Jan 27

Pandemic proves far from fatal for brick-and-mortar business

The pandemic was supposed to kill brick-and-mortar retail, which had struggled for years against online competitors. As stores shuttered and malls emptied, online shopping only became more entrenched, and customers only more accustomed to clicking, buying and picking up almost anything they wanted from their doormat within days, if not hours.

But forecasts of a shrinking — if not dying — brick-and-mortar retail sector have proved premature. In malls, shopping centers and retail corridors across America, consumers are coming back. The number of people shopping in stores on Black Friday was expected to be the highest since the beginning of the pandemic.

Investors, too, are back, spending billions of dollars to acquire shopping centers, malls and other retail properties in Greater Houston alone. Even commerce companies have bought into brick-and-mortar retail, opening stores, showrooms and pop-up shops to extend their reach.

“Everybody saw this really big growth in ecommerce during the COVID pandemic because a lot of retail shut down. They thought that trend was going to continue,” said Scott Blair, CEO and co-founder of Popable, an online platform that allows businesses to find spaces to hold temporary pop-ups.

“But it really hasn’t. Brick-and-mortar retail has takne back off again.”

Online to in-person

For several years, established brick-and-mortar retailers scrambled to build an online presence to compete with giants such as Amazon and Walmart. Now, the formula has flipped: online retailers are seeking in-person locations to meet the demand for in-person shopping.

The shoe and apparel brand Allbirds started online, but now operates 38 physical stores in the U.S., including one opened early this year in Rice Village. Having locations was essential, the company said in a statement, because they allowed customers to see the shoe in person, feel the fabric and try it on. Over the past year, Allbirds said it has steadily increased the number of customers hopping at in-person stores — and the amount customers spend. In its third quarter, in-person sales jumped 53 percent from a year earlier.

When mattress retailer Casper was founded in 2014, their online-only model was an asset: it offered the convenience of a mattress delivered to customers’ doorsteps, instead of the traditional experience of trying to fit one in the trunk or strapping it to the roof of a car. But Casper, too, has since opened several in-person stores.

“As convenient as it is to buy online for some, other consumers like to shop for mattresses in a trial environment, so we want to meet the customer where they are,” the company said in a statement.

In its Galleria location, customers can still order Casper mattresses to be delivered directly. But they can also test out mattresses, even book appointments to take a nap on an in-store mattress as a “test drive”, the company said. The breakdown of customers at the Galleria store who take their mattresses home the say day versus choosing shipping is about 50-50, according to Casper.

Store locations also allow retailers to offer services they couldn’t before. At four of the eyeglass retailer Warby Parker’s five — soon to be six — locations in the Houston area, customers can book eye exams — something that was impossible when the brand was only available online.

Investor perspective

As the pandemic dragged on, investors began snapping up retail properties, especially shopping centers anchored by grocery stores. A record 735 grocery-anchored retail transactions took place nationally in 2021, according to the real commercial estate firm JLL.

That trend has continued. In the second quarter of 2022, investors spent more than $3.5 billion to acquire retail properties in the Houston area — the highest since the third quarter of 2019, and an increase of $500 million from the first quarter, according to the commercial real estate firm CBRE. During the third quarter, investment in retail real estate in the U.S. rose 19 percent from the year earlier, according to JLL.

In May, a 50,000-square-foot retail center near West University Place sold for $33.5 million to a New York-based real estate investment trust. Several other grocery store-anchored retail centers have recently changed hands, such as a 263,000-square-foot retail center in West Houston and a 231,000-square-foot shopping center in northwest Houston anchored by a Fiesta supermarket. Both were purchase by Wy Properties, a Houston investment firm.

The region’s population growth and low cost of living have created a strong demand for retail, said Jason Baker, a principal at Baker Katz, a Houston brokerage specializing in retail tenant representation. Meanwhile, construction slumped during the pandemic and has yet to catch up to demand.

“Every landlord in the city has some percentage of their portfolio that they can never seem to lease,” Baker said. “In this environment, over the past few years, we’ve seen much of that space get leased because there’s so little space added, and there’s so many retailers.”

In a national survey of real estate investors this year, 27 percent recommended buying retail properties in Houston, compared to 18 percent last year, according to the Urban Land Institute, a Washington think tank, and the global consultancy PwC.

Average asking rents for retail space in Houston during the first three quarters of 2022 are near their highest levels in a decade while retail occupancy rates have hit an at-least six-year high, according to CBRE.

Investors, meanwhile are pouring hundreds of millions of dollars into new projects with significant retail components, including a $2.5 billion mixed-use development east of downtown and the Katy Boardwalk District, which will feature 155,000 square feet of retail space.

Pop-ups proliferate

But for many small businesses, long-term leases and expensive rents have proved barriers to opening stores. But they’ve found a solution: pop-ups.

Pop-ups allow small businesses to experiment with in-person retail, without making a full commitment, according to Blair, the Popable CEO.

Holding a pop-up inside an established mall, or large retailers like Walmart, can get small retailers into premium real estate they wouldn’t otherwise have access to, Blair said. For host businesses, pop-ups generate income while also filling a space that might be otherwise dark and empty, according to Blair. He’s even seen some successful pop-ups turned into long-term leases.

One of Popable’s long-time pop-up offering has been Pop Up Shop Galleria, a space in the Houston mall dedicated to pop-ups and owned and operated by Brooke Santos.

Santos agrees that brick-and-mortar retail shopping is becoming less popular. Foot traffic at Houston shopping malls during the first week of November was only at about 72 percent of what it was the same time in 2019, according to Avison Young, a commercial real estate services company headquartered in Toronto.

But those who do come to her shop spend about three times as much as pre-pandemic customer would, according to Santos.

“It’s the service,” she said. “At the end of the day, people want to connect with people, and that is why I am 100 percent sure that brick and mortar is never going to go away.”

Pop-ups can also help brands test new markets, according to Santos. When pop-ups don’t perform as well as expected, it can be a sign that the location isn’t a good fit, Santos said — a lesson that’s much cheaper to learn from a one-month pop-up than one month into a long-term lease.

The phenomenon of pop-ups isn’t just for small or online-only businesses. Before the pandemic, Heber Linares and Jason Peña, co-owners of the local shirt retailer EaDo Shirt Company, had a permanent spot selling sports and Houston-themed T-shirts in a bar downtown. When that bar shut down during the pandemic, their sales were confined to customer they could reach online. They started pop-ups in local bars to sell their shirts, avoiding the cost of a long-term lease while moving around to find new customers.

Allbirds — which started its brick and mortar retail presence with a pop-up in San Francisco — has continued to use pop-ups as recently as this summer to sell products in new locations.

In Santos’ Galleria pop-up location, small retailers directly market and sell their products to customers. Being able to talk with the shop owners and know their money is going to fellow Houstonians is why Santos believes customers prefer shopping and spending more at in-person shops.

“There’s something about that experience,” she said. “People get really excited, and you just see their eyes light up.”

As run in The Courier of Montgomery County (Texas)
Megan Munce – Staff Writer