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Americas Retailing

Retail Shows its Resilience

With New York’s Fifth Avenue retaining its top ranking as the world’s most expensive retail destination, this is just one indication of how the US retail market is maintaining its global position and continues to be a beacon of the sector. Over the coming pages, we take a closer look at the state of the industry across America and highlight some key players in the market.

From the abrupt shutdown of non-essential retail in 2020 to the challenges of surging operating costs, supply chain disruptions, labour shortages and evolving consumer preferences, the retail industry has embarked on a turbulent journey in recent years. This is the view point of James Bohnaker of Cushman & Wakefield in his article ‘Retail Resilience: Retailers Put to the Test’.

His article continues to say that the number of retail stores is rising after a four-year downturn that began in 2017 and continued to deepen during the pandemic. After nearly breaking even in 2021, net openings hit a nine-year high the following year and that momentum has continued through 2023.

According to JLL’s ‘U.S. Real Estate Outlook 2023’ report, retail continues to perform well overall despite the challenges consumers face. The retail sector has recovered faster than many anticipated and entered 2023 in a position of strength. Retailer bankruptcies and store closures have decreased. Consumers have returned to spending in physical locations, including bars and restaurants – which will benefit centres boasting such offerings.

Meanwhile another report of JLL’s, their ‘Q1 Retail Outlook 2023’ released earlier this year presented five key takeaways for the year:

  1. Inflation pressures weigh on retail sales – consumers are looking for value retail to get the most bang for their buck.
  2. Planned store openings flourish despite rising bankruptcy announcements – Bed Bath & Beyond will be snatched up by discount and variety stores.
  3. Experiential spending remains a bright spot within retail – consumers shift from goods to experience.
  4. Retail transaction volumes buoyed by M&A activity.
  5. Vacant mall spaces find new life as sports and multifamily venues – experiential tenants like pickleball concepts open in malls.

    The example of Bed Bath & Beyond is an interesting one and this was discussed in a Forbes post by Naveen Jaggi, President of JLL’s Retail Advisory Services business, entitled ‘Why Bed Bath & Beyond Won’t Stay Empty For Long’ who argues that a space like Bed Bath & Beyond is attractive to discount retailers looking to expand because in the current economic environment consumers want more bang for their buck, but also construction to the space would be minimal. Just like Bed Bath & Beyond, other retailers in the home furnishing and accessories sector may also face difficulties due to the current state of the housing market.

    Jaggi continues by saying that one example of this is Planet Fitness, a discount gym that has been growing rapidly, opening 200 new locations per year. With its eye on repurposing existing retail spaces, the company sees potential in locations such as those being vacated by Bed, Bath & Beyond. Their strategy highlights the potential for retailers to transform existing spaces into something new and exciting rather than relying on new construction.

    In contrast to softening conditions in other CRE asset classes, retail has remained resilient in the face of economic uncertainty. As consumer spending continues to increase, retailers continue to expand with the number of store openings outpacing closures. Post-pandemic demographic and shopping patterns are also creating pathways for service-oriented companies to occupy more retail space in new locations, particularly in the suburbs of Sunbelt markets. Amid this demand resurgence, new construction has been severely limited, helping to drive vacancy rates lower and giving landlords leverage to raise rents. This is a viewpoint highlighted in Cushman & Wakefield’s ‘Marketbeat U.S. National – Shopping Center Q3 2023’ report.

    The report continues to say that retail has been in a constant state of evolution and the next couple years will be no different. The challenge now is the macro environment; while there will be a period of softness, it’s more likely to be a blip compared to the disruptions over the prior decade. If a global pandemic couldn’t destroy retail, then a recession certainly won’t either. Yes, consumers will pull back and occupiers will turn more cautious, but structural forces have the sector well positioned for the long haul.

    Finally, JLL’s ‘United States Retail Outlook Q3 2023’ report explains that as the country approached the 2023 holiday season, the gradual shift to normalcy and return to experiences continued. Third-quarter spending on performing arts soared 37.2 per cent year-over-year and amusement parks, arcades and spectator sports all saw double-digit growth.

    The report also stated that most consumers were set to interact with the physical retail store in some way over the course of the holiday season, either by shopping in a mall, in an open-air centre or picking up curbside or in-store.

    The retail market in the US is seeing a healthy return that features new retailers and concepts and below is just a small selection of companies that are either leading the revolution or quickly coming to the fore.

Retailers and Concepts to Look Out For
Launched at 350 Fifth Avenue in the Empire State Building last year, the expansion of Starbucks’ Reserve brand continued with a notable 23,000sq ft space that took over the third floor of the landmark building. Given its iconic location, the chain has found ways to pay homage to history all throughout the space with hand-painted murals created by New York City-based artist and art deco style details that call out to the building’s and Fifth Avenue’s mercantile traditions. One of the biggest brands in the world, the company continues to expand as it implements a new reinvention plan across the US and abroad.

Also expanding in the US is Pret A Manger, who is planning to expand its US footprint more than five-fold to 300 stores by 2029, as the British sandwich and coffee chain looks to double the size of its overall business. Privately-held Pret has struck a partnership with its existing franchisee Dallas International to accelerate its US expansion through new openings, store renovations and by introducing new formats like drive-thrus. With around 60 US outlets currently, Pret is focused on opening more stores in regional and suburban areas and targeting transport hubs to draw new customers, moving beyond its traditional focus on cities and office-oriented locations.

