When life hands you lemons, make lemonade. For those of us involved in the retail real estate sector, that second part should probably be changed to: open a lemonade stand! The well-known phrase echoes the importance of resilience and adaptability in the business world because more often it's not the strongest who survive, but the ones who are the most responsive to change who can tread the waters.
The brick-and-mortar retail model that has worked for years is continuing to evolve and there's a strong sense of caution in the air. Lenders are willing, but only if you're extra-qualified. Gone are the days when companies were growing at a rapid pace.
For example, a company like Quick Chek, which previously might look to open 40 stores in a year, is now being far more selective and opening only eight in prime locations. Not because they can't open more, but because they see the value in "less is more" – the quality over quantity mindset. Retailers who are doing well and expanding are ones such as Dollar General, Walmart, Super Target, and Walgreen's, who have realized that the consumer mindset has shifted with value now being of prime importance to them.
Of course, the most dramatic evolution in the retail realm has been the more recent advent of e-commerce. The statistics show that total e-commerce sales for 2012 were estimated at $225.5 billion, an increase of 15.8 percent (±1.1 percent) from 2011, according to the U.S. Census Bureau. Total retail sales in 2012 increased 5.0 percent (±0.7 percent) from 2011. In 2012, e-commerce sales accounted for 5.2 percent of total sales, a rise from 4.7 percent of total sales in 2011. I anticipate online sales will continue to grow at a steady pace by as much as 20 to 30 percent during the next five years.
Retailers need to embrace the newer ways of reaching out to consumers and finding out how to channel the power of the Internet to create additional opportunities for their businesses. The success of online grocery shopping points out the desire for convenience and savings, and affords retailers with an opportunity to capture more dollars. Consumers often factor in the additional purchase power offered from savings in gas and their time, ultimately buying more.
Retailers are incorporating this consumer-driven avenue into their business models. We're seeing them sign up to work with Amazon.com or other online sellers to offer their goods and services. They're also implementing significant changes to their own websites to make them more robust and user-friendly in an effort to connect with consumers. Think of it as adding strawberries to the lemonade to provide something new on the menu.
Those who were hesitant to jump onto the bandwidth bandwagon are now forced to play catch-up. Advances in mobile technology will only offer new opportunities to attract the audience and the retailers who can adapt to this change will be the ones who will be able to withstand when the going gets rough.
The retail waters are also being tested by a new group of entrepreneurs thanks, in part, to economic conditions. I have noticed that many "displaced" executives from a variety of industries are now looking to franchise opportunities as a second career. These talented performers are choosing to work for themselves and are savvy enough to see the advantages of the franchise relationship and how to bring their own expertise to the table. It's a great combination that adds brain power, business acumen and drive to the mix.
It's also a strategic bet because franchise businesses will continue to grow at a slightly faster rate than other businesses in terms of job creation, new business formation, economic output and gross domestic product contribution this year, according to a recent forecast from the International Franchise Association. The number of franchise establishments in the United States will increase by 1.3 percent in 2013 from 747,359 to 757,438, an increase of 10,079.
Here in the tri-state region, I'm seeing long-term property owners who have weathered many storms in the real estate cycle now examining their portfolios and looking to divest. It seems many have simply seen enough, "been there, done that," and would rather now look at their money than for it. This places product that hasn't been available for years on the market. It also creates pockets of opportunities for newcomers who want to build their empires and learn how to formulate their own recipe for lemonade.
— Richard P. Rizzuto is Vice President | Northeast Region for TRANSWESTERN. His responsibilities include building, then growing the firm's tri-state retail practice; representing buyers, sellers, lessees and landlords. He is also a member of the International Council of Shopping Centers, NAIOP, New Jersey Business Association, and the Advertising Club of New York and New Jersey, as well as an active CCIM candidate, and a fully licensed Broker-Salesperson.