Exploring Top Retail Trends & Tenant Expansion Plans

The U.S. retail real estate market proved its resilience in 2023 despite persistent worries of an economic slowdown, staffing hurdles, and the influence of increasing interest rates. Retailers have seized opportunities to broaden their presence, embrace inventive tactics, and harness shifting consumer trends to distinguish themselves from the competition. This resilience can be attributed to the retail sector’s flexibility and adaptability. As the retail landscape continues to transform and consumer purchasing behaviors evolve, tenants are competing to secure their spot on investor and developer rosters. This article delves into top retail trends, spotlighting certain tenants and their expansion plans.

 

Retail Trends to Watch in 2024

In 2024, the retail sector will be defined by greater digitization, customization, and efficiency. As these trends progress, they will unquestionably offer both prospects and hurdles for retailers across the globe.

 

Cyber Shopping Surge

The ongoing surge in online shopping is a pivotal trend that is set to shape the retail environment in 2024. With a substantial rise in the number of individuals leveraging online shopping, retailers are investing in their e commerce systems. This expansion represents a fundamental transformation in how consumers make purchases, propelled by online vendors’ convenience and diverse choices.

 

Despite e-commerce becoming more prevalent, brick-and-mortar stores are here to stay and are utilizing online shopping to their advantage. Through curbside or in-store pickup, retail stores can speed up online shopping by allowing the customer to obtain their purchase much quicker than waiting for it to arrive through the mail. This process enables retailers to leverage e-commerce while achieving product delivery speeds that surpass what’s achievable for businesses solely focused on e-commerce.

 

Omnichannel Retailing

Prominent retail entities such as Walmart and Target have been pioneers in omnichannel retailing, providing patrons with a unified shopping experience whether they are physically in a store, using a mobile application, or navigating a website. This tactic elevates customer satisfaction and loyalty. According to data from Marketing Dive, 82% of purchasing decisions are made while in store, and 62% of shoppers make an impulse buy while shopping. Retailers adept at targeting consumers through digital channels can anticipate significant sales growth. Their proficiency extends beyond boosting e-commerce sales; it enables them to drive consumers to their physical stores as well.

 

Livestream Shopping

Brands have begun utilizing livestream shopping to promote and sell products via digital channels. This is usually done by partnering with popular influencers. Services such as TikTok and Amazon are spearheading the introduction of livestream shopping, offering a new way for retailers to connect with their customer base. This highly interactive shopping experience facilitates tailored suggestions, culminating in a distinctive and captivating shopping atmosphere.

 

Self-Checkout

As a result of staffing shortages and evolving customer preferences, the retail industry is experiencing a technological revolution. A recent Forbes survey indicates that 66% of in-store shoppers prefer non-conventional checkout experiences that allow them to shop at their own speed. The self-service trend initially gained momentum during the pandemic, and now, amid a persistent labor shortage, numerous retailers are enhancing their capacity to deliver self-service experiences.

 

Some self-service examples in retail include:

• Self-Service Kiosks
• Scan-And-Go Technology
• Autonomous Stores

 

Shrink-Tail

Despite observing more store openings (approximately 3,300) than closures (around 2,600) up to August 2023, numerous retailers are progressively reducing the square footage of their store footprint, resulting in a net decrease in overall space. Pharmacies are an example of this trend. Although the sector has experienced favorable sales volume over the last 12 months, smaller format stores started becoming the preference among consumers, landlords, and tenants. In addition, some retailers are capitalizing on in-store collaborations, reducing the tenant’s available space to accommodate an in-store partner. Instore collaborations can attract more customers into the retailer’s space by bringing together various customer bases.

 

Restaurants

The restaurant industry faced severe challenges during the COVID-19 pandemic, and its recovery was further hindered by the onset of inflationary pressures in 2022. However, in 2023, there was a noticeable turnaround, as foot traffic gradually returned to pre-pandemic levels, with a significant uptick in Q2 2023. This resurgence was particularly evident in the growing demand for sit-down dining and quick service restaurants (QSRs).

 

A notable development within the QSR space is the emergence of digital-only restaurants. These establishments have made technology a focal point of their operations, introducing self-service kiosks and food-preparation robots in back-of-house operations. Similarly, casual dining restaurants are embracing technology by enhancing operations and client experience through mobile apps and loyalty programs. They are also offering more self-serve options, incorporating tabletop tablets while still maintaining the presence of waitstaff.

 

Fast-casual restaurants are rising nationwide, attracting consumers with their efficient dining experiences. A notable addition to this trend is the emergence of to-go-only storefronts. For instance, Buffalo Wild Wings introduced “BWW GO – Wings On The Go,” which provides customers with three ordering options: online, through the app, or at the counter.

