresh and 28 Amazon Go stores and cut jobs across this area of the business. Critics say the store’s focus on tech versus experience is a problem. Amazon also said it will halt Amazon Fresh expansion until it finds a format that differentiates itself. “We decided to go slower on the physical store expansion in the grocery space until we had a format that we really believed in rolling out,” Amazon CEO Andy Jassy said on an earnings call.

Bed Bath & Beyond has staved off bankruptcy and will cut its store count from 760 to about 360, keeping its most profitable stores open in key markets. The brand had 1,552 stores open at its peak in 2017.

CVS moved closer to becoming a primary health care destination, agreeing to a $10.6 billion purchase of Oak Street Health, which operates 169 medical centers across 21 states.

Independent Pet Partners filed for chapter 11 bankruptcy protection, blaming a sudden change in consumers' pet food preferences and the pandemic for lost revenue. The company, which operates 159 stores under several regional banners, is selling some stores and closing the rest.

Retail Properties Are Becoming the Hot Ticket

Retail seems to be the new darling of the commercial real estate investment community. “We’ve come out of the pandemic in a stronger position,” ICSC president and CEO Tom McGee said on a recent Marcus & Millichap webinar called Cutting Through Uncertainty: 2023 Economic & CRE Outlook. “Shoppers rediscovered the joy of physical shopping. Retailers crystallized the importance of physical retail. We’ve seen more store openings than closings for two years running and a minimal number of retailer bankruptcies. There’s been no new supply in 15 years. There’s uncertainty in the economy, but we’re in a strong job market.”

Investors are looking at retail with renewed interest after years of preference for sectors like industrial, biotech and life sciences. “There’s a lot of dry powder waiting for retail,” CREW Network CEO Wendy Mann said on the webinar. “There will be a ferocious appetite for retail as things become clearer in the market.” Many investors are reconsidering retail due to perceived weakness in sectors like office. “Office is the new retail because retail has had several years of being pressured,” said Marcus & Millichap president and CEO Hessam Nadji.

Fewer commercial real estate transactions are getting done as owners and buyers recalibrate their price expectations in response to recent interest rate hikes, Nadji said. Even so, well-priced properties are still trading because a wall of capital is waiting to invest, he added. “There are very little actual distressed loans, as we have not systemically overleveraged the asset class,” he said.

With a little bit of luck and some deft maneuvering by the Federal Reserve, the U.S. economy may not have an outright economic downturn this year, said Moody’s Analytics chief economist Mark Zandi said. He predicts interest rates will peak at 5% in the next few months. Usually, he said, “you see confidence fall sharply before the recession. That’s not the case so far. We need a little bit of luck and some reasonable policymaking. The economy will hold firmer than the market expects.”

Former ICSC Chair Neil Wood Has Died

Neil Wood, who served as ICSC chair in 1980 and 1981 has died from cancer at the age of 91. Wood — who served as the lead developer for CF Toronto Eaton Centre, CF Pacific Centre and Toronto-Dominion Centre, among many other Canadian retail properties — was an ICSC member for 59 years. He worked as an executive at Fairview Corp., The Cadillac Fairview Corp. and Markborough Properties.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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