Three Retail Trends to Watch in 2022

Perhaps no other sector of commercial real estate has endured as much recent disruption as retail. Even before the pandemic, retail real estate was facing questions about its viability as an investment. Some national retail brands had too many physical locations and had to close stores. Growing vacancy within high-street districts reflected low foot traffic or asking rents that were too high.

However, retail’s recovery from the pandemic has been a pleasant surprise, with increasing sales even amid diminishing consumer sentiment. According to retail data provider Placer.ai, foot traffic at retail centers has largely recovered to 2019 levels, especially in the open-air segment. U.S. Census data shows robust holiday sales in both brick-and-mortar stores and e-commerce channels. What’s more, U.S. households on average are experiencing record-low debt-to-disposable-income levels, according to the Federal Reserve Bank.

In 2022, we expect the retail industry to embrace three growth strategies:

1. Forge collaborations between e-commerce and traditional retail brands.

Retailers are expanding their offerings by partnering with e-commerce companies, often via branded kiosks or within department stores. Among the benefits of such an arrangement:

• The ability for traditional retailers to offer a new product type, potentially attracting foot traffic from a previously untapped customer base.
• An opportunity for traditional retailers to upgrade digital resources and customer engagement.
• A chance for digital brands to beta test a brick-and-mortar presence without any lease obligations.
  
  

2. Use stores to implement solutions for supply chain issues.

Since the final 50 feet remains one of the most expensive legs of the logistics journey, physical stores will take on a greater supply chain role in 2022. Retailers with a physical presence will differentiate from purely e-commerce retailers by expanding their in-store return capabilities,, making it easier for consumers to return goods.

CBRE’s Supply Chain Advisory Group reports that transportation costs typically account for 50% to 70% of a retailer’s total logistics spend, while fixed-facility costs, including real estate, account for only 3% to 6%. Based on this formula, retailers can hedge against rising transportation costs by assigning a more active supply chain role to their brick-and-mortar stores, where a lease controls fixed-facility real estate costs.

Stores can play an active role in the supply chain in several ways:

• Upgrading in-store return capabilities
• Expanding curbside pickup capabilities
• Redesigning stores to optimize the omnichannel experience
• Automating checkout
  
  

3. Embrace ESG in the retail sector.

Environmental, social and governance (ESG) concerns are becoming increasingly important for the success of retailers. A growing share of consumers prefer ethically defensible brands, especially those focused on reducing carbon emissions and waste.

There is growing consumer demand in the resale market for products that are in good condition. Retailers can take advantage of this trend by marketing their own secondhand products for sale, promoting a “circular” economy and reducing waste. Overall, Forrester estimates that 41% of U.S. consumers prefer to purchase environmentally sustainable goods.

The retail sector is generally performing well in ESG measurements. The 2021 Global Real Estate Sustainability Benchmark (GRESB) scored ESG implementation by more than 1,200 property companies, REITs, funds and property developers worldwide. Eight of the 11 retail-focused REITs tracked by GRESB increased their scores last year.