Photo: iStock | Kirkikis
Is Retail Moving to The Suburbs?
Retailers operating in the suburbs have benefited from the remote work trend that began when the novel coronavirus pandemic began in 2020. That has led retailers with stores in city business districts to look for space in the suburbs.
Foot traffic in city downtowns in April was about 25 percent lower than during the same month in 2019, according to MRI Springboard.
The Wall Street Journal reports that landlords with suburban properties, including Site Centers, Phillips Edison and Simon Property Group, say that the percentage of properties leased has increased since the beginning of the year.
The Placer.ai Mall Index shows that even though traffic to indoor malls, open-air lifestyle centers and outlet malls is down compared to 2022, there are promising signs in the monthly numbers. Traffic to the three mall types increased significantly in March compared to February.
April’s numbers for open-air lifestyle centers and outlet malls improved on March’s results. Indoor malls in April had about the same amount of traffic as in March, with one fewer day to work with.
Retailers and eateries moving out to the suburbs could seem to be heading in the wrong direction as more employers call workers back to their offices, but statistics suggest that the five-day workweek will remain a thing of the past for many. Frequently cited research from Kastle at the beginning of February showed that office occupancy rates in the ten biggest metro areas were at 50.4 percent of pre-pandemic levels.
Fortune last month reported on a Stanford study that found 12.1 percent of workers are fully remote at their jobs. Twenty-eight percent of those who work from home are on hybrid schedules.
Nicholas Bloom, a Stanford economics professor and co-founder of the Working From Home Research Project, told Fortune that flexible schedules are more common in cities including Atlanta, Boston, Chicago and New York.
Anecdotal reporting shows that many Gen Z workers just entering the workforce are most keen to report to an office. Consequently, research from AARP shows that workers with more years on the job are looking for flexible arrangements.
Sixty-six percent of workers 40 and up say they would only accept a new job if they are able to work remotely at least some of the time. Seventy-nine percent say that flexible work hours are a job requirement for them.
“During the pandemic, many people took time to re-examine their personal goals and how their job fits into their life,” Carly Roszkowski, vice president of financial resilience programming at AARP, told MarketWatch. “Given the high level of burnout that so many older workers experienced during the pandemic, especially those who are caregivers, it should come as no surprise that work-life balance has emerged as not just a priority but a requirement.”
Discussion Questions
DISCUSSION QUESTIONS: Do you see the shift from cities to suburbs continuing for retail for an extended period? What will this mean in practical terms for retailers operating stores in urban and suburban areas?
Poll
Loading …BrainTrust
Katie Thomas
Lead, Kearney Consumer Institute
Richard Hernandez
Merchant Director
While there are attempts going on to re-gentrify city living, retail itself is moving further out to avoid issues like crime and workers not going back to 100 percent office work. Workers are more amenable to a hybrid work schedule. They are looking for businesses that can be reachable in a few minutes. Work/life balance is even more important now than pre-pandemic and retailers are aware that they will need to be there to serve their customers.
Shopping is part of the new work-life balance. One effect of half-vacant office buildings will be fewer lunch options in cities. Same thing for groceries and other quick purchases. These trends, too, will push the odds in favor of town centers and could keep malls active as well. So the suburban town center is the new downtown.
The remote work genie is out of the bottle and will not be going back in during our lifetime. With commuting around today’s urban markets being a nightmare, and everyone already comfortable on Teams and Zoom, the need to be on-site is just old school. Mondays and Fridays are the days when work from home will be the order of the day. Retailers need to anticipate that this trend will continue, focusing on smaller footprint stores that fit into a suburban market. This is not to say that retailers will abandon cities, but look for MFCs to enable the best of both worlds.
Work-life balance is the act of adjusting one’s time so that you have sufficient energy to enjoy activities outside of work. You are making time for personal interests, hobbies, family, fitness, entertainment, and friends. Shopping does not seem to be included in entertainment any longer.
Stores will always be where the shoppers are situated. Now that office workers are becoming hybrid or remote workers, downtown cores are not as popular as they once were. And the increase in crime, high parking fees and time spent sitting in traffic make downtown shopping destinations even less popular. By moving closer to where customers live you not only increase the frequency of lunchtime shopping trips, but reduce the cost of shipping online orders direct from stores, decrease the cost of returns and save a few bucks on rent (for now). And in 30 years the process will start to reverse as the Alpha and Beta generations discover the cool factor in renovating old office buildings into loft apartments. It’s the centuries old cycle of cities.
If I were a retailer, I would take great caution in believing that the suburbs are the path to increased sales. I would be especially cautious about predicting the resurrection of the malls. The growth of malls in the ’70s and ’80s was the result of a mall culture in which shopping was just a part. That culture is long gone and people’s lives and demands have changed.
In NYC office vacancies are near record levels, largely a result of new developments. On the other side of the coin, residential vacancy is just 2 percent, and rents and sales values are skyrocketing.
In a country, where urban stores are closing, that doesn’t translate to the opening of suburban stores. The U.S. still has four times more retail capacity than other advanced countries. More capacity and new infrastructure does not bode well for the bottom line.
Does this mean malls aren’t dead?! Despite being digital natives, Gen Zers (and customers of all generations) still love to discover products in-store and enjoy shopping as an entertaining activity. Besides major city shopping districts, shopping at a traditional suburban mall is often where you can achieve this.
