Introduction to the Retail Industry
The retail industry has been through a lot of changes in recent years. Remember when we all thought malls — and by extension brick-and-mortar retail — were obsolete? As someone with more fluency in French than I possess might say, “Au contraire, mon frère.” Like many pandemic-era trends that turned out to be far more ephemeral than we once believed, shopping in person has proven surprisingly resilient and is back in vogue — at least for some establishments.
The Resilience of Retail
And thanks to Brian Womack’s centerpiece feature, we are reminded that not all retailers are created equal — even if they’ve been walloped by COVID-19, inflation, tariffs, and fickle shoppers. His detailed interview with Michaels CEO David Boone is a portrait of an executive tapping into a resurgent retail zeitgeist, with the wind seemingly at his back in the face of economic headwinds and fierce competition. Don’t be fooled, however — tariffs, sticky price pressures, and recession jitters are still major problems for retailers. The Federal Reserve Bank of Dallas’ latest Retail Outlook Survey painted a sobering picture for the sector; sales activity, labor conditions, and the business outlook all contracted in October.
Staying Informed About Retail
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Success Stories in Retail
Nevertheless, Boone told The Dallas Morning News that Michaels is in a “very unique position in the market, and that’s why we’re growing,” even as a number of industry peers navigate rough shoals. Fun fact: The chain actually maintains locations in every state bar one. Michaels’ success is a window into a constantly whipsawed industry that, more often than not, can’t seem to catch a break. Yet lately, some retailers certainly have managed to do just that — and nowhere has the reversal of fortune been more dramatic than in shopping malls once left for dead.
The Revival of Shopping Malls
What gives? A key ingredient is shoppers who have gradually grown fatigued with exclusively shopping online, making their way back to physical stores. Revived foot traffic is helping to facilitate a massive wall of mall debt maturities that have been quietly reprofiled: data from TREPP shows billions in commercial mortgage-backed securities being extended, buying debt-saddled malls some much-needed breathing room. To be sure, store closures and retail bankruptcies are still very much a problem. Meanwhile, Main Street is struggling with post-pandemic hangovers like soaring prices, an inability to hire enough staff, and the substitution effect that forces consumers into a relentless search for cheaper goods and services.
Challenges Facing the Retail Industry
And retail is not entirely out of the woods yet, with TREPP reporting that nearly $19 billion of CMBS loans against 210 shopping mall properties are set to mature within the next year. More than $5 billion is classified as “nonperforming,” and almost $9 billion has fallen into special servicing, the platform notes. Yet if a rising tide lifts all boats, high-end malls clearly have become the yachts within the treacherous waters of retail. Banks are extending credit to luxury shopping centers in both Texas and Florida, according to a recent report in CoStar, whose data also showed lenders ponying up billions of dollars worth of CMBS deals for mall properties at nearly twice the rate of the comparable 2024 time frame.
Evolution of Retail Spaces
Which may explain why Galleria Dallas was ranked by USA Today as America’s third best mall — a well-earned accolade given how crowded the facility was on a recent weeknight when I ambled through its shops a couple of weeks ago. NorthPark Center, another one of my favorite D-FW haunts, is also similarly packed on any given day. Lifetime — whose facilities are “more athletic country club space than a gym space,” CEO Bahram Akradi told me in a 2023 interview — is just one example of how retail’s physical footprint has evolved with the times. Most of the co-working/gym company’s locations are situated in or near walkable shopping centers that have contributed to the changing nature of what a mall anchor tenant should resemble.
Lessons from Successful Retailers
It reminds me of something Matthew Whitman Lazenby, the CEO of Whitman Family Development — which owns Miami’s ultra-luxe Bal Harbour Shops — told me in an interview a couple of years ago. Despite all the blows retail suffered at the time, Lazenby was confident in his highly specialized model that catered to a niche (albeit an extremely wealthy one), and that location, diversification, and finding new ways to connect with customers make the difference. To be sure, wealth-centric shopping centers are a far cry from Michaels, but they both paint a similar picture: rumors of retail’s demise may have been greatly exaggerated.
Conclusion
In conclusion, the retail industry has proven to be more resilient than initially thought. Despite the challenges posed by the pandemic, inflation, and tariffs, some retailers have managed to thrive. The revival of shopping malls and the evolution of retail spaces are testaments to the industry’s ability to adapt and evolve. As the industry continues to navigate the treacherous waters of retail, it’s essential to stay informed and learn from successful retailers.
FAQs
Q: What is the current state of the retail industry?
A: The retail industry has proven to be more resilient than initially thought, with some retailers managing to thrive despite the challenges posed by the pandemic, inflation, and tariffs.
Q: What is contributing to the revival of shopping malls?
A: The revival of shopping malls can be attributed to shoppers who have grown fatigued with exclusively shopping online and are making their way back to physical stores, as well as the extension of commercial mortgage-backed securities, which is buying debt-saddled malls some much-needed breathing room.
Q: What are some of the challenges still facing the retail industry?
A: The retail industry is still facing challenges such as store closures, retail bankruptcies, soaring prices, an inability to hire enough staff, and the substitution effect that forces consumers into a relentless search for cheaper goods and services.
Q: How are retailers evolving to meet the changing needs of consumers?
A: Retailers are evolving by changing the physical footprint of their stores, incorporating new technologies, and finding new ways to connect with customers.
Q: What can be learned from successful retailers?
A: Successful retailers have demonstrated the importance of location, diversification, and finding new ways to connect with customers in order to thrive in the retail industry.
