Retailers and landlords have put the old saying “If you can’t beat them, join them” to good use. Efforts to work with e-commerce began with in-store experiences and evolved into in-store fulfillment of online orders. Medical, fitness and other users that shopping centers once had shunned today are embraced. And now, brands that built their merchandising and expansion strategies on strict cookie-cutter prototypes are bending designs in order to expand.

“The prototype used to be cast in stone,” said Greg Ix, senior vice president of leasing for Big V Property Group, which owns more than 50 shopping centers primarily across the Southeast, Mid-Atlantic and Texas. “If you were 100 square feet short or minimally off somewhere else, it was a problem for the retailer because the round peg had to fit in the round hole. Now, brands are getting more flexible.”

Adjusting to market dynamics is nothing new. Retailers like Target and Kohl’s years ago introduced smaller formats to adapt to changing economic realities or to certain submarkets like densely populated downtowns. But retailers have become more accommodating in their store design of late, as a lack of desirable locations constricts opportunities to grow. Those that do come along typically come with higher tenant improvement costs and rents.

The less-templated approach also is the result of an embrace of e-commerce and the real-time sway of social media influencers. Space designs have emerged that enable photo ops and that create a sense of place to connect brands to their customers, said Joseph Serruya, principal of architecture and planning firm RDC’s National Retail team. That may include elements like murals or eye-popping produce displays in grocery stores, he added. “Ten years ago, trends weren’t as strong as they are today,” he said. “Today, every month you have a different trend, and retailers understand that they have to innovate. It is becoming part of their DNA.”

Going with the Flow

Bottom line: These days, retailers more often are working within spaces that deviate significantly from their standards. The frontage or overall footprint could be smaller, the space could be second-generation instead of newly built or a restaurant could be in-line with a walk-up window rather than an end cap with a drive-thru, said Sean Quinn, vice president of leasing for Last Mile, a North American Properties investment manager that owns roughly 30 unanchored centers across the country.

A shift in shopping and eating habits since the pandemic has made alterations easier to implement, he added. A quick-service restaurant whose takeout sales jumped to 45% of total sales and delivery sales to 20%, for example, may see the need for fewer seats. In the past, he said, some tenants would have paid several thousand dollars to move a bathroom a few feet if it didn’t fall into the standard design specs. Now, Last Mile is considering acquiring a center with a smaller-than-usual Jersey Mike’s that doesn’t have a customer bathroom.

“Tenants are valuing locations and submarkets over adhering to some tight, preconceived, prototypical plan,” Quinn observed. “And honestly, the rent is such that if they want to be in the type of Main and Main asset class that we’re focused on, they may need to be a little more nimble and occupy 2,000 square feet instead of 2,500.”

Making Small Work

The dearth of new development began to impact big-box designs a few years ago. Traditionally, Burlington would occupy 100,000 square feet, oftentimes taking older space that had few takers, Ix said. It started downsizing and took a 48,000-square-foot space in Charlotte prior to the pandemic. “The deal took a while to get done because they never had a store that small before,” he said, “but it was at the early stages of the supply constraint, and they liked the market and the center.”

Now, the retailer is operating in stores from 18,000 to 26,000 square feet, he noted. Retailers that can make that adjustment are likely supported by an omnichannel strategy that requires them to carry less inventory at their stores, Ix suggested. “Brands like Burlington have learned to merchandise better and make better use of their space,” he said. “Wall Street wants them to grow, but they can no longer just take a space and throw their goods in it. They have to make sure they’re creating value in every square foot that they’re renting.”

Tailoring Experience

Additionally, retailers more closely are assessing their communities and customers in order to create, improve upon and deliver relevant experiences, said Serruya. As expansion costs skyrocket and non-U.S. brands enter and expand in the U.S., investment in the customer experience can help dissuade customers from shopping at competitors, he pointed out. Examples include Dick’s House of Sport, which provides experiences like rock climbing walls, batting cages and outdoor fields, and Target’s uses of murals and other decorative touches that reflect the surrounding neighborhoods.

“Execution is extremely important,” he continued. “Right now, retailers can’t afford to lose market share, so they’re always looking for ways to align their brand with what consumers and communities want and what the trends are. But once they figure it out and fine-tune it, then it becomes part of their program and part of their prototypical store.”

Location remains the primary driver behind expansion decisions, and retailers prefer to maintain traditional branding cues like color schemes and signage, but those are likely the only constants shoppers can expect to see for the foreseeable future as construction costs keep new supply muted, said Patrick Arnold, JLL Retail Advisory Services Group senior managing director. “Until there’s more development,” he said, “everyone is going to have to be more flexible.”