Retail Radar: Retailers Making Waves in the Sector

Analyzing Per Retail Type

Retail performance across the U.S. remains strong, characterized by limited availability and rising demand. As of Q4 2024, the national retail vacancy rate stands at 4.1%, while Q3 2024 saw the absorption of 4.2 million square feet—marking the sector’s 15th consecutive quarter of steady demand growth. The competitive retail landscape has prompted both investors and tenants to actively seek available spaces, setting their retail radar on strip malls, big-box retail, pad sites, and grocery-anchored centers.

While these properties have availability for many kinds of tenants, tenant performance varies in each location and product type. Some tenants are thriving, driven by strong performance metrics and growing consumer demand, positioning them as “standout leaders” in the market. Meanwhile, other tenants are seeing the opposite and are struggling to keep pace, falling behind as “fading players.”

Strip Malls

Changes in consumer preferences post-pandemic have bolstered the performance of strip malls across the country, with visits to this retail type increasing by 18%. The work-from-home trend that emerged during the pandemic has further contributed to its success. In addition, the convenient location of strip malls near major roads makes them easily accessible for consumers and enhances their appeal.

Strip malls tend to bring in a more diverse consumer base, making them attractive to tenants and driving higher asking rents and lower vacancy rates. The assortment of tenants will depend on each location, but investors can utilize consumer preferences to create a compelling variety of tenants. One standout performer in strip malls is beauty retailer Ulta, which has seen growing popularity among younger demographics, such as Gen Z and Gen Alpha. In response, Ulta plans to open approximately 200 new stores between 2024 and 2027. To further boost its visitations, Ulta is planning on increasing its loyalty program to 50 million users by 2028. The retailer has already updated its interface for easier navigation and personalized product recommendations, further driving customer engagement.

A Slowdown in Strip Malls

In contrast, drugstores, which traditionally had a presence in strip malls and freestanding buildings, have faced declining performance in recent years. CVS announced its plans to close around 900 stores, due to decreasing profitability and lower consumer visits. Likewise, Walgreens is also making changes to its operations as it noted similar performance challenges to CVS. The tenant announced it will close around 25% of its 8,600 locations in the U.S.

Other personal goods stores, like Vitamin Shoppe and GNC, have also begun to fall behind. GNC filed for bankruptcy in 2020 and closed more than 1,200 locations. Franchise Group, owner of Vitamin Shoppe, filed for bankruptcy in November 2024. Vitamin Shoppe stores will remain open, but the company is struggling as its revenue declined by 5.5% throughout Q3 2024.

Big-Box Retail

After notable closures of big-box tenants, like Bed Bath & Beyond and 99 Cents Only, experiential retailers have stepped in to stabilize this retail type’s performance. Over the past two years, experiential tenants have accounted for 15% of national leasing activity in big-box spaces. Some tenants that contributed to this growth are Crunch Fitness and Sky Zone, which have successfully repurposed vacant big-box locations.

Traditional big-box retailers, such as Target, are also adapting by exploring small-format store models to enhance their performance. Target currently has 170 small-format properties across the country, and it plans on adding more in locations where this format would thrive. Specifically, suburban areas will see more of these developments as this format can effectively serve local consumers. These compact locations are also cost-effective, helping retailers, such as Target, navigate the challenges of reduced retail availability.

Shifts in Big-Box Activity

Consumer interest in personal goods shopping has further fueled the expansion of discount retailers like Ross Dress for Less and T.J. Maxx. Ross operates 1,836 stores as of Q4 2024 and added 89 stores in 2024, with long-term plans of growing to 2,900 properties nationwide. T.J. Maxx is also undergoing an expansion as the company plans to open 1,300 new stores worldwide, including the remodeling of 480 U.S. stores to accommodate its growing customer base.

However, some big-box tenants have struggled to maintain their footing. While JOANN Fabric and Crafts, together with Big Lots, once boasted their presence in big-box locations, both tenants are facing the effects of bankruptcy. In March 2024, JOANN filed for bankruptcy, but stated it will keep its 815 stores open. The firm stated it will move past its bankruptcy with $132 million in new financing, but it still struggles with decreased customer visits. Big Lots also filed for bankruptcy in September 2024, leading to the closure of 140 stores as of Q4 2024. All together, it plans on closing 494 locations, which is 36% of the stores it had at the start of 2024.

Pad Site Tenants

Retailers in the food and beverage segment accounted for 20% of leasing activity over the past year, with quick-service restaurants (QSR) outperforming traditional sit-down casual dining establishments. The QSR industry has demonstrated strong and consistent growth, and Fortune Business Insights noted its market size grew from the $895.7 billion recorded in 2023 to $971.4 billion in 2024.

Similar to strip malls, QSR tenants grew during the pandemic because of health restrictions. With restaurants closing their dining areas, consumers sought out QSR locations where they could easily pick up food through a drive-thru. This trend has persisted post-pandemic with QSR visits continuing to outpace those of casual dining restaurants. The shift in consumer preferences impacted many casual dining locations, leading to closures of several properties for brands like Red Robin and Applebee’s.

QSR Tenants on the Rise

One tenant that maintains its enormous presence in the QSR segment is Starbucks, and it plans on growing its locations to 55,000 stores globally by 2025. Along with its expansions, it is also incorporating new trends to its store model by including Just Walk Out Technology. This initiative, created by Amazon, involves using cashier-less technology where customers can grab their item in store and pay digitally. The new method has already been implemented in two New York City locations, and Starbucks plans on using it in its store expansions.

Chipotle has consistently noted positive performance metrics, and is on track to continue its expansion activity. The tenant has plans to open around 315 to 345 new locations in 2025. To facilitate this growth, Chipotle has begun implementing Chipotlane in new stores. This model features a drive-thru where customers can place orders online and stop in the drive-thru to pick them up. As it moves forward with its expansion plans, Chipotle is anticipating that around 80% of its new locations will include a drive-thru.

Grocery Anchored

Grocers have become a standout in the retail segment as the majority of retail construction nationally has been for grocery-anchored centers. These facilities have consistently proven to be beneficial for investors as they have high occupancy rates and low tenant rollover.

Technological advancements have further fueled the success of grocers across the nation as grocery pickups have become more adopted in stores. According to an eGrocery Market Forecast created by Brick Meets Click, online grocery activity will continue to flourish moving forward. Through 2028, online grocery sales will grow three times faster than in-store sales, and pickup grocery orders will grow by 5.4%.

While Walmart maintains its position as the largest grocer in the U.S., ALDI has gained attention for its aggressive expansion efforts. Known for offering high-quality products at significantly lower prices, ALDI plans to open 800 new stores nationwide by 2028. Its recent acquisition of Southeastern Grocers is set to enhance its presence in the Southeast, a key region for growth. The discount retailer has committed to spend over $9 billion on its expansion and store conversions, further solidifying its role as a major player in the grocery sector.

Overall Tenant Performance

While tenants’ business trends depend on many factors, the slowdown in the performance of fading players can be attributed to the rise in e-commerce and increased debt. The pandemic was also a large factor in consumer activity—especially in the grocery and restaurant segments. Consumers began to rely more on pickup options in these sectors as the pandemic limited in-person interactions, and this trend remained even after COVID-19 restrictions were lifted.

As consumer preferences continue to fluctuate, tenants must remain agile in responding to customer changes. Retailers and restaurants that evolve their business models to match consumer trends will benefit the most, and will secure their place as a standout player in the competitive retail landscape.