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Women shopping for clothes Women shopping for clothes

Retail Resilience: Consumers at the Helm

James Bohnaker • 9/27/2023

Since the success of retail real estate relies on consumer foot traffic and sales, unemployment and growing e-commerce sales spawning from the pandemic posed a true test for retail performance—with an estimated 184,000 establishments in the retail, leisure and hospitality sectors closing permanently in 2020, a 30% increase from the average attrition rate during 2012-2019.1

In an interesting plot twist, however, these massive challenges for troubled retailers ultimately led to a more innovative and acute focus on the customer. As a result, armed with abundant cash savings and a renewed sense of enthusiasm for shopping experiences, consumer activity rebounded strongly, and real retail sales are a significant 18% higher than in January 2019. In the second quarter of 2023, vacancy rates at shopping centers moved to the lowest level since at least 2007, when our dataset begins. The narrative has suddenly shifted from “retail apocalypse” to “retail resilience.”

Key Takeaways: 

  • The health of the retail CRE market depends on consumers’ ability to spend and their desire to do so in retail stores. Both have seen a resurgence in the past couple years, which has helped to drive shopping center vacancy rates to historic lows.  
  • Economic conditions will necessitate a cooling in spending, with temporary and modest impacts on retail CRE—but structural forces, including the levelling out of e-commerce, support a healthy retail sector outlook.  
  • The role of retail stores and shopping centers is adapting to meet consumer demand for a frictionless experience, whether they’re shopping online or in-person.  
  • Retail CRE has been tested over the last several years, and lessons learned through those challenges have positioned the sector for a growth period. It is expected to endure despite macroeconomic uncertainty.  

This is part one of a three-part series that explores the remarkable resilience of the retail sector and sheds light on its continued growth in an ever-evolving landscape. In this article, we look at what to expect from consumer spending and how these trends will influence CRE decision-making in the longer term.   

Consumer Outlook: Bend but don’t Break 

Fueled by government stimulus and the pandemic, consumer spending has experienced rapid growth over the past few years, with many households amassing excess savings. That cash reserve has now been spent—down from $2.1 trillion to $190 billion in June—and is on pace to be fully depleted in the third quarter, according to economists at the Federal Reserve Bank of San Francisco.2 With excess savings largely depleted, consumers will become reliant on job and income growth to maintain spending habits. 

Fate of Consumer Spending Hinges on the Labor Market 
The combination of hiring and wage growth, although both have slowed from cycle highs, is keeping wage and salary income growing at a healthy rate of 4.8% year-over-year as of July, in line with the average over 2017-2019. Since inflation has eased, real labor income is rising once again. Recent strength in the labor market aside, perceptions matter too. In August, more consumers described jobs as “plentiful” than “hard to get,” but the percentage difference between the two was the smallest it’s been since February 2021 and worse than at any point in 2019. 

A softer job market will temporarily curtail spending, but households are adapting by focusing on value. Centers with tenants, such as discount stores, grocery stores and superstores may lure more shoppers looking for their dollars to go further. Value-oriented retailers are penciling aggressive expansion plans, so overall tenant demand will likely remain elevated. While our house view anticipates a mild recession in 2024, retail vacancy rates are expected to increase no more than 1 percentage point—near the 2019 rate of 6.3%, which was a solid year for retail.   

Dwindling Stimulus Impacts Consumer Finances

Although the retail sector is expected to be resilient, there is a downside risk stemming from the credit cycle that is underway. Household credit card debt surpassed the $1 trillion mark for the first time during the second quarter of 2023, and the rate of growth was the fastest since 2001. The ability to pay off debt will be challenged in a high interest rate environment, and credit card delinquency rates are now higher than at any time since 2012.4 An increase in delinquent auto loans and the resumption in student loan payments for more than 26 million borrowers this fall could add another layer of stress. Fortunately, debt obligations relative to income are on par with pre-pandemic levels and still 25% below the 2007 level. The relationship between consumer debt and income will be the key metric to watch in the coming months.


