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Strip Down

As online shopping takes over, what happens to bricks-and-mortar retail?

Strip Down
Along Midlothian Turnpike near the old Cloverleaf Mall site, Chippenham Square has struggled to keep tenants. This spring, however, an international grocery store opened at the shopping center.
By Rich Griset

The shops are empty now.

The windows are dark, and the only discernable movement comes from a winking fluorescent light outside a former shoe store. Cracks in the blacktop spread out in cobweb fashion, as though some giant spider with a green thumb has recently been here. Shopping bags dance in the wind like urban tumbleweeds.

It’s a scene that plays out regularly across suburban America, as it has for at least the last 50 years. Shopping centers come and go with regularity, all part of the creative destruction that is American capitalism. But what if the abandoned strip isn’t simply a reflection of retail winds shifting, once again, to wherever the newest subdivisions are being built? What if it’s something else, something far more viral and irreversible?

As more people’s buying patterns shift to the Web, experts are warning that the scene detailed above may very well represent where so-called bricks-and-mortar retail is headed.

Retail is in the midst of a transformation, and the future of malls and shopping centers is up in the air. Shoppers are no longer limited by the inventory of a single store or stymied by the expertise of a single salesperson. They can now peruse and evaluate literally millions of products with the swipe of a smartphone and have a product delivered straight to their front doors.

Recent developments, like Amazon’s 1-Click ordering, have made online shopping even easier. Millennials – that highly sought-after but hard-to-please demographic born between the early 1980s and the late 1990s – are 2.5 times more likely to shop online than baby boomers.

E-commerce is estimated to make up 11 percent of total retail sales in America by 2018, and the ease of the Internet may soon eclipse the desire to try out items firsthand. As boomers age and millennials replace them as the largest consumer group, we’re looking at a seismic shift in how retail operates.

While local Realtors and government officials tout the current health of retail real estate, there’s a piece of information that will become very important in the coming years: The Richmond metro area has much more retail square-footage per capita than the national average. Because of this, some experts say the Richmond area may be headed for a great fall.

It’s a bright Wednesday morning, and the employees at House of Hair on Hull Street Road in Chesterfield are getting ready for the day.

A barber in red-and-black Nikes sweeps a pile of hair on the floor. Another man in a red hoodie is sprawled out across a few chairs in the waiting area. Above him sits a portrait of the Obamas canoodling; “The 700 Club” plays on a flat-screen TV on the back wall.

The decline of a shopping center is something that owner Marlo Harris is witnessing firsthand from his barber’s chair in the 360 West Shopping Center. Harris moved his shop here from Midlothian Turnpike three years ago and says that while business has been good for him, he’s seen a number of retailers close around him.

A couple of doors down is a former Radio Shack with an eviction notice taped to the door; the rest of the shopping center is dotted with the empty husks of a sporting goods store, trophy shop, rent-to-own business and other casualties. The place has a hopeless air to it, and the remaining businesses are primarily eateries, ethnic groceries, storefront churches and barbershops like Harris’.

It’s a shame that this once-bustling center of commerce is on the decline. Situated at the intersection of Turner and Hull Street roads, the shopping development once had the perfect location: It’s positioned on the corner of two well-traveled corridors, and it’s on the right side of the road for drivers returning home from work – the time when they’re more likely to shop. But as the county’s population moved westward, so did its customers.

Marlo Harris
Marlo Harris, owner of the House of Hair barber shop at the 360 West Shopping Center, has seen tenants come and go despite a prime location on a busy section of Hull Street Road in Chesterfield.
When asked about his success, Harris has a practical yet prescient explanation: “You can’t buy a haircut online,” he responds in a gravelly voice. Half-occupied and catering mainly to service and food establishments, 360 West may be indicative of the future of bricks-and-mortar retail. Every 30 years or so, the retail landscape changes, and many industry watchers see the rise of online shopping as the next great shift.

A very brief overview of retail in the United States:

• Approximately 150 years ago, the growth of big cities and the rise of railroads led to the creation of the modern department store.

