Velocity Retail Group Blog » Accelerating Retail Success | Retail Commercial Real Estate | Phoenix, AZ

Retail is experiencing dramatic changes, changes not seen since Clarence Saunders turned the general store upside down by opening the first self-service Piggly Wiggly in 1916, giving birth to the modern grocery store.  By moving the cash register to the front of the store, Saunders allowed the customer, for the first time, to browse the aisles and shop for the goods that they wanted.  That innovation gave way to an entirely new way to sell that has dominated retail for nearly 100 years.

Today, the retail big box is under attack, and it’s not just about the recession.  Ever-changing technology is revolutionizing retailing like never before.  The internet, mobile devices, social media, the Cloud and cultural change are turning the retail industry upside down — much like Clarence Saunders did in 1916.  This shift is creating a glut of empty boxes across America.  With 253 vacant big box spaces in Phoenix alone, Velocity Retail has been rethinking the box to find solutions for some of these spaces. Velocity has launched the REstoreD Division which will focus solely on finding solutions for owners of shopping centers with long-term vacancies.  Dave Cheatham will co-lead the Division at Velocity and commented, “We’ve created a multi-disciplined approach to find solutions that think beyond the four walls of the box.  These solutions require a broader knowledge of the real estate market such as entitlements and non-traditional uses.”

Retailers are finding it difficult to get customer’s attention long enough to see signage, pricing and sales in stores because their heads are down, focused on their mobile devices.   Some customers are texting friends, and others are checking Amazon to see if they can order it cheaper.  As Mike Fitz-Gerald with Velocity Retail Group says, “Retail boxes are at risk of being a show room for the internet and that doesn’t pay the rent.”  Retailers are being forced to re-think box size, layout, pricing, etc.

On top of this, what is exacerbating the challenges for traditional retail stores is that internet retailers have an advantage over bricks and mortar, with not having to charge sales tax on many sales.  While it doesn’t have the potential to completely shift sales back to retail stores, there is a national movement to level the playing field.  States are reluctant to turn over sales tax issues to the federal government, but they are working together to find a solution that eliminates the 8%+/- advantage that the internet has over most bricks and mortar retailers.  Internet sales will continue to grow even if this initiative is passed, but the internet has caused a significant shift in the retail landscape.

Internet retail is not just about pricing or taxes.  It is also about the impact of the evolving effect of the cloud.  As  Alexander Grünsteidl stated in Changing Retail Currency, “Products and services increasingly exist within a cloud of information, continuously and dynamically linked to virtual brochure sites maintained by sellers, journalist reviews, consumer ratings, social commentary, and aggregated usage statistics. This cloud can be accessed any time in any place through multiple channels.”  The “cloud” is the entire experience, whether in a retail store, at home or moving through life.  It isn’t necessarily a battle between internet and bricks and mortar.  Retailers that figure out how to enhance the buying experience will win.

However, the hardest hit product type is the neighborhood shopping center with a vacant grocery store.  Cheatham commented, “We believe there is a certain volume of buildings where the demand might not meet the supply.  It is so over-built with obsolete buildings.”  The problem largely rests with the neighborhood suburban grocery stores.  The regional boxes located near regional malls have been the first to lease up.  But, the consolidation of grocery stores and low priced competition has left a significant number of vacant neighborhood boxes with no demand.

Dave Cheatham, Managing Principal at Velocity Retail and Mike Fitz-Gerald are heading up the division and the firm has spent a considerable amount of resources analyzing the retail market and vacancy in Phoenix. “With 36% of our total vacant square footage in the big box category, we need to proactively look at ways to add value for shopping center owners and increase the appeal for some of the spaces that have become obsolete in shopping centers throughout the Valley,” he said.  Velocity categorizes a “big box” as any contiguous space that is 10,000 square feet or greater.  As of the first Quarter of 2012, the firm has tagged nearly 7.8 million square feet of the vacant space as being a big box. The current overall market vacancy rate is 12.56% according to Velocity Retail’s research department. Several municipalities have gotten involved in finding solutions for the vacant boxes in their cities.  The cities Economic Development Departments will need to be proactive in working with tenants who can absorb some of these vacancies even if they are not traditional retailers. By helping these tenants through the re-zoning process they are creating a positive climate for new business and employment for their city.  Velocity’s REstoreD Division has identified solutions for owners and tenants such as academic uses, self-storage, religious organizations, medical and office uses.

Velocity is poised to meet the challenges of today’s retail real estate market.  If you or your city needs help with vacancy, you might want to give the REstoreD team at Velocity a call.