Retail is Not Dead?

In 2003, two events happened that shaped the course of how I would view the world. First, my dad got a job at UConn (Go Huskies! Back to Back 🏆🏆) meaning we moved from downtown, urban Boston to sleepy, suburban West Hartford. Second, suburban West Hartford got a little less sleepy with the announcement of Blue Back Square, a mixed-use development located on a former car dealership with 120 apartments and 250,000 SF of commercial and office space. Since then, additional apartments and other features, like walking trails and community spaces, have continued to pop up, turning this once quiet area into the bustling hub of the town and the epicenter of the community.

However, as with all retail space, Blue Back Square and the broader West Hartford Center face empty storefronts. Currently, the area is home to a 5% vacancy rate, about half of the US average for similar spaces, which is around 10.3% as of Q4 2024. Beyond the numbers, the news is peppered with stories of retail struggling. Foxtrot raised $194 million to be the future of third places and went bankrupt. Similarly, Boission raised $17M to build the future of non-alcoholic beverage retail. This wasn’t just an issue in startups; large retailers felt it too. According to Coresight Research, in 2023, 4,600 large format chain stores closed, led by Bed Bath and Beyond (866 stores) and CVS (300 stores). At its core, the United States has always had a retail square footage problem — there is too much of it. And that is after the United States has eliminated 130M sq ft of retail space in recent years. Below is a chart comparing the US with other countries:

Retail square footage per capita by country

As illustrated in the graph, the United States retail square footage per capita after contraction still vastly outnumbered peer countries.

The central question is whether this recent contraction is due to a market over-expanding, or as many people have proclaimed, the overall death of US retail. Yes, traditional mall-based, car centric retail is declining. But in its place is omnichannel and denser area retail, whether that is in the suburbs or cities. This retail is vital not only for the commercial opportunities, but also the opportunities to bring communities together. Having lived in rural areas (college towns), cities, and suburbs with a strong retail footprint, I am a believer that retail is not dead but rather evolving.

The question matters tremendously because retail is such an important part of the community; it brings together people from all different walks of life into the same physical space. Restaurants, clothing stores, bars, coffee shops, grocery stores, and large format superstores are all great places to build community. As with any evolution, you need to take a step back to take a step forward. In this piece, I am going to explore five trends that highlight the positives and negatives of retail, and ultimately leave me personally bullish on retail.

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Trends

1. Marketing Spend & Costs
2. Does Curation Scale?
3. Consolidation of Spend
4. Community
5. Omnichannel

Marketing Spend & Costs

Marketing is a unique part of the business: you need it to help grow, but it is also one of the first parts of the business to get cut back in tough economic times. For the past 10 years, many companies, particularly in ecommerce, were riding the wave of cheap, easily attributable marketing via social media platforms. However, increased competition, as well as stronger privacy rules, have made that cost continue to rise, meaning social media is no longer a super cost-effective channel. Additionally, like all marketing channels eventually face, social media is no longer new and has become saturated as more companies adopt it. My prediction for the next great marketing frontier is a throwback: excellent retail footprint.

Here are two scenarios:

1. Spend over $75 per customer on social media advertising and hope you get thousands of orders
2. Spend a similar amount per square foot in rent and get thousands of people to walk by each day

Both options have their ups and downs, but in scenario 1, you have unlimited competition, whereas in scenario 2, you are just competing around you. Brands are taking notice of the upside of a retail presence. Wayfair just announced its first retail location. Ecommerce brand ASTR the Label continues to expand retail locations via their partnership with Leap — now up to 2 stores. Another ecommerce brand, Mizzen + Main, has opened six stores in the past couple of years. Here is an article overviewing all the D2C brands opening physical stores.

Not only are brands opening stores, but they are shifting ad budgets from digital to physical as you are able to influence the customer where they are super high intent purchase. Mondelez, the CPG manufacturer, is planning to spend 20% of their ad budget on retail media which includes both in store and through the retailer marketplace ad platforms. Advertising spend needs to match the increasingly omnichannel nature of customer shopping. The media buying market as a whole sees that change, and experts are predicting retail media ad spend will outpace traditional tv ad platforms for the first time in 2024/2025. What approach will help each company most varies, but a retail emphasis is an increasingly viable option for many.

Does Curation Scale? (or is that even the problem…)

In the startup space, there have recently been two high-profile failures of retail/retail-ish startups that raised large amounts of money and then went bankrupt, Foxtrot and Boission. I believe there are three reasons why this was the case, none of which negatively impact the future of retail.

1. Curation’s cost-prohibitive nature

When looking at these startups and visiting the stores, they were very well-designed, had really interesting smaller creative brands, and were very spacious inside. While that may have been a great customer experience, in reality it leads to higher prices and high costs to run. In a time when consumers are showing that value is important to them, and these establishments were not able to offer value; it was not a surprise they were struggling. It also takes time to scale, so when you grow rapidly, it leads you to fail faster. PopUp Grocer, a Foxtrot like store with a single location in New York is still around. Curation is important, but it is not more important than price to consumers right now, which brings me to the next point, servicing a full basket.