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Streaming giant Netflix is planning to open new brick-and-mortar locations in 2025. But instead of browsing video rentals, customers will shop for merchandise, eat at themed restaurants, see live entertainment and participate in immersive experiences surrounding hit Netflix shows. The first two locations are set to open in the US and if these go well, the streaming platform plans to take the concept global. The upcoming stores, called “Netflix House”, is not the company’s first foray into the world of retail, as earlier this year, foodies in Los Angeles dined at the pop-up restaurant Netflix Bites.

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Well-known retail brand Primark is continuing with its US expansion. The company has recently opened new stores at Smith Haven Mall in Lake Grove, New York on 9 November and Concord Mills in Charlotte, North Carolina on 16 November. These openings, which are the retailer’s last two of 2023, will bring Primark to 436 stores globally and to 24 stores in the US spread across eight states – key to the brand’s growth strategy to reach 60 stores in the US by 2026. Including the upcoming openings, Primark will have opened eight stores in the US alone in 2023.

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The Alo Yoga brand, founded by childhood friends Danny Harris and Marco De George in 2007 has continued to take the fitness industry by storm and reached over $1bn in sales in 2022. With a rather limited footprint up until now and the majority of sales coming from its e-commerce channel, the company plans to accelerate the role of stores in its growth and expansion, with the vast majority being in the US. “We started 2023 with 10 stores across US and Canada,” Alo Yoga CEO Danny Harris shared in a recent interview with Footwear News. “Next year, we will have over 100 stores company-wide. We will be opening one new store every single week.”

Academy Sports and Outdoors, Inc. (“Academy”), a leading full-line sporting goods and outdoor recreation retailer whose mission is to provide “Fun for All”, opened its first location in Fredericksburg, Virginia in the fall of 2023. This is Academy’s second location in Virginia and is over 77,000sq ft. Academy plans to continue its expansion efforts with the goal of opening 13 – 15 stores this year and launch a total of 120 to 140 new stores by the end of 2027. Academy is a leading full-line sporting goods and outdoor recreation retailer in the United States. Originally founded in 1938 as a family business in Texas, Academy has grown to 270 stores across 18 states.

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The Pacsun brand is dedicated to delivering an exclusive collection of the most relevant brands and styles to a community of inspired youth. Today the company operates a network of more than 400 stores across the US. Three of their most notable new stores are Fashion Island in Newport Beach, California, Downtown LA in Los Angeles, California and Soho, New York City. The LA store has 5,000sq ft of space, building on Downtown LA’s ongoing renaissance while the New York boutique features 8,000sq ft of space and is located in the historic New York City neighbourhood of Soho, a centre of fashion and culture.

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While its expansion across the US is still very much happening, the San Francisco-based brand Allbirds plans to slow the pace of its store openings and continue expanding its wholesale business. Other measures being undertaken as part of a transformation plan include shifting all footwear production to Vietnam by year’s end. The strategy is projected to re-accelerate the brand’s sales and profitability growth in 2024 after a transitional FY23. A key element of Allbirds’ transformation plan call for a focus on slowing US store growth to three this year from 19 in 2022; measuring expansion to key wholesale partners in REI, Dick’s, Nordstrom and Scheels.

The DTC eyewear brand Warby Parker on track to open 40 stores in 2023 as it finds continued value in brick and mortar. In the second quarter alone it opened 13 stores at a time when some digitally native companies are pulling back on physical retail. Co-Founder and Co-CEO Dave Gilboa has said that the company believes it can open at least 900 stores in the US over the long term. Warby Parker’s retail channel saw revenue increase of 21.5 per cent year over year in Q2, largely driven by the addition of 39 net new stores since the second quarter of 2022, while e-commerce revenue fell 5.3 per cent.

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Amongst its global and US expansion, New Balance also launched a new unit of its new store concept that is built to put people, not products, at the centre of the consumer experience. The first concept store like this was opened in Guangzhou, China in December 2022 and this second store (more have since opened) was opened in Boston earlier this year. Designed around central seating gestures, the store aims to encourage customers to convene, draw inspiration from each other and find their authentic style. The concept will include an edited assortment of merchandise as well as visual storytelling to accompany select products, highlighting the makers and origins behind them, illuminating New Balance at the intersection of sport and culture.

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Following outposts in key cities such as New York City, Los Angeles, Atlanta, Las Vegas and Miami, AMIRI has set up shop in Chicago.

Spanning 7,500sq ft, the flagship houses the men’s and women’s ready-to-wear collections alongside kidswear, footwear and accessories. The store also opened with an exclusive capsule collection inspired by the red and black colours of Chicago’s iconic sport team. It features t-shirts, sweatshirts, hoodies, tracksuit pant, MX1 jeans and caps and includes a limited-edition Chicago bone logo. The brand now has six sites across the US and nine in total as it continues its expansion, predominantly in the US.

Overall, the number of international retailers looking to expand in the US is growing at a fast pace. For example, Etam, the century-old French lingerie retailer recently made its US store debut at Simon’s Dadeland Mall in Miami. The storied – and affordable – brand has more than 850 global stores. It now has its eyes set on US expansion, with plans to open two more US locations by yearend. Meanwhile the Spanish fast-fashion brand Mango, which has about 10 US stores, is on a mission to open 40 stores in the country by the end of 2024, after which it will reveal the second phase of its US expansion. While most of its expansion has been in the Northeast, the company plans to further expand into the Southern US, including Texas.