How Retailers Determine the MSAs to Remain In & the Minimum Number of Stores to Have In Regional Covered Malls

Retailers use mainly foot traffic data, location intelligence, and revenue prediction models to determine the areas they need to remain in and the number of stores they need to have in an area. Whether the approach varies across urban, suburban, and rural areas could not be located in the public domain unfortunately. Lifestyle centers and power centers are the retail real estate formats that could be better alternatives to regional malls and super regional malls in the future.

Retailer Assessment of Physical Market Capacity for Real Estate

  • Articles about the planning and selection of retail sites or locations, and the websites and case studies of relevant solution providers, only indicate that retailers, in general, use a variety of data and tools to determine where to open and close stores and how many stores to open in an area. Information specific to metropolitan statistical areas (MSAs) and regional covered malls could not be located in the public domain.
  • An article published by location intelligence provider Skyhook, for example, shows that retailers are leveraging foot traffic analysis and location intelligence when determining high-potential store locations. According to this article, these tools help retailers identify areas that are popular among target shoppers and have heavy foot traffic.
  • An article published by Fast Company also shows that as far as retail location decisions are concerned, smart retailers are “turning to a combination of geographic information systems (GIS), big data, and artificial intelligence to discover new insights.”
  • Additionally, the website of the Directory of Major Malls (DMM) indicates that retail location planning professionals at retailers use shopping center data from third-party providers to inform their strategies. Real estate or retail location planning professionals at Brooks Brothers, Helzberg Diamonds, See’s Candies, Pacific Sunwear of California, Genesco, and The Children’s Place, for example, use shopping center data from the DMM in their analyses.
  • According to foot traffic data provider SafeGraph, retailers use foot traffic data in their trade area analyses. These analyses map “where customers live, work, and shop in relation to the location of a commercial site.” Carto, another location intelligence provider, also shares that some retailers enlist the help of a spatial data science provider in creating models that can predict the revenue of prospective stores.
  • Based on an article published by McKInsey & Company, some retailers use geospatial analytics to take the guesswork out of retail network optimization. Geospatial analytics is used to identify underpenetrated markets, rebalance the retail network in oversaturated markets, and fine tune customer touchpoints in underexploited markets. Most retailers, however, seem to rely only on instincts and high-level data when considering cross-channel effects in retail network optimization.
  • According to Esri, a GIS software provider, the site model development process, which determines the sales potential of store locations, is typically preceded by the following steps: customer research, urbanicity typing, trade area analysis, and key metrics analysis.
  • There does not seem to be any evidence in the public domain that approaches vary across urban, suburban, and rural areas. It is likely, however, that unlike retailers that operate nationwide, small-scale retailers or retailers in less urban areas do not have access to comprehensive data and advanced tools. As smaller retailers naturally have fewer resources than larger retailers, they may have to rely on less sophisticated tools and approaches.

Attractiveness of Other Retail Estate Formats as Alternatives to Malls

  • Lifestyle centers and power centers could be better alternatives to regional malls and super regional malls in the future. Several quantitative and qualitative pieces of information in the public domain indicate that these retail real estate formats (especially lifestyle centers) are more attractive and promising than regional malls and super regional malls.
  • For example, according to Jones Lang LaSalle, a professional services firm that leads in the real estate space, lifestyle centers outperformed regional malls and super regional malls in the second quarter of 2020 in terms of net absorption. In that quarter, lifestyle centers had a net absorption of 158,000 square feet, while regional malls and super regional malls had a net absorption of -1.3 million square feet and -2.5 million square feet, respectively.
  • Jones Lang LaSalle (JLL) defines net absorption as “the sum of square feet that became physically occupied, minus the sum of square feet that became physically vacant during a specific period.” A positive net absorption signifies that more space was occupied than vacated, while a negative net absorption signifies that more space was vacated than occupied.
  • JLL attributes the positive net absorption of lifestyle centers to the open-air nature of these shopping centers. According to JLL, shoppers prefer being outdoors especially now that there is a COVID-19 outbreak.
  • Power centers outperformed regional and super regional malls as well. While power centers had a negative net absorption in the second quarter of 2020, the net absorption value was only -494,281 square feet.
  • According to JLL, power centers were the retail real estate format that was least affected by the COVID-19 crisis. Power centers are mainly anchored by discount supercenters and big box tenants that provide products and services that are considered essential during this COVID-19 pandemic.
  • Neighborhood centers and strip centers do not seem to be doing well based on data JLL has released for the second quarter of 2020. Neighborhood centers had a net absorption of –6,012,028 square feet, while strip centers had a net absorption of -2,068,426 square feet. Unlike power centers, which had a vacancy rate of 5.2%, neighborhood centers had a vacancy rate of 7.4%, and strip centers had a vacancy rate of 6.4%.
  • Several news articles point to the fall of the regional and super-regional malls and the rise of lifestyle centers. An article published by the Star Press indicates that the lifestyle center approach is “proving to be the most successful adaptation of shopping malls,” while a comment to an article published by Retail Wire shows that “the future of the mall is as a lifestyle center.”
  • Moreover, an article published by WKBW shows that lifestyle centers are a hot topic, and that local regional malls such as Boulevard Mall and Eastern Hills are converting into lifestyle centers.
  • For management consulting firm Kearney, shopping centers in the future will essentially fall into four categories, namely destination centers, innovation centers, value centers, and ‘retaildential’ spaces or retail-housing lifestyle centers.
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