NEGOTIATING

HISTORIC CHANGE WHAT’S NEXT FOR RETAILERS?

levels pushing up wages. The impact of pandemic-related disruptions on retail in the areas of logistics, material shortages amid supply constraints and high demand in the market have led to pricing strength and margin growth. But which of these trends is short-term or transient and which is going to sustain itself into the future?

• In-store sales: Our belief is that many retailers will experience an early holiday buying surge with purchases to avoid “sold out” products and delivery times that miss the gift giving days. We expect the closing weeks before the gift giving season to be chaotic and sold-out products will be a norm both in stores and online. That said, the stimulus monies are gone and that will be impactful ultimately.

• E-commerce: The elevated levels of online spending are not going to subside. These sales are permanent and profitable, and consumers will love it!

• Wages: The surge in wages are to subside or retreat. Ditto— staffing shortages.

• Logistics: Inevitably the issues of logistics and product shortages will be resolved. But the truth is that no one knows when, and it’s likely it won’t happen until late 2022 or maybe in the first half 2023.

So, who is taking advantage of today’s market and thriving? Will the pace of store closures subside? And what does store growth look like? From the activity of our clients, we are seeing interest in store growth. Critically, that growth is combined with portfolio efforts to maintain lease terms going forward to reflect a future that will include a normalization of sales, supply constraints, commodity inflation and increasing staffing costs. These issues are not receding or they’ll be doing so very slowly over the next couple of years.

That said, store growth is happening with many of the best owners and developers of retail real estate. Property owners and retailers are collaborating to maintain retail store portfolios with terms that are mutually beneficial, sharing opportunities for upside benefits and, of course, downside risk. To date we have transacted over 100 new store locations for our clients and see 2022 as full of further opportunities for smart growth.

It’s encouraging to see our clients growing after such a difficult period. We advocate a formula for successful expansion that includes more of a shared risk/reward structure than the deals that have been historically transacted. We think this is the model for the future of retail and store growth and to date the reception has been very positive. n