It makes sense for retailers to fish where the fish are — which, at the moment, is in the suburbs.
First of all, I am excited to read that Gen Z wants to return to the office. Everyone needs that experience.
I live in a small suburb of Chicago. We have a beautiful mall close by (which was dying before the pandemic), every retailer imaginable within 5-10 miles, and a fairly new town center that never really got off the ground.
That town center is a victim of bad design and not enough population. Somebody didn’t do their homework. The stores and restaurants are separated by the parking lot. It would have made more sense to integrate the businesses to build more foot traffic. A new design has been planned to make the center more of a workable town square. I bet they wish they had thought of that in the first place.
I read a great quote the other day by Tal Zvi Nathanel, founder of Showfields, talking about NYC retail vs. suburban retail: “The best New York retail is only for the privileged few, and the difference between luxury retail and mass retail keeps getting wider. And most mass retailing is just ordinary.” I agree. When suburban retail is more of the same old, same old, even those who work at home won’t get off the couch to shop.
Once upon a time, suburban retail was not more of the same. In the late-’80s and early-’90s, Main Street in Westport, CT, was lined with unique local stores of every offering. By the mid-’90s, most were replaced by chains. It was no longer very interesting to spend an evening or a Saturday afternoon walking on Main Street.
Good point. But I’m not talking about Main Street and independent retail. Some suburbs have amazing downtowns where both indie retailers and chains exist on the same streets and it’s fun to shop. Town centers try and emulate that local aesthetic, but Gap will always be Gap no matter where it’s located.
I believe we are talking about the same thing. NYC is not a monolithic city but a city of many, many unique neighborhoods. Many of those neighborhoods have amazing “downtowns” filled with unique indie retailers, unusual ethnic restaurants and bars with different vibes. To get the Gap, et. al., the chain restaurants, and Buffalo Wild Wings, head east to Long Island or cross the George Washington Bridge to New Jersey.
Gotcha!
Many of the downtown areas of communities in New Jersey, including Cranford, Madison, Montclair, Moorestown, Morristown, Princeton, Red Bank, Ridgewood, Summit and Westfield, do not bear any resemblance to your depiction “To get the Gap, et. al…”
I don’t mean to denigrate NJ, where I was born and raised. However, the towns you noted, including Ridgewood, where my parents lived, are not mainstream NJ.
Retail started migrating to the suburbs at least 60 years ago, with the development of regional malls followed by discounters, big box stores, power centers and exurban growth. This is not a new trend, but those few cities remaining with a critical mass of “downtown” retail are suffering — San Francisco has gotten most of the headlines, but a walk along Michigan Avenue in Chicago will reveal a lot of empty storefronts.
Whether this is a result of COVID-19, crime, the work-from-home trend or other reasons is hard to say. Probably the biggest factor in the decline of downtown shopping — and the biggest roadblock to suburban growth — is the continuing migration to online and BOPIS retail.
Compared to before the pandemic, fewer people commute into city locations to work. Among those that still do, many have cut down the number of days they spend in the office. This has dragged down footfall in city locations. Some cities also have entrenched problems around crime and disorder, which makes them less attractive to shoppers and retailers. Unfortunately, both of these factors have resulted in some retail and hospitality closures which, in turn, makes cities less viable. It is a vicious cycle that needs some imagination and investment to resolve. That said, it’s important to remember that the position differs between cities and that even within affected cities, different localities are impacted in different ways.
As companies around the world have become more hybrid than only in the office, it has reduced opportunities for shoppers to visit stores in city centers. Even though some companies are requiring more in-office time, it won’t go back to how it was in 2019. Therefore retailers need to re-balance their approach between suburban and urban. One way to address this is to re-think the formats. Perhaps the marquee store needs to be reduced in the city. For suburbs, retailers can test the waters with pop-up locations. I recently saw a Lululemon pop-up store in a San Diego suburban mall and it was fairly busy.
Start with data! More data is needed about the strengths of various suburban markets and more insights are needed about the target consumer and how they want to shop, now and in the future, for your category.
All indicators point to a suburban movement of people, particularly with the sweeping crime that is plaguing our large urban cities. Buttress this with a high degree of hybrid work schedules and I think we’re seeing a more longer-term trend with retail moving to and staying in suburban work-life communities.
As consumers and employers readjust, so must retailers to serve the various demographics and needs of both Suburban and urban communities. I expect clubs to continue to do well with families and in center cities there is renewed energy and demand for indie retailers as well as small format grocery and mass merch.
The Decline of the Five-Day Commute is a boon to suburban retail. A retailer has an interest in opening a store wherever there’s consumer demand. With rise of remote work, there are a lot more consumers who are sticking close to home in the suburbs during the day and would like to shop there.
Opening stores in suburban locations isn’t necessarily a new concept. But it has gained traction in recent years as remote work becomes more commonplace. Retailers such as Amazon Go, DTC eyewear brand Warby Parker, e-commerce furniture retailer Wayfair and Madison Reed are increasingly plotting suburban locations.
Challenging time for urban downtowns presents opportunities in other locations. We will see if that trend holds but for now, it is happening.
Many urban areas are a mess right now (San Francisco and Chicago come immediately to mind), with retailers (Walgreens, Walmart, Nordstrom, Whole Foods) just closing stores regardless of what is happening in the suburbs. Putting new stores in the suburbs makes a lot of sense — they are just following the market.