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5 Reasons why neighborhood retail is here to stay

minimalist illustration of multicolored buildings on a street

When someone says the words ‘Main Street’ it often conjures up a nostalgic, Disney-esque landscape of quaint storefronts and horse and carriage rides. In short, somewhere that no longer exists today.

But with the retail sector now poised for recovery from COVID-19, all signs are pointing to a major revival of traditional neighborhood retail – and it’s changing the face of the sector as we know it.

Return to the main street

It’s no secret that downtown retail hubs have seriously suffered because of the pandemic. With stay-at-home orders causing office blocks and commuter corridors to stand empty for months on end, downtown storefronts have been starved of their usual captive audience. 

For retailers desperate to ride out the pandemic, the course was clear; to follow their customers into the suburbs.

“For most brands, their retail strategy has, historically, been to hit the big cities first. But places in New York, like Times Square and Midtown, rely so much on commuters and tourists, that’s going to be an uphill battle.” Said Melissa Gonzalez of The Lionesque Group, speaking to Vogue Business.

It started with luxury stores such as Dior and Todd Snyder opening seasonal storefronts in affluent New Yorkers’ favorite getaway spot, the Hamptons. With so many of their clientele choosing to leave the city, it was common sense to bring their products out to leafy suburbs and smaller regional cities.

But this trend is by no means isolated to high-end designers. Everyone from Nike to Target has begun investing in localized store strategies that bring them closer to end consumers, rather than trying to entice them into far-flung shopping malls.

So, what’s making neighborhood retail such an appealing investment for brands?

Why neighborhood retail is here to stay after the pandemic

As the pandemic progressed, it became clear we were looking not only at a major health emergency but a fundamental rewiring of everything from consumer culture to work routines. This has made community-centered retail not just a response to pandemic restrictions, but the future of in-person shopping.

Let’s take a look at some of the trends that are driving this move towards neighborhood retail:

1. Consumers are (still) working from home

Even as restrictions are lifted and vaccination rates increase, it’s become clear that not everyone is keen to go back to business as usual. A recent survey of thousands of office-based workers found that the average worker wanted to spend at least half of their week working from home, a huge departure from the 5% during pre-pandemic years.

And with the likes of Facebook and Twitter giving workers the option to continue working remotely, it seems unlikely that we’re going to see a complete return to mass commuting into downtown areas. 

If consumers are spending more of their work and leisure time in residential areas, this means that giant flagship stores adjacent to business districts are unlikely to be such a sound investment. As consumer affinity for certain districts increases, one-size-fits-all retail experiences are going to feel less relevant. 

Foot Locker is one such retailer that’s recognizing the power of community-focused shopping spaces. Their Power Store format, first launched in 2019, is designed to empower local neighborhoods through a variety of initiatives. This includes hiring staff living within a five-mile radius of each store, collaborating with local artists, and stocking local brands. By giving each store its own unique flavor, Foot Locker is well-positioned to attract shoppers who are spending increased time in their local neighborhoods.  

2. Shopping malls are in an accelerated state of decline

The suburban shopping mall, once a linchpin of neighborhood retail, has been struggling to find relevance since consumers began turning to ecommerce to meet their needs. 

So-called ‘anchor tenants’, including Macy’s and Sears, have been closing locations en-masse long before the pandemic started. Sears has been dying a slow death since it filed for bankruptcy in 2018, while Macy’s has embarked on a three-plan to close one-fifth of its stores by 2023.

The big problem for shopping malls is their business models are literally built around these anchor tenants. Once they’re gone, it’s very difficult to find a viable replacement for such a massive footprint. Out of the 12,200 stores that closed in the United States last year, a third of them were department stores and other mall-based properties. 

For retailers who are scouting for new store locations, the shopping mall is no longer the reliable source of foot traffic it once was. As a result, they’ve turned their attention to the new frontier (as explained below).

3. Digitally native D2Cs are finding a home in brick and mortar

The likes of Glossier, Warby Parker, and Casper Sleep seemed to herald an entirely new way of doing retail when they first stepped onto the scene a handful of years ago. They demonstrated that in the age of ecommerce, brands don’t need extensive store networks or high-profile retail partnerships to resonate with consumers. 

Today, this so-called ‘first wave’ of D2Cs has matured into a collection of brands that have successfully built cult-like followings through social media and direct marketing. But they’ve also run into a major roadblock; that a digital-only presence means quickly running out of space to grow.

Even as more diverse consumer segments have migrated to ecommerce during the pandemic, digitally native brands have struggled to make themselves known to fresh audiences. With climbing acquisition costs and increased competition, D2Cs have done what was once unthinkable; taking the plunge into brick and mortar.

