By: Andrew Hanzl

There is no doubt the retail landscape is changing; just last week Toys ‘R’ Us announced they will be closing all 735 stores, joining the long list of other well-known retailers either drastically reducing their presence in the market or disappearing altogether. Amazon and the entire e-commerce sector have shaken up the retail industry by offering an almost frictionless shopping experience, with which traditional brick and mortar retailers simply cannot compete.

Don’t worry if you are a retail-focused real estate professional, brick and mortar retail isn’t going away, as some elements of the retail shopping experience can’t be replicated over the internet. For example, restaurants, entertainment venues, dollar stores, furniture stores, and grocery stores, have largely been able to avoid the wraith of Amazon. These retail segments have been able to survive, but they haven’t been able to thrive and grow at the same rate as the off-price discount/value sector, the topic of today’s discussion.  These days finding a great deal in shops as Target, TJ Maxx, Nordstrom Rack, Burlington, Ross, or Marshalls has become hip to brag about. Social media influencers post millions of “shopping hauls” videos online, popularizing bargain hunting and making shopping for a good deal look cool for millennials. And fortunately, these “treasure finding” retailers have a business model that is here to stay, because it is almost impossible to replicate online. The “Amazon repellent” these discount retailers use is the frequent turnover of their low price merchandise; factoring in the potential costs of free shipping, return shipping, and photographing inventory, their entrance in the Amazon market is not worthwhile.

The best performing off-price discount/value stores are all adapting to continue their growth. Target, for example, is spending seven billion dollars, to renovate more than 1,000 stores over the next three years to keep the modern-day shoppers engaged. The plan includes modernizing the dated stores and bringing in more technology and digital experiences to better serve their customers. In addition, Target is planning to open more than 100 small-format stores, allowing its best features to be showcased in dense urban neighborhoods and college towns.

TJX, the parent company of the already successful Marshalls, TJ Maxx, and HomeGoods, have just unveiled a new concept, called “HomeSense”, to further diversify their business. HomeSense will sell furniture, lighting, and art for 20-60% less than other furniture stores, complementing the home décor items currently being sold at their HomeGoods stores. The home goods business represents a huge growth category for TJX. Sales at their HomeGoods brand increased by 13% in the fourth quarter, which helped total sales at TJX increase by 6% in the last quarter of 2017. TJX has experienced tremendous growth, going from 3,050 stores in 2013 to an expected 4,070 stores by the end of 2018, with the future goal of having 5,600 locations.

Burlington Stores recently rebranded from Burlington Coat Factory, has invested in a marketing campaign to help remove the perception that they only sold coats, improving customer awareness for their other products. By promoting their other lines (home, beauty, active wear, toys, suits, etc.), Burlington’s stock price has more than doubled in the past two years, thanks to the change in brand perception. Moreover, Burlington has further improved profitability by increasing their vendor counts, making technological advancements, and focusing on localized assortments. Burlington is expected to open 40 to 50 new stores a year going forward; this figure is likely to increase to 80 stores per year if they can find the right locations.

As a retail developer/ investor, you should focus on capturing tenants that offer an experience/product that would be difficult or even impossible for Amazon or any other e-commerce site to replicate. As the retail market continues to evolve, finding sources of capital for retail acquisitions and developments can be challenging. If you would like assistance securing financing for a retail deal please contact Andrew Hanzl at ahanzl@metcapital.com.

The Author, Andrew Hanzl, is a Senior Analyst in the Dallas Office of Metropolitan Capital Advisors.