 

Data from Placer.ai has shown Taco Bell is the most visited restaurant in the nation, closely followed by Chipotle and Texas Roadhouse. With the brand’s
continuous expansion plans across the Sunbelt, Whataburger also captured industry attention.

 

Taco Bell

In a recent press release, the QSR chain declared its ambition to operate a total of 10,000 stores across the U.S. in the upcoming years. This strategic vision encompasses restaurant concepts that prioritize digital integration and prioritize consumer experiences. In March 2023, the company also launched its “Go Mobile” concept: small, digital-first locations. According to the Taco Bell press release, “This concept was created to provide solutions for an industry wide problem – drive-thru bottlenecks – by eliminating the indoor dining area and adding dedicated parking for mobile and delivery orders with an outdoor pickup window and grab-andgo shelves. The newest addition just opened in Columbus, Georgia, and elements of this restaurant will be incorporated into future builds.”

 

In addition to increasing its digital presence, Taco Bell continues to enrich its customers’ experiences by extending the reach of its Cantina restaurants. Each Cantina is thoughtfully designed to harmonize with its surroundings, featuring contemporary urban aesthetics, open kitchen layouts, and a selection of alcoholic beverages. The latest Cantina locations are equipped with state-of-the-art technology to ensure that both customers and employees enjoy the best possible experience. Taco Bell plans to introduce the Cantina concept in Indianapolis and Downtown Los Angeles.

 

Chipotle

In Q1 2023, Chipotle opened 41 new restaurants, with 34 locations including a Chipotlane. The company also has plans to open new 100% sustainably-powered restaurants, decarbonizing its supply chain and investing more resources into local and organic produce. The program’s primary goal is to help the company cut both direct and indirect greenhouse gas emissions by 50% from 2019 to 2030.

 

Chipotle properties are usually close to large shopping malls, university and college campuses, and business districts. The restaurants typically have a 2,000 – 3,500 square foot facility and are located on 0.50 – 1.00 acres of land. Depending on the location, some Chioptlanes have no dining room, while others are the same size and layout as the original restaurant. Chipotle net lease properties are long-term investments that require no property management. The lease period is typically a 15-year NNN ground lease with four, five-year options with 7% – 12% increases every five years. Chipotle leases are also corporately guaranteed.

 

Texas Roadhouse

According to the Dallas Morning News, Texas Roadhouse is the world’s fastest-growing restaurant brand, worth more than $2.3 billion, an increase of 56% in 2023. This unprecedented growth comes as a result of the company’s extensive expansion strategy. Currently, the chain includes about 700 establishments and intends to reach 900 locations in the upcoming years. Texas Roadhouse’s expansion strategy focuses on smaller markets with populations of 40,000 – 60,000 people and has seen more pronounced success in these smaller markets with more receptive consumers.

 

Texas Roadhouse’s success can be attributed to its investment in technology, which has significantly attracted and retained customers. In most of its locations, the chain offers Roadhouse Pay, allowing guests to pay their bills at their own speed. The restaurant also allows guests to place themselves on a waitlist prior to going to the restaurant, significantly reducing in-restaurant wait times.

 

Coffee Shops

Large coffee chains and established brands have traditionally dominated the market, making it challenging for new entrants to prove themselves. However, the emergence of small coffee shops with smaller square footage, around 800 square feet compared to the traditional 2,000 square feet, has disrupted the industry by offering a distinct value proposition that sets them apart from the competition. These new coffee shops are centered around convenience, with drive-thrus and mobile orders taking the spotlight.

 

Starbucks is following this same trajectory of downsizing its stores’ footprints to cover approximately 900 square feet. These compact stores have demonstrated impressive results, attracting around 15% more visitors per square meter than their larger counterparts, typically 2,500 square feet. Similarly, Dunkin’ stores average about 750 to 3,100 square feet, while Dutch Bros. coffee locations, known for their compact size, have an average footprint of 950 square feet.

 

Starbucks’s anticipated global store expansion rate is around 7% annually from 2023 – 2025, with a projected 10% increase in revenue during the same timeframe. The corporation indicated that its expansion efforts will be primarily focused within the U.S., where the chain is currently established with 15,650 stores. Starbucks also mentioned that specialized store formats, like drive-thru and curbside pickup, are projected to contribute to an annual net increase in store count of 3% – 4% within the country, equating to roughly 2,000 new stores in the U.S. by 2025. Starbucks plans to open these new locations in growth markets, including cities experiencing population growth or up-and-coming neighborhoods.

 

Home Improvement

According to Yahoo Finance, in 2020, the U.S. home improvement market was valued at $419.8 billion and is anticipated to grow at a compound annual growth rate (CAGR) of 4.47% from 2022 – 2026 to achieve a market value of $537.47 billion by 2026.

