Cleveland Adapts to Changing Retail Landscape
“The retail landscape is changing.” How many times have we, industry professionals especially, heard these words over the past several years? But the reality is, it’s true.
There have been countless articles, blogs and lectures blitzing us with arguments supporting or arguing against the notion that brick-and-mortar retail is fighting a losing battle against a burgeoning e-commerce industry. As many of us in the industry know, brick-and-mortar stores still hold a 90 percent market share of retail sales. While that number is shrinking, it is shrinking at a slower pace with each passing quarter.
So, rather than talking about e-commerce and its potential negative impact on physical stores, I’d prefer to focus on the categories that are thriving, and in many cases benefiting from e-commerce. The fact is that pressures of e-commerce, coupled with changing consumer preferences driven by millennials and Gen Z, have forced retailers to adapt. The Cleveland market is an excellent microcosm of this retail evolution that has swept through the U.S. Here are the most notable retail trends in Cleveland.
Health and beauty
Perhaps the hottest category in retail right now is health and beauty. In plain terms, Americans today, more than ever, value being healthy and looking their best. All that you need to do is walk through Pinecrest on Cleveland’s East Side to see the impact of health and beauty on the retail industry. Pinecrest is a sprawling mixed-use district, comprised of 400,000 square feet of retail and restaurants and 162,000 square feet of class A office space. The project opened in spring 2018.
Pinecrest is a model of new urbanism and has brought dozens of new-to-market retailers and restaurants to the region. Pinecrest offers yoga (Citizen Yoga), Pilates (Club Pilates), group interval training (Orangetheory Fitness), a day spa (The Woodhouse Spa), a nail spa (Zen Nail Spa), a full-service salon (j. bellezza) and a beauty superstore (Sephora).
In the same vein, as you shop other centers throughout the region, you’ll notice an increasing number of health and fitness categories — full-service fitness centers, boutique fitness centers, yoga, spin, barre, dance, high-intensity interval training and CrossFit — and the list goes on.
Grocery stores, whether it’s Aldi, Trader Joe’s or Giant Eagle (Northeast Ohio’s largest full-service grocery operator), have noticeably expanded organic offerings. The global wellness economy accounted for $4.2 trillion in 2018, up 12.8 percent from the previous year, according to Global Wellness Institute. Health and beauty is everywhere, it’s e-commerce-proof, and it is becoming a staple of every relevant shopping center in the region.
Since the Great Recession, discounters have slowly become the most successful category in retail. It is projected that discount retailers will account for more than 50 percent of all retail store openings this year, led by dollar stores and discount grocers. Why, you ask? There are a number of contributing factors, but it’s clear that these discounters, by nature, are e-commerce-proof.
While you can shop for groceries online in almost every mid- to large-sized city in the U.S., you will not find the same deals that you will find shopping at Aldi, Trader Joe’s or even Dollar General. Consumers also typically like to touch and see their own produce, meat or eggs, and the delivery fee (and tip) makes the delivery services a luxury for most.
You can find clothes and housewares on thousands of websites, but you won’t experience the immediate gratification of the treasure hunt that is shopping at TJ Maxx, Ross or Five Below. Consumers enjoy the shopping experience and the gratification of finding deals at these stores, and their comparable sales continue to show it. If you shop any shopping center in Cleveland, you will find that if a space larger than 10,000 square feet was filled in the past three years, the tenant is more likely than not to have been a discounter.
Re-urbanization refers to a movement of people back into an area that had been previously abandoned. I’m going to use this in a less literal sense to describe what has happened in Cleveland, and dozens of other cities throughout the U.S.
Millennials have led the charge in what has been a revolution in downtown Cleveland, flooding the city over the past decade and forcing developers and public officials to respond accordingly. The result has been a myriad of mixed-use projects totaling $8 billion that have made downtown Cleveland the largest downtown in Ohio (17,500 residents) with the highest concentration of jobs in the state (105,000 employees).
Like the rise of health and wellness, this trend is mostly about lifestyle and priorities. And for the same reason that downtowns are popular, so are suburban mixed-use projects with the feel and function of a downtown. Two such projects have opened in the past two years in Cleveland, and they have been among the most successful projects in the region in years so far — the previously mentioned Pinecrest in Orange Village and the Van Aken District in Shaker Heights. What’s interesting is that they coexist only 10 minutes apart on Cleveland’s East Side, demonstrating just how much demand there is for this type of project.
These projects blend residential, office, and yes, plenty of retail. But much of the retail is not traditional retail — it is comprised of experiential boutiques, chef-driven restaurants and unique entertainment concepts that make the residents, workers, shoppers and patrons feel as though they are downtown while, in actuality, they are in the heart of the suburbs.
At the same time, the majority of these tenants are mostly e-commerce-proof. At Shinola, a Detroit-based watch company that opened recently at Van Aken District, expert salespeople know everything about the history of the company and every unique detail of each watch in the store. Once you purchase your watch, Shinola has an employee whose sole job is to custom-monogram your watch so that it truly feels like it’s yours. That’s experiential retail, and an example of the kind of retailer that is thriving in this retail landscape.
So yes, the retail landscape is changing, but retailers and developers have an answer for e-commerce — and when that healthy competition occurs, consumers win.
— By Greg Guyuron, Executive Vice President, Anchor Cleveland. This article originally appeared in the August 2019 issue of Heartland Real Estate Business magazine.