So far this year, retail chains have announced some heavy cuts. J.C. Penney said it would close 33 stores. Macy’s said it would lay off 2,500 workers. Sears will close its flagship Chicago store in April.
That’s creating a glut of excess space. But that’s just one of several forces changing the face of retail.
Jason Moser, an analyst at Motley Fool One, focuses on one key number in retail: revenue per employee. In Amazon’s case, every person the company employs generates an average of $800,000 in sales. For Best Buy? The number is much less than half that.
“What that means is that Amazon is able to do a lot more with a lot less,” Moser says.
Iconic Brands Being Battered
Moser says inefficiency in legacy brick-and-mortar chains is bleeding some iconic brands.
“Does the world really need a Sears at this point? I don’t think it really does, actually, and I think the numbers bear that out. I think the same really goes for J.C. Penney,” he says.
Along with the rest of the economy, retail is recovering. Vacancy rates at shopping centers are low. But analysts like Moser say that belies some dramatic changes going on in the industry.
“Over the course of the next decade, I am counting on the retail space to look very, very different than it does today,” says Michael Burden, a principal with Excess Space Retail Services, a company whose job it is to figure out what to do with unused retail space.
He says the footprint of stores is shrinking because consumers are shopping online more. And technology has streamlined inventory systems, making them more efficient, so stores need far less room to keep stock.
“That translates into the need for less space,” he says.
A Church Moves Into An Old Wal-Mart
And that is creating demand for what might be called “smaller boxes,” as well as a dilemma as to what to do with some of the old big-box space. Burden says some of the space might be repurposed as warehouses for mega-retailers like Amazon and Wal-Mart. But Burden says those in far-out suburbs or in rural areas pose the greatest risk of becoming “ghost boxes.”
“The more rural it is, the less likely there is a need or the ability for a single tenant to come in and utilize the space,” he says. “In those markets in particular, you’re going to be looking at churches, bingo places, flea markets, medical uses, call centers.”
One old Wal-Mart in suburban Milwaukee is now the Ridge Community Church. Lead pastor Mark Weigt says there was some skepticism about whether religion could fit in a space designed for retail. For starters, it meant sharing a plot with the new adjacent Wal-Mart.
“People to get to the new Wal-Mart actually drive through a driveway that’s connected to our property,” Weigt says.
But the location was central, and the cost unbeatable.
“The beauty of a big box is once the demolition from the interior standpoint is taken care of, you just have to work around the posts,” Weigt says.
The old Subway sandwich shop took new form as the church kitchen. The floors and the ceilings were simply repainted. And the church plans to lease the remaining two-thirds of the still-unoccupied remaining space to other retailers.
New Developments Merge Housing, Retail
It’s not just the buildings that are getting revamped. Maureen McAvey, a fellow at the Urban Land Institute, an urban planning nonprofit, says there’s a deeper shift happening: Retail is becoming much more integrated with housing, especially in cities.
She says in previous decades, homes, stores and offices were usually designed to be driving distances away from one another. Now, she says, that trend is reversing. You can find evidence of the trend in places like Research Triangle Park in North Carolina, a classic office park.
“That’s having a new master plan being developed where it will become much more mixed use, adding shopping, adding restaurants, adding residential,” McAvey says.
Another such example is the new Wal-Mart near the Capitol in Washington, D.C. Above the store, there are 200 residential units.
“Eighty percent of all the jobs in the country are basically in cities, and that’s where all the growth is,” McAvey says.
So it’s no surprise that retailers, including Wal-Mart and Target, are trying to adapt their models to suit urban areas, with their smaller, more expensive lots that don’t have as much parking.
Along another stop of our retail tour, McAvey stands in front of a construction site in Bethesda, Md., slated for more mixed retail and residential development. She says demand from baby boomers and the millennial generation is also driving the remaking of city life.
“On both sides of those demographic barbells, these are groups who want to be close to restaurants, they want to be close to places to exercise, and they don’t want to be tied to the yard and mowing grass and all of those things,” McAvey says.
In decades past, she says, people considered it déclassé to live above a store. But social tastes change. And retail development simply follows that lead.