Making Sense of Retail’s Top Headlines

New locations, strategic closures, fresh concepts, and joint forces welcome retail’s next era of sustained, practical growth.

At the start of the year, most news outlets published articles about big-box retailers’ plans to reduce their footprint. It seemed the retail giants were pulling back. Then, headlines about new and improved stores hit the front pages in a matter of weeks. There was hardly time to digest the news before more stories about mergers and acquisitions arrived. What’s a landlord to make of the noise and, more importantly, retail’s dynamic future?

If anything, it’s to hang on tight. Retail consumers in the last two years have proven endurance above all else. Since 2022, the U.S. retail sector has faced a 40-year inflationary high, almost a dozen interest rate hikes, limited new supply, and frequent closures and bankruptcies. It’s almost remarkable that the sector has shown such growth since pandemic-era lows. But landlords shouldn’t be so surprised. Retail’s resilience merely reflects the economy’s most favorable outcomes: Even when new supply is low, at 49.3 million square feet of deliveries from Q1 2023 to 2024, retail sales and rent growth remain strong.

While fundamentals tighten and consumers favor a more price-conscious approach, retailers have begun to adjust. In fact, most brands are keen to “rightsize” to spaces where they fit better. Moves to downsize or expand may be less a performance indicator and more an appeal to consumers. As retailers look to be more profitable—especially in a tighter and more costly market—investors can expect more locations, controlled closures, new store formats, and strategic mergers and acquisitions to carry retail into its next growth phase.

More Locations

Sometimes, more is more. From small to big-box retailers, several brands across discount, grocery, experiential, and food and beverage plan a substantial increase in store locations. After consecutive years of growth in demand for retail space, including a net absorption of over 53 million square feet in 2023, many retailers show no signs of shrinking their footprints.

Discount

Price-conscious retailers like Dollar General, Five Below, and Ollie’s Bargain Outlet make up the fastest-growing retail category, suggesting consumers remain skeptical despite income increases, cooling inflation rates, and general wealth growth. Last year, consumers shopped year-round for everything from discount hardware to home goods, and store visits saw a notable jump around the holidays. Dollar General is committed to opening 800 new stores in 2024 to promote its upscale shopping concept Popshelf, while Five Below expects 600 additional locations.

Grocery

The ongoing Kroger and Albertsons agreement remains in a holding pattern after the Federal Trade Commission (FTC) sued to block the grocery merger, a move that would allow for closer competition with Walmart, Amazon, and Costco. Budget-friendly grocer Aldi plans to add 800 U.S. stores by the end of 2028 through a combination of new openings and store conversions. Its five-year, $9 billion plan includes opening nearly 330 stores across the Northeast and Midwest, expanding in hubs like Phoenix and Southern California, and entering new cities like Las Vegas. Grocery Outlet acquired value grocer United Grocery Outlet (UGO), which will add 55 to 60 new stores to the retailer’s operations. Phoenix-based Sprouts Farmers Market has a pipeline of nearly 100 stores and 60 executed leases, most of which will follow the grocer’s compact store format (21,000 to 25,000 square feet).

Experiential

Consumers are more interested in services than in recent years. The demand for spaces bigger than 10,000 square feet reflects new growth for fitness and experiential tenants, who accounted for 15% of all leasing activity, up 5% from 2015. Planet Fitness, Crunch Fitness, and Urban Air are among the fastest-growing experiential retailers. Crunch Fitness, which was ranked Entrepreneur’s 2024 top fitness franchise, saw visits increase by 28.2% year-over-year. The boost in activity was partly fueled by the gym’s steady expansion, growing its now 443-store footprint by 47.3% since 2020.

Food & Beverage

Retail tenants in the food and beverage sector accounted for nearly 20% of all retail leasing activity in 2023. Fast-casual sandwich shop Jersey Mike’s leads the sector with its aggressive growth target of more than 1,100 new stores in three years, adding to its existing footprint of 2,500 shops. Playa Bowls, a quick-serve smoothie and juice bar, will add 75 locations by the end of the year, while its legacy competitor, Smoothie King, will up its footprint by 100 stores. Emerging coffee leader Dutch Bros, ranked among the top three coffee and bakery chains in the U.S., plans to challenge incumbents Starbucks and Dunkin’ with 165 new locations.

Big-Box

While more gradual than other retailers, Target’s expansion plans include 300 new stores over the next 10 years. CEO Brian Cornell disclosed that the new locations will follow a large store format and provide broader food offerings. Walmart has plans to add 150 stores over the next five years and remodel 650 existing stores in almost every U.S. state this year. Some smaller stores will be converted to Walmart Supercenters, while hundreds of others will be remodeled to embrace the retailer’s “Store of the Future” concept with new technology and expanded product selections. Most added stores will be newly constructed and supplement its existing footprint of 4,600 stores.