• A few decades later, the mass production of the automobile led to suburban growth and the creation of shopping centers and malls that would eventually kill off many city-based department stores (think Thalhimers and Miller & Rhoads).

• Discount chains like Wal-Mart, Kmart and Target took off in the ’60s and ’70s, followed by big-box “category killers” like The Home Depot and Circuit City. The latter stores are so-named because their size and buying power in one category of merchandise make it nearly impossible for similar retailers to compete.

• Though they existed previously, the 1980s saw the rise of “power strips” or “power centers”; open-air strip malls anchored by a couple of big-box stores or grocery chains.

• The mid ’90s saw the first widespread usage of online shopping during the dot-com boom, only for many of those companies to go under when the bubble burst (we’re looking at you, pets.com). At the time, companies could cause their stock price to increase simply by adding an “e-” prefix or a “.com” suffix to the company name.

Which brings us to today. Consumers are shopping online more than ever before, and retail websites are stronger and smarter than those of dot-coms past. Shoppers can now get whatever they want, whenever they want, and the Internet has made them better informed about their purchases. As if this weren’t enough, Amazon has plans to make even quicker deliveries in the future by using drones.

“The rapid adoption of smartphone technology has given consumers the ability to browse and purchase from online retailers while on the go,” says Doug Stephens, founder of the Toronto-based advisory firm Retail Prophet, via email. “More retailers are actually engaging in e-commerce and getting much better in their presentation and fulfillment to online shoppers. For many, this is a matter of survival, as they watch rivals like Amazon posting enormous, double-digit year-on-year revenue gains at their expense.”

Add to this the fact that millennials are more trusting and comfortable with online shopping, and Stephens says we’re headed for a major shift in physical retail.

“Regional malls are either closing or moving up-market,” he says. “Power centers are vacating, and those strip malls that are able to survive are becoming relegated to small local merchants and service providers. … The midtier regional mall and power centers are going to become things of the past.”

It’s something that Shelley E. Kohan is working to combat.

“We have seen traffic decline anywhere from 8 to 11 percent over the past year for the bricks-and-mortar environment,” says Kohan, vice president of retail consulting for RetailNext. Her company helps bricks-and-mortar retailers adapt to this shift in consumer behavior.

“Our shopper has changed completely from even a year ago,” she says. “Today’s shopper has less time, less money, less patience and is more empowered, more researched, and when they walk into that brick-and-mortar environment, they have an arsenal of information. It’s a more em-powered shopper today than we’ve ever seen.”

For bricks-and-mortar stores, one solution is “omnichannel” marketing, which basically entails converging aspects of a company’s physical stores, online presence, social media, apps, catalogs and other sales methods to reach consumers.

“Over 70 percent of customers are using some kind of device before they even go into the store, so that becomes very relevant for retailers, no matter what format they’re in,” says Kohan, who helped open the Saks Fifth Avenue at Stony Point Fashion Park. “You’re seeing a lot of these new formats in the stores, because brick-and-mortars are really figuring out that they have to become more profitable, more relevant to that customer experience.”

Azalea Mall
The former Azalea Mall, off Dumbarton and Brook roads in Henrico, is one of the more infamous local dead mall sites. The mall was demolished in 1999, and the site has remained dormant ever since.
Meanwhile, big-box stores have struggled since the recession and have concocted a solution that defies their ethos: Think small. In recent years, Target, Lowe’s and even Wal-Mart have started opening hundreds of smaller stores throughout the country and closing dozens of underperforming large ones.

Kohan sees this as a good thing and says that retailers of the future will have to be flexible.

“It can be different by market,” Kohan says. “In some markets, a smaller footprint is absolutely the way to approach the market, while in other markets, huge supercenters are highly successful.

“Ninety percent of retail sales still come from brick-and-mortar, so it’s not all gloom and doom,” she says. “Brick-and-mortar is not dead by any stretch of the imagination.”
Stephens seems to agree about moving to stores with smaller footprints.