Shopping Trends: Aiming at a Moving Target 

The pandemic experience accentuated the divide between retail stores that were keenly attuned to customer needs and those that were not. The rapid shift toward online shopping in 2020 made this abundantly clear, as retailers who had streamlined their online user experience outperformed the broader market. But that is only one piece of the puzzle today. In addition to the traditional mantra of “value and convenience,” customers are increasingly seeking out the flexibility to research products and brands, place orders, and receive personalized customer service, meaning that supply chains—including retail stores—must become more sophisticated to accommodate these complexities.  

Consumers Demand Flexibility from Retailers 
More than three-quarters of U.S. consumers shop both online and in-person in any given two-week period, according to a July report from Coresight Research—and that proportion is even higher for consumers under age 45 and for those earning more than $100,000 annually. For discretionary categories specifically, only 7.7% of consumers exclusively make purchases online, implying that the retail store is an integral part of the consumer experience. The research also supports the idea that retail stores and shopping centers are better at driving larger basket sizes than online marketplaces.

E-commerce is not the retail killer it once was perceived, even though online shopping now accounts for a larger share of spend. Online retail sales represent 22% of total sales (excluding gasoline stations and automobiles), but penetration gains in the last two years have risen only 0.4%, suggesting a reversion to the pre-pandemic trendline is imminent. Trends in the retail CRE space also support the renewed value of physical stores. We have seen numerous digitally native brands—such as Savage X Fenty, Skims, Wayfair, Third Love and Naadam—open their first brick-and-mortar locations and seek out partnerships with established retailers. The online-only format worked well during the pandemic, but some digitally exclusive concepts are now being challenged to reach new customers and grow their profitability. In many cases, e-commerce and physical retail are complements rather than substitutes, and this realization is breathing new life into retail stores that live up to customer expectations.


Consumers Value Experiences over Goods

Shoppers are craving consumer services and other experiences and seeking services they can only get with an in-person visit, such as a salon treatment, visit to the tailor or an intense gym workout. Socialization has also become an integral part of the consumer palette. According to Cushman & Wakefield research, competitive socializing concepts have grown 386% since the beginning of 2021. The retail tenant mix has moved in this direction as well. In 2013, consumer services tenants accounted for about 44% of all retail leasing nationally, but from 2020-2022, that figure has been close to 50%.6 Food services, fitness centers and education/health providers have seen particularly large increases. Although these categories could be viewed as discretionary—and therefore prone to swings in the economy and consumer preferences—they all create a unique purpose for potential shoppers to visit retail centers.



Consumer Demographics Influence Retailer Performance
Retailers typically like to follow the rooftops, and migration tends to be correlated with strong demand for retail CRE. Since 2020, the general trend has been an acceleration out of coastal gateway cities into secondary markets, primarily those in Sun Belt regions. Even within markets, households are moving farther away from the urban core to suburbs and even rural areas. The five markets with the largest increases in retail occupancy rates over the last two years ranked within the top 10 markets for net migration in 2022—Phoenix, Charlotte, San Antonio, Dallas-Fort Worth and Austin. While we should be cautious not to overstate some of these trends—data shows that some of the pandemic-driven relocations have slowed—retailers need to be nimble and open to new markets and new concepts for a consumer environment that is sure to evolve.



Retail is Battle-Tested

The consumer landscape is constantly changing, and its evolution has been in hyperdrive over the last few years. Retail CRE has been battle-tested and is better equipped for the next curveball than it has been in recent memory. Shopping center vacancy rates are at an all-time low, and even segments of the beleaguered mall space are signaling brighter days ahead. Retailers are embracing data and technology to make smarter decisions and better engage with customers. While occupiers and investors should always be cognizant of cyclical shifts in consumer health, a strategic mindset—with built-in flexibility—will pay dividends in the longer term. Shopping preferences and economic cycles will always be moving targets, but the U.S. consumer is not going anywhere.



1 U.S. Bureau of Labor Statistics Business Employment Dynamics
3 Conference Board Consumer Confidence Index
4 Federal Reserve Board of Governors 
5 Coresight Research 
6 CoStar

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Barrie-Scardina-Northeast Regional President
Barrie Scardina

President of Americas Retail Services, Agency Leasing & Alliances
New York, United States

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Alanna Loeffler

Managing Director of Business Strategy
San Francisco, United States

+1 (516) 6583832

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Jim Kierski New York Retail
Jim Kierski

Head of Retail Consulting, Americas
St. Louis, United States

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