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Fitch: Mixed Use is the Future of Retail

With retail stores shuttering at a whipsaw speed, questions about what’s to become of all that empty space continue to swirl. In the case of A malls, those vacant spots are likely to find new tenants quickly. B & C shopping centers, on the other hand, are unlikely to be so lucky. But that doesn’t mean there’s no future for these locales.

In a blog post yesterday, Fitch Ratings predicted a time when these locations will service as last-mile solutions for the e-commerce market, which is showing no signs of slowing down. In the first quarter of 2017, online sales accounted for 8.5% of total sales, up 7.8% from the same period of 2016, according to the Census Bureau of the Department of Commerce. E-commerce was up 14.7% in the first quarter of 2017 compared to the previous year period. And with every sale, the fulfillment needs mount. These empty stores can be part of a solution for convenience-driven consumers and retailers looking for ways to manage costs while also ensuring product is the right place at the right time.

(Read more about non-linear purchasing journeys: Overcoming Inventory Allocation Obstacles in an Omnichannel World)

The thinking is, stores and distribution sites aren’t so different, especially these days. With both, you have goods and proximity to shoppers. Add consumers with a willingness to pickup their goods and a mixed use model makes sense.

“Retail centers that exhibit the best demographics, which include per capita income and population density, will be most easily repositioned and most capable of managing the secular shift in how goods are sold and purchased in the 21st century,” the post said.

Already you can see the shift within stores that are still in business. With omnichannel leading to a tangle of delivery and pickup options, retail CEOs are touting location as one of the strongest benefits of having physical stores. Kohl’s CEO and president Kevin Mansell counts the chain’s proximity to 85 percent of Americans as a key differentiator in our changing world.

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(Read more about the future of stores: Physical Stores: Albatross or Asset?)

For Target, the goal is to get rid of the traditional store and create a “hyper-local, shoppable distribution center” that’s capable of servicing in-store shoppers and grab-and-go consumers, according to Brian Cornell, Target chairman and CEO. The big-box chain is rolling out new store designs to fulfill this promise, while its competitors across tiers are also rejiggering operations to facilitate buy online, pickup in store as well as order fulfillment from store shelves. Locations like this, that can also act as distribution hubs, are positioned to be the ultimate winners, according to Fitch.

“The need to distinguish between an attractive retail or last mile distribution site—zoning notwithstanding—will become less meaningful as the function of the real estate is the same: providing a way to distribute goods to customers,” the post said.

And with on-demand ride sharing and eventually self driving cars, Fitch even foresees a time when parking lots could become endangered. When that time comes, the financial services company says these deserted lots could be perfect for pickup facilities. Already Amazon is rolling out locations devoted solely to customer pickup with its AmazonFresh Pickup grocery stations.

Some of these changes will require rezoning as the retail landscape continues to evolve, but Fitch says municipalities are likely to get on board when the only other option is miles of unused space.