Innovative new retail experiences are appearing across the United States, and Texas is no exception. We started with food halls and experiential outings like escape rooms and now see even more creativity, from axe-throwing bars and esports arenas to Instagram-worthy art installations like Candytopia and experience-driven restaurants and bars like Pinewood Social.
Throughout the country, there is a preferential trend toward experiential retail — businesses that provide consumers with unique, unforgettable encounters — and it’s simply a response to changing consumer tastes.
Typically, a shopper visits a particular store for one of three reasons: convenience, value or experience. Today, we enjoy greater shopping convenience than ever before.
Ching-Ting Wang, Cushman & Wakefield
In many areas of the country, we can get nearly everything we need from internet retailers, often with same-day or two-day shipping. According to PwC’s Global Consumer Insights Survey 2018, 41 percent of consumers are willing to pay extra in order to get same-day delivery, while 23 percent are willing to pay for delivery within three hours.
Meanwhile, companies that provide exceptional value are showing growth compared to their peers. For example, the parent company of T.J. Maxx and Marshall’s showed steady positive increases in annual sales growth from 6 percent in 2015 to 8.7 percent in 2019, according to the company’s 2019 proxy statement report.
Of course, not all retailers have the bandwidth to compete on a value scale, leaving the third option of experience to help drive consumer traffic.
A Focus on Experience
Build-a-Bear is one example of a retailer that has embraced experiential retail since its inception in 1997. The company’s main premise is walking consumers through the experience of making an individualized stuffed animal. Drilling down, this is hardly a diversification of assets, yet more than 20 years later, the retailer is still a success.
The idea is tough to grasp at first given that Toys ‘R’ Us not only sold products similar to Build-a-Bear but also offered a wider array of toys and electronics. However, Toys ‘R’ Us recently went bankrupt and closed all stores.
Why? Consumers are looking for more than just a warehouse full of toys. They want a shopping experience as unique as themselves. When retailers focus on experiences, then the buying potential is endless. We are not merely just buying a product anymore; we are buying the journey involved in purchasing the product.
Our craving for experiences has been heightened, thanks in part to our frenetic, tech-driven world, our longer work hours and the fact that many goods have increasingly become commoditized online or via discounters.
This is particularly true for millennials. Eventbrite’s The Experience Movement report states that 75 percent of millennials prefer to spend money on experiences over material items. This shift is becoming even more apparent as millennials account for close to a quarter of the U.S. population.
Retail Reinvents Itself
Many articles reference the “retail apocalypse,” often coupled with a list of newly announced store closures. But in truth the phrase does not depict the bigger picture. We are simply in another round of retail reinvention.
Many retailers facing bankruptcy have unsustainable debt loads and outdated financial growth models that prompted them to over-expand and underinvest at a time when a formidable challenge was brewing. According to our data, since 2010 nearly 60 percent of all major U.S. retail bankruptcies have been by retailers that were shouldering leveraged buyout debt.
The rise of experiential retail and renewed focus on the consumer experience are solutions to the current brick-and-mortar malaise. In Texas, embracing new retail ideas should come as no surprise, given that retail here is big.
At 40 percent, San Antonio leads major Texas metros in terms of retail space as a percentage of commercial inventory. Austin is fifth (34 percent), followed by Houston (29 percent) and DFW (25 percent). The four major Texas metros all had more than 50 square feet of retail space per person, with DFW leading the pack at 56.5 square feet of retail space per person. Houston followed at 55.5 square feet, San Antonio at 53.5 square feet and Austin at 50.3 square feet. Chicago is the only city with over 7 million people that ranked above DFW in retail space per capital at 59.4 square feet.
Retail has continued to grow alongside the major Texas markets. According to Moody’s Analytics, out of the 20 most populous states in the country, retail jobs account for 11 percent of total employment in Texas and 15.7 percent of new jobs added over the past year.
Texas ranked fourth in total job growth over the past year at 2.4 percent, with retail employment surpassing the state’s employment rate of 3.5 percent. The continued growth in retail employment is bolstered by a growing population and healthy retail sales volume. Currently, retail sales are at an all-time high in Texas at $550 billion, a $190 billion increase since 2010 and a 3.6 percent increase over 2018.
Despite worries about a retail apocalypse, data shows that retail is still a significant slice of the commercial real estate market in Texas’ metropolitan areas, and retail sales continue to grow. We expect these areas to be prime locations for new, creative retail for years to come.
There is no doubt it will be fascinating to see the evolutionary results for this great retail reinvention. Until then, we will prepare our wallets to purchase our next big retail experience.
—By Ching-Ting Wang, director of research, Cushman & Wakefield. This article first appeared in the December 2019 issue of Texas Real Estate Business magazine.