Mall giant David Simon is pointing to high-end suburbs as the hot spot in post-pandemic retailing, but the future could be more complicated for retail at large — caught somewhere between geography and philosophy and looking for the right balance.
Simon Property Group has a vested interest in the suburbs, home to so many of its A-rated malls, and is positioned to pick up business as the economy bounces back. And designer brands are looking beyond the mega-urban flagships that floundered during lockdowns and are courting their suburban fans closer to home.
But while the best malls will no doubt remain in the mix, many retailers are moving toward something else. And they’re starting with a roots-up rethinking of the store.
Everybody is evolving — just not necessarily in the same ways.
“The high-quality suburbs are going to be where the action is in the future,” Simon, chairman, chief executive officer and president of the real estate company, told analysts last week. “And all of the urbanization two, three, four years ago, the question was, ‘Why are the suburbs going to exist?’ ‘Everybody is going to live in an urban environment.’ Yada, yada, yada. I’m telling you the suburbs are going to be hot. And our quality real estate is going to be where the action is for those well located suburban centers of commerce. And that’s going to be the big change coming out of the pandemic.”
COVID-19 has certainly caused many consumers to pack their bags and move to the ‘burbs, just as many others have hunkered down.
A U-Haul study of 2020 migration trends showed do-it-yourself movers leaving urban centers. In the three months after a national emergency was officially declared in March, the 30 most populated U.S. cities all saw more U-Haul trucks leaving than arriving, led by New York City and the San Francisco Bay Area.
The top destinations for people leaving New York included Bridgeport and New Haven, Conn., and Poughkeepsie, N.Y., while those exiting the Bay Area were headed for the Sacramento/Roseville corridor, San Diego and Stockton.
Independent analyses of change of address information from the U.S. Postal Service has shown similar trends.
“We definitely have seen strong recovery in the wealthy suburban markets,” said Robert Burke, chairman and CEO of Robert Burke Associates. “This has been something that was accelerated with the pandemic; many people are shopping locally. The [Simon-owned] Short Hills mall, just outside of New York City, has been very busy and very productive and much of that is because many of the people who would go into Manhattan for their shopping weekend are staying local.
“Even pre-pandemic, there was a customer who didn’t want to go into a big flagship necessarily, they wanted the intimacy of a local store,” Burke said.
That can work for brands, too.
“A few suburban stores can rival, when they’re put together, an international flagship,” Burke said. “The right ones, in the right locations can do very strong business. There’s going to be some lasting effect of the shopping patterns of the pandemic, where people feel comfortable being local.
“Brands that have not been interested in certain markets are now, certainly, and are looking at them very closely,” said Burke, noting more companies have been seeking his counsel on smaller markets over the past six months.
But winning in the suburbs is about more than planting a flag and Burke, as well as other retail and real estate experts contacted by WWD, emphasized not so much place as purpose — how stores are used and what role they will play as retail reawakens.
Burke said the companies that are succeeding now “have done a good job of clienteling their customer and treating all their customers almost like VIPs when they come in and retaining the customer.”
“The thought process oftentimes is all about the footfall and the metric about how many people walk by or walk into the stores. Now it’s really about the customer and retaining the customer and managing a strong customer base and that’s being done in the suburbs really well,” he said. “The pandemic for many brands made them better retailers and better in their customer service and their one-on-one marketing.”
There are also questions about how permanent the pandemic changes will be.
“We clearly all saw a big migration from some urban centers to more suburban places — more space, more green,” said consultant Sonia Lapinsky, a managing director in AlixPartners’ retail practice. “It seems to have settled out somehow, but who knows? Are people going to regret it?”
Wherever people are, once the pandemic eases, they’re expected to be ready to shop as long as their own personal economics allow it.
“There’s going to be all this pent-up demand to get out,” Lapinsky said. “Stores have to change what they look like. We have changed our behavior, we’re all online and connected and we expect the stores to be an extension of that. The affluent mall is going to have to give them a whole lot more, a mix of retail and service — it better feel high-end and experiential. If it’s a big box or a strip mall, you’re just looking for pure convenience.”
Lapinsky said retailers are going to have to know what they “stand for.”
“There’s service, accessibility, there’s product, there’s experience,” she said. “You don’t have to be good at everything, but you need to figure out what matters to your customer most.”
Changing retail could be easier said than done.
Tracy Hadden Loh, a fellow at the Brookings Institute and real estate expert, argued high-density urban markets are actually better suited to new kinds of inventory-light retailing and that the future of retail is going to be more urban feeling, even in the suburbs.
“Business models are changing much more rapidly than urban form can change, than you can change a mall or a storefront in how it’s designed,” Loh said. “So there’s a huge mismatch between the kinds of spaces retailers need for their rapidly changing business models and the spaces that are available.”
Loh noted that Simon is pursing “a vertical integration strategy” investing in some tenants, like J.C. Penney, and doubling down on the types of malls it specializes in with the acquisition of longtime competitor Taubman Centers.
“There’s a big enough margin in some of these things that in the near term, you can absolutely make money doing that,” she said.
But for the industry overall, the future lies elsewhere.
“The heat is going to be in whatever locations offer a rich retail experience that feels unique, that feels authentic, that is intergenerational, that’s accessible and welcoming and easy and appealing to children, working-age women and senior citizens, who often have the most disposable income,” she said. “Those are the places that have high-quality communal spaces, great food options, that have shopping experiences that are brick and click. You can create that in a suburban location, but also a lot of the elements to create that kind of experience are more naturally inherent to more urban locations. The suburban locations that do well will be the ones that kind of create that urban feel even in the suburbs.”
Alan Shor, cofounder and president of The Retail Connection, agreed. “It’s less geography and more about the retailers that can evolve and transform themselves into this new phase of retail, which then spills over to retail real estate. The role of the store will remain central to the shopping experience, but that’s the key, the experience. The customers want more today by way of experience.
“We are still a social country where people want to talk to people, they want to consult, they want that social interaction,” Shor said. “The retailer who survives today or the retail shopping center who survives today has to provide that connectivity, has to provide that sense of community. That’s where retailers will either succeed or fail.”
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