Tuesday, February 7, 2023 Feb 7, 2023
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Commercial Real Estate

CRE Opinion: Digital Natives and the Changing of the Brick-and-Mortar Guard

The conversation in retail leasing is moving toward helping digital native companies obtain physical spaces. It's not armageddon; it's the changing of the guard.
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Photo by Elizabeth Lavin

Many of my Retail Connection teammates and I recently attended the regional ICSC Deal Making convention in New York City.  Second only to the national convention in Las Vegas, the New York show is the best place to meet with retailers, developers, and brokers from around the country to gain a national perspective on the changing retail climate.  Over the past couple of years, the conversation has leaned towards how digital native brands could potentially make bricks and mortar obsolete. However, the biggest buzz this year was about how digital native brands such as Allbirds, Bonobos, Madison Reed, Everlane, Outdoor Voices, and Tuft & Needle are integrating bricks and mortar into their overall growth strategy.  In fact, it is anticipated over the next five years that former online-only players will build out over 850 new brick-and-mortar stores. But to accomplish this, both landlords and retailers need to adapt to be successful.

Managing director at The Retail Connection Steven Zimmerman

Landlords have historically shied away from start-ups and looked to fill their centers with trusted, reliable brands with good credit.  Don’t get me wrong, this is still a very viable (and in most cases preferred) modus operandi for creating and maintaining an economically successful shopping center.  However, the up-and-coming brands drive tremendous traffic, creating their own unique value to a center.  Many of the digital brands listed above have recently opened physical stores and are actively seeking more locations with landlords that are willing to cluster the brands in an urban setting. The goal is to create a destination that screams to the customer: “This is the place to shop for new and exciting brands.”  Due to the complexity of mixed-use urban retail relative to parking, walkability, etc., both landlords and tenants must collaborate to determine the optimal placing and size to maximize the retailers’ and landlord’s opportunity for success.

The Retail Connection’s leasing strategy for our recently purchased Knox District and other urban assets will be heavily influenced by these brands. We will integrate them with restaurants and entertainment to create the vibrant, fun, and experiential district that today’s shoppers desire.

More and more online retailers are recognizing that well-placed physical stores can speed their growth by meeting customers’ needs in multiple ways.  The retail world continuously evolves from trading posts to local markets, malls to strip centers, and from catalogs to the internet.  One thing remains constant, shoppers want a variety of products that are convenient to attain in an inviting, fun environment.

Steve Zimmerman is managing director at The Retail Connection.

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