“The big-box retail model is largely outmoded,” Stephens says. “In a pre-Internet world, big-box stores were regarded as the apex of one-stop convenience. However, when sites like Etsy have 10 times the number of suppliers as Wal-Mart, and Amazon literally carries millions upon millions of products, big-box stores look like relics of a different era.”

He adds that the big-box format is out of step with the fact that, for the first time, the population is growing inside urban cores at a faster rate than in the suburbs.

“Young people in particular are choosing to move to inner city America,” Stephens says. “Couple this with a steady decline in the number of miles Americans are driving each year, and it all adds up to fewer big-box stores and more small, urban formats.”

Stephens brings up an important question when looking at the future of retail: What will happen as millennials mature?

This demographic prefers shopping at smaller boutique stores and online more than older generations and has eschewed purchasing in the same fashion as their parents. Much like those who lived through the Great Depression were thriftier, those who came of age during the recent recession aren’t as obsessed with acquiring possessions. Furthermore, they prefer living in the city to living in the suburbs, but it is unclear if this will hold as they settle down and have children.

Malls are certainly feeling this shift; the place where millennials’ parents hung out when they were younger no longer has the same cachet it once did. Noting the rise of online shopping, a number of news articles have predicted the end of shopping malls as we currently know them.

“There’s that notion out there that the mall is dead, but 80 percent of them are healthy,” Kohan says. “The malls that are in trouble – and there will be, from the research, between 10 and 15 percent of malls that will probably close in the next year or so – those malls are the malls that haven’t updated.”

“Retailers have to get it right,” she says. “There’s less room for error than there ever has been.”

But what does this mean for us?

Regency Square
Regency Square in Henrico celebrates its 40-year anniversary with a party of sorts in mid-October. Two local real estate companies recently acquired the struggling mall and plan to redevelop the property.
If you talk to local real estate agents and county officials, the future of the area’s retail landscape is an overwhelmingly positive one. For the third quarter of 2015, vacancies in the retail market have dropped to 5.7 percent from 6.1 in late 2014. Grocery chains Wegmans and Aldi will soon open stores in the area. This is evidence, local experts say, that whatever happens with online shopping, we’re safe in the immediate future.

“Right now we’re very healthy from a retail standpoint, and I think there’s very little empty retail space in Henrico County,” says R. Joseph Emerson, director of Henrico County’s planning department. “If you ride up and down Broad Street, you’ll see the majority is occupied. Obviously Regency [Square] has some empty space, Virginia Center Commons I think has some empty space, but our retail in general is very healthy.”

Steven Haasch, Chesterfield’s planning manager, has a similar summation.

“I haven’t seen any negative impact to the county as far as … any kind of abandoning of stores because of online sales,” Haasch says. “I think there will always be a need for bricks-and-mortar. I don’t know if it will be as great a need as it maybe was in the ’70s or ’80s, but I always think there will be a need for retail, and the county is only going to continue to grow in population.”

John Jay Schwartz, managing director of national real estate brokerage Have Site Will Travel, agrees.

“They have no problems leasing nor getting top-dollar rents,” says Schwartz of local shopping centers. He notes that some shopping centers may have to adjust rents and turn to alternative uses to fill their space: “For instance, Broad Street where Scott’s Addition is becoming high-end retail. All in all, I think good areas are still getting good retail. The big-box success areas are Short Pump and Westchester and Chesterfield mall and 360. On [the] Chesterfield side, Hull Street, they seem to be doing a good job. There’s no lack of retailers that want to be in those areas, and they’re growing.”

An old real estate adage states that “retail follows rooftops,” and in this, Schwartz is also confident.

“There’s a lot of housing growth in every sector of the economy,” he says. “Every region, every area. There’s not an area of the region that has slow housing growth. There’s more starts, more commitments, more approvals for new homes than ever in literally every county and every sector.”

Brian Glass, Colliers International’s senior vice president of retail brokerage, agrees.

“Look at how many grocers, supermarket chains are coming to Richmond in the [next] two years,” he says. “It’s like an explosion. They all have their market research, so they must have a market that they want to attack. … We’re growing.”