In a neat dovetail with consumers moving out to the suburbs, many D2Cs have opted for store locations in up-and-coming areas. This includes retail projects such as Seaport in Boston or hip neighborhoods like Bushwick in New York City – places that have not only weathered the pandemic relatively well due to the influx of remote workers but also boast a robust ecosystem of restaurants, fitness studios, and cultural offerings. 

D2C brands have long positioned themselves on the winning side of major transitions in retail. As the economy recovers, it’s safe to say that these newfound physical channels have been selected with a close eye on the future of how consumers work and play. 

So despite this shift in strategy, D2Cs are very much holding onto the foundation of their success; having a presence where there’s a captive audience.

4. Convenience is king

The above statement has long been used to refer to our collective addiction to the likes of Amazon and AliExpress. But far from killing off physical retail, the pandemic has actually given brick and mortar a significant competitive advantage over ecommerce. 

Faced with having to implement stringent social distancing guidelines and restrictions on store capacity, retailers began investing heavily in BOPIS (Buy Online, Pick-Up In-Store) and curbside pick-up strategies to attract consumers in the face of strong competition from online sellers. 

O2O (online-to-offline) strategies have given consumers an unprecedented amount of convenience and flexibility in their shopping journeys. Far more, in fact, than what pure ecommerce can offer on its own. 

For example, an order placed for curbside pickup can be ready in as little as an hour, beating conventional ecommerce delivery timeframes. Likewise, the convenience of in-store returns has proven to be a huge lure for consumers who are tired of waiting for weeks to obtain a refund. 

With consumer expectations for omnichannel experiences only set to grow, some brands have begun factoring the availability of these services into their expansion plans. 

Target, not exactly known for offering boutique shopping experiences, has made a noticeable pivot towards smaller stores in suburban locations in order to facilitate more convenient delivery and pick-up services:

“We’ll continue to elevate our popular same-day services and expand our ambitious small-format and remodel programs to create an even easier and more convenient experience that inspires our millions of guests to keep shopping Target in new and different ways.” Says Brian Cornell, Chairman and CEO of Target. 

In sum, pursuing localization strategies is helping physical retailers to compete much more effectively with their online counterparts. By providing more instantaneous instant gratification than ecommerce can offer independently, neighborhood retail initiatives are helping brands to strengthen their value propositions in this recovery period.

5. Consumers are hungry for experience-led retail

Consumers have had ever a year of interacting with stilted chat-bots and waiting for parcels to land on their doorstep, So, it’s not surprising that they’re ready and eager for fresh, innovative store encounters that emphasize memorable experiences just as much as products for sale.

In 2019, 90% of sales were taking place in retail stores, while at least 73% of consumers are using multiple channels to conduct their shopping experiences. So, it’s no longer enough just to create a positive environment to shop in; you also need to start bringing these channels together within a brick-and-mortar setting. 

It’s notable that even mall staples such as Sephora are transitioning away from large footprints into smaller storefronts that provide more interactive experiences. Their latest expansion plan reveals a noticeable pivot towards both ‘local’ destinations and more advanced omnichannel capabilities, including personalized product recommendations and Digital Beauty Guides which are emailed to customers automatically for future reference.

“Everything we do at Sephora is with our clients’ evolving needs in mind,” said Jeff Gaul, Senior Vice President of Real Estate and Store Development, Sephora. “In looking at where and how today’s beauty lover is shopping, there’s no doubt that there’s a trend toward more local shopping destinations. This year, clients can expect to see more Sephora stores not only in malls and high-traffic shopping centers but also closer to home. These locations are meant to complement our existing fleet and give clients a more personalized and customized experience.”

Is this a new era for retail?

It’s an old cliche, but it’s clear that size isn’t everything in a post-pandemic retail landscape. Retailers across product categories are beginning to see the benefits of smaller, more localized storefronts that can take on the personality and flavor of their surroundings. 

But COVID-19 aside, the rebirth of neighborhood retail also marks a longer-term shift in what consumers want from the in-store experience. The growth of omnichannel retail has increased expectations for more seamless, interactive shopping journeys that put the customer at the center – no matter what shopping channels they’re using.

So, does this mean that downtown shopping is on its way out? Given the iconic status of locations like Times Square, it seems unlikely that retailers are going to ditch major storefronts any time soon. However, this does appear to mark a major turning point in retailers’ expansion strategies. With consumers’ lives now more likely to revolve around specific districts and neighborhoods, localized retail experiences are far more likely to resonate.

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