How I Learned to Stop Worrying and Love Retail Real Estate

As we all know Radio Shack is now closing roughly 1700 stores across the nation, which has folks asking: Now where am I going to find that Co-Ax Cable to AV Cable Converter Kit? While many more folks are asking: What does this mean for retail real estate? Those who see the glass as half empty, see these closures of the harbingers of more closings for other retailers. More people are shopping online, pushing out the need for brick and mortar retailers and shrinking the retail footprint. However, we would argue that while Radio Shack does tell a story, it is not the Doom’s Day prophecy many fear.

As discussed in this forum back in September of 2014 (Resizing the Retail Footprint), there is a push for some retailers to shrink their footprint. Radio Shack was probably the lowest footprint it could go, and with none of their stores being in excess of 2000sf, real estate overhead was not the sole cause of the closures. Expenses to be sure are half of the story of operating income, but the revenue side is a large portion as well. Aside from cords and batteries, the hallmark of Radio Shack has always been phones, video games, cameras, MP3 Players, Walkman’s and of course old Dictaphones. Today your smart phone contains a huge chunk of the devices that Radio Shack had sold throughout the 1990's and 2000's.  

Now let’s get back to the retail real estate space. The need for retail real estate space has not changed but who fills the space has. The Wall Street Journal has reported that the Game Stop will be back filling 163 of the stores vacated by Radio Shack (click here for the article). So the reality is that the small Radio Shack will likely be filled by another electronics boutique but with a slightly different focus on the consumer products spin.

So what other tenants are out in front looking to expand and backfill? Grocers and food stores… Market Basket and Whole Foods are dominating the retail grocer expansion of the 2010's. Food store retailers such as Orange Leaf yogurt are expanding all over. These are retailers that cannot be replicated online. In that arena are gyms. Boutique fitness franchises are sprouting up. If you ever have a chance to talk to someone who is a member of Cross Fit, you will certainly find a “Rabid Fan”, which is why they are expanding in smaller retail chain and industrial areas.

As previously discussed in this forum, there are still those retailers whom we all think are going 100% online, but still do need bricks and mortar. Banks come to mind as a type of retailer that people may have expected to have moved more to online platform, yet branch banks are cropping up throughout the region as the landscape of the banking community continues to shift.

The lesson for today then can be summed up in the phrase “don’t believe the headlines”. Yes retail is shifting, so too are the tenants that occupy the space and the landlords that own it. And of course the brokers who live it each day.