But the current health may mask a problem lurking in the background.

According to information from Colliers International, last year, the Richmond Metropolitan Statistical Area had 79 million square feet of retail for 1.3 million people. Compared against the national average and to other similarly sized metro regions (Charlotte, North Carolina, has 2.3 million people and 63 million square feet of retail; Nashville, Tennessee, has 1.7 million people and 56 million square feet of retail), some experts say we are over-retailed, and that the shift to online may hurt our area more than others.

“At 79 million square feet, Richmond is indexing way above the average of 46 square feet of retail per capita in the U.S.,” Stephens says. “Therefore assuming retail sales continue to migrate online at the current growth factor of 10-12 percent per annum, it seems logical that at some point there could be a significant collapse in that market.”

But Henrico’s Emerson says he hasn’t seen signs of this: “I have heard comments that we’re over-retailed, but our retailers seem to do very well.”

According to Schwartz, fears about being over-retailed or that online shopping will hurt metro Richmond are overblown.

“I can’t speak to 20 years down the road; I’m not an economist or a futurist, but at the end of the day, sticks and bricks still work,” Schwartz says. “I think so many people want to go into a store and touch it, feel it.”

Glass agrees:

“At one point in time, the basic philosophy was that the Internet was just going to kill bricks-and-mortar retailers, and that hasn’t happened,” Glass says. “What’s happened is that bricks-and-mortar retailers have figured out how to sell on the Internet.”

Still, he warns of changes on the horizon.

“The smaller, what used to be regional malls, the around-350-400-thousand-square-foot malls, they’re probably going to be pretty much extinct unless someone can find a different use for it,” he says.

Different usage may be the key to the survival of shopping centers in the next decade. As the need for retail decreases, services, restaurants and grocery stores may keep these centers afloat.

“Strip centers nowadays … they’re a lot more personal services,” says Chesterfield’s Haasch. “A typical strip center has a grocery store as an anchor and then it will be some in-line shops alongside of it, and those in-line shops are usually restaurants or nail salons or hair-cutting places or dry cleaners. You’re always going to need those stores.”

Kirk Turner, Chesterfield’s planning director, says he’s heard that our area is over-retailed, and that there is a shift toward retail services.

“What we’re seeing in terms of commercial developments and commercial activity is more restaurants than it is retail, so that may be a reflection of the changing buying habits of our citizens,” he says.

At the request of Chesterfield’s Planning Department, the Richmond Regional Planning District Commission is studying ways to revitalize the 5-mile stretch of Midlothian Turnpike from Huguenot Road to Chippenham Parkway. Near the end of the year, the commission will submit its study and recommendations to the planning department on how to improve the area.

Anne Darby, senior planner with the commission, says that retail has indeed followed rooftops to the western side of the county, but there are ways to improve the “dead pockets” along the corridor, such as retrofitting shopping centers to become more pedestrian friendly. She also recommends alternative uses for struggling shopping centers, referencing The Home Depot-anchored Chesterfield Marketplace near Chesterfield Towne Center.

“I think destination entertainment is actually a really good [use],” Darby says, citing a struggling shopping center off western Midlothian Turnpike as an example: Despite being in a busy corridor near Chesterfield Towne Center, the shopping center had “three abandoned big-box stores, one of which is now an indoor trampoline center called Sky Zone, and then the other one is Thunderbolt Indoor Karting. Those are great uses.”

Older shopping centers can also attract the unexpected. Bryant & Stratton College, for example, has found a home in a struggling shopping center off of Hull Street Road, and the growing Latino population in Chesterfield has created market opportunities in older shopping centers along eastern Hull Street Road, Midlothian Turnpike and Jeff Davis Highway, where immigrant shop owners have moved in and taken over formerly vacant storefronts.

Whatever the future of retail, one thing is certain: The retailers that survive will have to continuously out-fox the competition, and the savvy shopper will profit.

© 2017 Chesterfield Observer