Closures Signal Simplification

The most gripping news to hit the headlines has been retail’s widespread store closures. It’s hard to say who’s been more burdened in recent years: Consumers with the weakest spending power in a decade, whose incomes grossly lag prices, or retailers who fail to deliver the experiences consumers want. Either way, retailers have taken heed, and one significant change in the industry is the reason for store closures—more often, a move to rightsize.

During the pandemic, retail closures meant life or death. Average move-outs peaked at 418 million square feet, compared to an average 400 million square feet per year in 2018 and 2019. Retailers with century-long legacies feared closures, bankruptcy, or total extinction. The latest demand gains and declining move-outs, which fell by 20% to 330 million square feet in 2023, seem like a natural recoil more than anything. But the tone of closures is different now. Retailers want to serve their customers better, even if that means moving from a 20,000 to 10,000 square foot format and saving on rent, which is at a record-high of $25.00 per square foot. Now, store closures reflect retail’s return to a simpler, more refined customer experience.

Notable Store Closings

Dollar Tree plans to shutter 970 of its Family Dollar stores, which were previously under review, citing struggles to keep up with consumers. Still, Dollar Tree remains in a favorable position and continues to attract price-conscious consumers from a broader range of income levels. Macy’s will close 150 stores, or about 30% of its fleet, over the next three years. The affected locations comprise a quarter of the retailer’s gross square footage but less than 10% of sales. The department store plans to open 30 small-format Macy’s stores—30,000 to 50,000 square feet—over the next two years. After acquiring sleep retailer Mattress Firm, Tempur Sealy plans to sell roughly 200 Sleep Outfitters and Mattress Firm locations. The mattress provider also intends to shed seven distribution centers. Rite Aid is one of the few retailers yet to pursue new or renovated locations this year. Its ongoing bankruptcy discourse has resulted in over 300 planned store closures.

Backfills Present Opportunities

As more retailers settle into best-fit formats, opting to expand or downsize, some industry players have capitalized on the shift. Closures from major brands like Bed Bath & Beyond, BuyBuy Baby, Party City, and Macy’s have opened the door for owners to backfill at a higher rent or use a shuttered department store for redevelopment. The opportunity allows landlords to place more attractive merchants—who pay higher rents—in a more diverse store mix that will drive more traffic and sales. Barnes & Noble grabbed several former Bed Bath & Beyond and BuyBuy Baby locations, while Hobby Lobby, Burlington, and Planet Fitness backfilled other anchor and junior anchor spaces.

New and Smaller Format Stores

For some brands, expanding means modifying. Prominent retailers like Whole Foods and Macy’s are pursuing small store formats, while Target is exploring remodels to create more meaningful consumer experiences. Target, which plans extensive remodels for several of its locations, reported yearly sales increases of up to 4% once a store is renovated. Whole Foods introduced a smaller format for its stores, called Whole Foods Daily Shops, which are 7,000 to 14,000 square feet. Eliminating the grocer’s traditional salad bar and meat counter will create more efficient experiences for grocery delivery services like Instacart. Similarly, Macy’s narrowed its focus to its smaller footprint Bluemercury and Bloomingdale’s stores to target higher-income customers at a community level.

Strategic Retailers Join Forces

Several major retail mergers and acquisitions made headlines earlier this year alongside news about blended brands. The former includes moves from Kroger and Albertsons, Tempur Sealy and Mattress Firm, and Aldi and Winn Dixie, while the latter indicates a new blended IHOP and Applebee’s concept. Retailer mergers and acquisitions in 2023 totaled $24.2 billion, trailing a ten-year peak of $39.8 billion in 2017.

While mergers and acquisitions aren’t new to retail’s front pages, the latest developments signal a more strategic direction for the sector’s joining hopefuls. For instance, news about the FTC’s move to block the Kroger-Albertsons merger suggests that brands are under more antitrust scrutiny than ever. Kroger-Albertsons’ combined 5,000 stores would generate $220 billion and place the retailer second in the U.S. grocery space with an estimated market share of 13.4%, behind Walmart.

Dual-branded restaurants are another way retailers are joining forces. Dine Brands Global, which operates over 3,400 Applebee’s and IHOP locations, wants to combine more restaurants under one roof to save money on real estate and supplies. With the same square footage as a traditional standalone IHOP or Applebee’s restaurant, all eight dual-branded prototypes (located outside the U.S.) generate twice as much revenue.

Making Sense of It All

Headlines come and go, but retail’s new direction toward practical growth exhibits staying power. Investors may reflect on 2024 as the year that retailers remet consumers in best-fit spaces, whether in a remodeled format, a merged concept, or a smaller or larger store.