Despite the rise of online shopping in recent years, more retailers are banking on physical stores — and that's playing out in a number of different ways.
In fact, in-store sales grew faster than online sales during the recent holiday shopping season, easing retailers' concerns that e-commerce will take over brick-and-mortar retail, said Dana Telsey, founder, CEO and chief research officer of equity research firm Telsey Advisory Group, whose analysis is based on her talking to CEOs and other executives at top retail companies across the country.
"Investments that companies are making are not going away from technology or stores," Telsey said. "Data that they are accruing is only making them smarter." Telsey was speaking this past week on a panel hosted by Texas real estate brokerage Weitzman for real estate professionals on the future of retail.
"I'm optimistic about the newness I'm seeing out there and the consumers response to it," Telsey said at the event in Dallas at the George W. Bush Presidential Center. "Retailers are being creative and offering differentiation, you are seeing the consumers response."
Social media helps retailers deliver a sense of newness to customers and brings them into stores, with TikTok and Instagram offering companies a place to grow their business globally, Telsey said. Social media campaigns also force retailers to be choosier with the merchandise they decide to showcase on site for both new customers and loyal buyers.
The analysis is in line with findings of analysts and the strategy of some retailers. Brokerage JLL says artificial intelligence is helping the sector evolve the way it does business with retailers such as Walmart and Amazon turning to aerial delivery for customers in certain areas.
Telsey said we are still in the "early innings" of social media's influence and how it will change the retail sector and increase demand. Here are a handful of real estate-related trends for retailers to watch in 2025:
1. Potential new tariffs. Retailers are rethinking their supply chain and where they purchase goods for both stores and websites after the incoming Trump administration said it might impose tariffs on imports from China, Canada and Mexico. For apparel retailers, the threat of tariffs could lead to double-digit price increases, Telsey said. "Retailers are very concerned on what tariffs could mean," Telsey said, adding the speed at which companies are able to react has improved significantly compared with years past.
2. Artificial intelligence. Retailers are accelerating their AI investments even if companies can't "qualitatively or quantitatively" explain how AI will play into the sector's future quite yet, Telsey said. "AI is becoming a bigger percentage of the capital spending plans over time," she said. AI innovations are creating new opportunities for retailers, brokerage JLL said in its latest retail report talking about the sector's future. AI could assist with shopping tasks by using unmanned drones and vehicles to deliver orders from stores to consumers, JLL said. For example, in Dallas, Walmart is offering drone delivery within a 10-mile radius of many of its stores with plans to eventually offer drone delivery for up to 75% of residents in the region.
3. Consumers want experiences. Consumers have been gravitating toward spending money on experiences ever since the onset of the COVID-19 pandemic, leading to new concepts from old and emerging companies at retail properties. For example, RH, formerly known as Restoration Hardware, is adding rooftop eateries to its stores throughout the United States, and Cosm, a virtual reality entertainment provider that specializes in presenting major sporting events, is growing its portfolio, including in the Dallas area. "There's a desire for socialization with compelling restaurant options," Telsey said. "Experiences are valued more today than in the past."
4. New retailers continue to bank on real estate. Retailers are still investing in brick-and-mortar locations with the recent opening of Skims' New York City flagship store along Fifth Avenue and the U.S. expansion of Canadian fashion retailer Aritzia. Aritzia opened three flagship U.S. stores at the end of last year in SoHo at 560 Broadway and at 608 Fifth Ave. in New York City, and on the Magnificent Mile in Chicago. The three high-profile addresses shows the importance of real estate for the company. Stores are essential to retailers and serve as the "windows of marketing" and build awareness for brands, Tesley said. In JLL's new global consumer preference survey, the firm found that 67% of shoppers in 10 countries said they prefer shopping in person to shopping online.
5. C-level executives starting new roles. Some big retailers are starting 2025 with new leaders who could bring fresh perspectives to the retail sector this year, Tesley said, and its use of retail properties. Elliott Hill came out of retirement to become president and CEO of Nike in October, where he previously spent 32 years at the sports apparel company, helping to grow the business across Europe and North America. Similarly, Ulta promoted Kecia Steelman to present and CEO this week, replacing former CEO Dave Kimbell who is retiring after 11 years with the beauty company. Steelman previously served as president and chief operating officer for Ulta.
6. Small stores are a big deal. As rents climb with higher construction costs, retailers are investing in smaller spaces to show off their goods. Bloomingdale's, Macys, Macy's, Target and Abercrombie & Fitch have all been leaning into small-format stores with the real estate performing more functions outside just merchandising, Tesley said. The smaller stores pack a punch when it comes to sales per square foot of space, hence why retailers continue to shift to smaller spaces, Tesley said.