2. Full basket

Last month, Walmart announced their private label brand with 300 items focused on culinary experiences: better for you, a cleaner label, and plant-based products. This ethos is similar to what you would see in the products at curation markets, only cheaper. Additionally, there are pantry staples and other items Walmart sells that smaller, curation stores either don’t sell or sell for much higher prices. Customers want to be able to get their full basket for maximum value, which is why you see Walmart broadening their selection to appeal to a wider audience.

3. Consumer preference is always changing

Consumers are a notoriously fickle bunch and what is in and out changes in a heartbeat. For a store like Foxtrot or Bossion that carries a fraction of what their larger competitors would, this can be a challenge as you keep having to swap out the products. Constantly swapping out products increases corporate costs and doesn’t allow you to build the relationships with the manufacturers that keep costs down. Contrast that to a Walmart, where you have so much space, if one cookie brand is in and another is out, you already have both, so it is less work to expand one product’s footprint in the store than to bring a net new product in. While being curated may help with consumer shifting preferences, you have to be able to keep up.

To conclude this section, Foxtrot, Boission, etc. closing is not an indictment on curation being a failure. Rather, it shows that there is more to most customers than curation. They care about value, being able to have the full basket, and meeting their ever-changing preferences, which leads to the next point on spending consolidating.

Consolidation of Spending

Building on some of the points made in the previous paragraph, spend, both ecommerce and retail, is consolidating into the bigger players, making it harder for smaller players to stick out, even if they are highly curated. In Walmart’s latest earnings, they announced e-commerce revenue in the US grew 22%, contrasted with 9.5% in the overall US market. Another example of the consolidation is the fall of big box vertical stores like Bed Bath & Beyond. You could argue that these vertical big box stores stores feel it more than some of the smaller stores because smaller curated stores have items you can’t find elsewhere. If you are looking for a pillow, Walmart has plenty of options in their large store plus the grocery items you need for the week. If they don’t have that exact item in their store, they have plenty of items on their marketplace from third party sellers or in their cost-efficient warehouse you can buy. Contrast that with a Bed Bath & Beyond, where the product is more expensive due to high rent and also the store doesn’t have the full basket. You can see why a consumer would end up going to a Walmart store or buying it online on their site.

Plus, as all these sites launch paid membership for free shipping and delivery, consumers want to consolidate spending to extract the most value. Similar to how consumers are not flocking to add every streaming service, they will not flock to add multiple memberships for free shipping and delivery. Whoever can deliver the most value and fullest basket will end up winning the customers.

Omnichannel

Another service customers are showing they want is omnichannel commerce. Consumers are demanding options: picking up in store after pre-ordering online, shipping it to home, scheduled delivery, rapid delivery, or just normal in-person shopping. According to Capital One research, 73% of shoppers are omnichannel and those customers have a 30% higher return on investment. At the hub of all these fulfillment methods is a location located close to the consumers. If that sounds familiar, it is: a retail store. There are cost benefits from using an offsite warehouse, but customers are showing they want to be able to go in and pick things themselves. From an ecommerce perspective, having a retail footprint close by enables reverse logistics, like returns and exchanges to be simpler.

Alternatively, if the customer wants to figure out their pants size in store and ship the rest to their house, they can do that. Trial is crucial to the consumer experience and that is not going away. Retail footprints allow that experiential opportunity that customers want. In the end, the future of ecommerce is retail, and the future of retail is ecommerce — there is no way of avoiding it. Customers want omnichannel and having an excellent, optimized retail network is crucial to that.

Community

The last trend, community, is a little harder to measure. In a recent survey, 24% of people over age 15 reported feeling lonely, with people ages 19 to 29 having the highest rates. It’s clear that Americans are increasingly lonely and one of the solutions is increased retail and third places to meet new people. Too often you are reduced to an app to make a business connection, new friend, or date. This can be great for some but as shown by the stats it’s not working for everyone. As part of the future of retail, one of the big reasons I am excited about retail is the opportunity to leverage community. Retail allows for serendipitous connections you would not be able to connect otherwise. Retail is a vital part of socialization and community; even as the world moves more digital, the physical space and interaction is still just as important.

I do not believe retail is dead, but it is evolving. Consumer habits and preferences have changed, and retail, despite its typically slow nature, needs to evolve. Customers want value, being able to purchase their full basket in an omnichannel manner, and community. Despite my optimism, there is going to be a lot of evolution and contraction before retail can build back stronger. Long story short, there is going to be a lot of news, including many intriguing startups to follow.

To address this problem of tracking all the changes in the retail world, I have created a new weekly newsletter, “Retail Is Not Dead?” Each week we will dive into the top trends (both positive and negative), startups, jobs, news, and more at the intersection of retail and community. If you like what you read in this piece, subscribe here. Additionally, I am very bullish on retail and would love to connect with anyone building in the space. Please reach out to me at noah.sobelpressman@gmail.com or respond to the first newsletter (dropping Memorial Day weekend).