 

The expansion of the home improvement market can be linked to an increasing inclination towards renovating and enhancing both the interiors and exteriors of homes. During the COVID-19 pandemic, several people began making home improvements to pass the time, significantly benefiting home improvement stores nationwide. Furthermore, the recent change in consumer preferences towards energy-efficient and luxurious residences is anticipated to provide additional momentum to the growth of the market over the next five years. Although this trend has slowed since 2020, home improvement stores will remain stable investments, given the countless at-home projects people take on daily.

 

According to Placer.ai, the top three most visited chains include The Home Depot, Lowe’s, and Menards. Harbor Freight, a company listed in the top 10 of this list, was also named one of the fastest growing retailers on the National Retail Federation’s “Hot 25 Retailers List.” In 2022, Harbor Freight Tools expanded by opening 122 new stores, resulting in a total of over 1,400 locations across the nation. The company plans to continue their store expansion in 2024.

 

Grocery-Anchored

Despite today’s challenging market for deals and financing, grocery-anchored shopping centers have found their place with investors. The industry is bullish on grocery-anchored centers and views them as a buffer from economic headwinds due to the necessity of goods they provide – food. This has translated to frequent, consistent visits, higher foot traffic, and immunity from disruptors and market headwinds.

 

Grocery-anchored centers have joined the darling asset classes of industrial and multifamily as a favored place to plant capital. Investors are targeting these properties as traffic to grocery stores has increased, and shoppers walk through the door’s week-after-week. For example, some of Westwood’s largest centers have clocked six million visits a year. New investments in grab-and-go food options have generated more traffic and returning shoppers.

 

Kroger

Kroger intends to introduce its new and innovative concept, The Marketplace, in Clarksville, TN, representing a significantly larger grocery store designed to compete with retail giants like Target and Walmart. The Marketplace is set to encompass 123,000 square feet, which is 50,000 square feet larger than a standard Kroger grocery store and roughly three-quarters the size of a Walmart Supercenter. The Kroger Marketplace will have expanded offerings, including clothing, appliances, home goods, furniture, electronics, toys, and jewelry. The new concept will also include in-store dining and coffee shops. If everything goes according to plan, Kroger envisions the start of construction in early 2024, and the grand opening is projected for sometime in 2025.

 

ALDI

ALDI, the discount grocer, has announced its plans to acquire the Winn-Dixie and Harveys Supermarket chains from Southeastern Grocers, a significant move that has caught the industry’s attention. This acquisition, which encompasses around 400 grocery stores across five Southeastern states, marks a bold step in ALDI’s aggressive growth strategy. In addition to this acquisition, ALDI also plans to have 2,400 operating stores by the end of 2024.

 

Beauty & Spa

After a strong rebound following the COVID-19 pandemic, the beauty and spa industry is projected to reach $580 billion by 2027, with an anticipated annual retail sales growth of 6.0%, according to the Global Cosmetic Industry.

 

Top beauty and spa tenants, according to Placer.Ai, include Ulta Beauty, Great Clips, and Bath & Body Works. It’s worth highlighting Sephora as well, given the significant expansion plans the company has enacted over the last couple of years.

 

Ulta Beauty

Ulta Beauty has dedicated substantial efforts to augmenting its beauty and skincare offerings through the introduction of GLAMlab. This innovative feature serves as a means for prospective customers to sample products virtually before making a purchase, aiming to engage and convert potential customers by offering a virtual beauty shopping experience. Ulta’s CEO, Dave Kimbell, has stated that the company plans to focus on growth through multiple channels, digital platforms with virtual try-on makeup and hairstyles, supported by digital stores to fill orders anywhere.

 

Sephora

The introduction of Sephora at Kohl’s took place in 2021, and as of Q4 2023, there are more than 850 Kohl’s stores with a Sephora. In the autumn of 2021, Kohl’s launched 200 stores, and this was followed by an additional expansion of 400 more locations during the summer.

 

Sephora also stepped up its digitization strategy with the launch of SEPHORiA: House of Beauty in September 2023. The event took place through virtual reality and allowed visitors to create their own avatars to experience new social touchpoints, chat live with Sephora Beauty Advisors, and play games.

 

What Does This All Mean For CRE?

Consumer preferences are going to continue to change. Right now, optimizing the consumer experience is the name of the game. Retailers and landlords who understand how to create environments with amenities that focus on immediacy and convenience will be the most successful. Whether this is done through increased digitization, personal shopping, or updated layouts, these trends all have one thing in common – they focus on the consumer experience. Consumers want options in this modern world, and they are going to be attracted to the tenants that provide the most convenient and efficient ones. The retailers mentioned are essential for landlords to know as they are doing well with consumers and will be excellent additions to tenant line-ups. For fellow retailers, knowing what tenants are doing well can serve as a reference point as to which strategies consumers are drawn to.