EP 233: Store Closures and Lease Structures Are Reshaping Commercial Retail

Guest: Stephanie Cegielski, VP of Research at ICSC 

The retail marketplace is in the throes of transformation. Despite the popular narrative of a retail apocalypse, commercial spaces are undergoing a renaissance. If developers and retailers are inventive and bold, store closures offer an opportunity for innovative reinvention. Today, vacancy rates hovering around just 4 percent; there's intense competition for those empty spaces. Scarcity, coupled with high construction costs, has created a competitive marketplace where the retailers that are reimagining traditional can thrive. Join Shelley and Stephanie Cegielski, VP of Research at ICSC as they discuss how successful malls have become vibrant ecosystems as technology hubs, dining spots, entertainment venues, and educational facilities. Listen and learn how retailers can successfully transform by taking advantage of new lease structures that have evolved dramatically, with flexible  terms replacing rigid, decade-long commitments. 

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Transcript

Transcript by Descript: 

 It's great because it isn't just traditional retailers going to these spaces. It is an opportunity for, um, other brands. And a lot of the brands we're seeing are, um, the home goods, the Burlingtons, those lower price point, because that's what the consumer's really looking for, especially in this inflationary environment. 

Retail Unwrapped is a weekly podcast hosted by Shelly Cohan from the Robin Report. Each episode dives into the latest trends and developments in the retail industry.  Join them as they discuss interesting topics and interview industry leaders keeping you in the loop with everything retail.  Hi everyone, and thanks for joining our weekly podcast.

I'm Shelly Cohan and I'm very excited to welcome Stephanie Segelski, who is the VP of research at ICSC. So, uh, Stephanie, welcome. Thank you very much.  I'm so thrilled to have you here. And today what we're gonna be talking about is, I don't know, I kind of called it retail renaissance, how store closures are kind of reshaping commercial spaces.

And I know you've done a lot of research and you have a lot of, uh, points of view on what's happening in terms of store closures and the narrative around that. So we're gonna jump into that, uh, in one second. Before we go there though, Stephanie, I just wanna make a quick plug for our leadership. Lead like her broadcast that just launched a about, I don't know, three weeks ago, but it's kind of been my passion project.

I've been working on this for over a year. Actually it's probably been two years since inception, but you know, I just have a lot of energy about it and this is what, what happen is I would invite these great best guest speakers into my classroom at FIT and they would have this amazing conversation with students.

And then I would like look around the room and I'd say, wow, that only touched 27 students. You know, how can I amplify this message? How can I get this message out to more people? And so that's is the kind of thought process behind lead. Like Her. Uh, it's a video interviews and it's broadcasting through Thero report. 

And what it does is it's giving students and any young women, or any young leaders actually, that wanna learn about how Lee Taylors have really been successful in their career. So it's bringing the stories to all people. It's kind of like the democratization of, you know, being able to get these stories out.

So I'm excited about it. We have an exciting one coming up, which drops on Tuesday, which is Stacy Schulman, who, uh. Has just an amazing outlook on leadership, and I love her because she's very transparent and she gets to the point of a lot of things. So make sure you tune in, lead like Her drops on Tuesday. 

Okay, now let's get back to our conversation with Stephanie. So Stephanie, you do a lot of research first, uh, tell us a little about what you do at ICSE as a starting point, if you don't mind.  Sure. So I actually wear several hats. I, um, oversee our public relations efforts, um, as well as our research efforts, um, our publication, which is, um, commerce and Communities today, uh, and all of our content and education that we put on at our events.

Throughout the year to really keep industry leaders and our members up to date on what's going on and new trends, whether it be, um, the l the latest trend in a shopping center, all the way up to what the capital markets are doing to, uh, you know. Tax and tariffs. So, uh, it's, it's a lot. But, um, my main, one of my main focuses is our research and understanding really what is happening in the market and, and what changes there are, um, and, and why it's different today than it was yesterday or even the eight and a half years ago that when I started here. 

Wow. Lot's happened in eight and a half years. A lot has happened.  Um, I wanna, so it kind of drives me crazy a little bit 'cause I, I've been in the retail industry a long time, as you know, but this whole narrative around, uh, you know, physical store closings and retail. Apocalypse and you know, this dryer like, oh my God, oh my god.

You know. Tell us a little bit about your thoughts about what's happening with some of the store closures and how maybe that, you know, we know that some store closures need, need to happen, we're over stored in the US market. Um, but I'd love to hear your perspective on that.  Sure. It's funny, I have a, in, in my office, uh, in, in Manhattan, I, I have an article from Women's Wear Daily from 1996, um, that was predicting the demise of retail.

Uh, and that was well before the worldwide web came about, and Amazon, um, really became a force. And so it's interesting that the narrative is. Still there and retail is still there. Uh, when I joined in 2016, it was very much the mall is dying. It was, again, a retail apocalypse. And so I I, I have a vivid memory of January of 2017 when store closure started hitting, um, because it's always a post holiday announcement, uh, when they figure out what those sales were.

And, and it, it felt heavy, especially under that narrative. Um, you know, I, I, I'll take you through a couple years, you know, it, it, it's, that narrative kind of backed off a little bit and then. You know, March 13th, 2020 hit and oh yeah, we shut down. Uh, and, and there was a lot of nerve because retailers are struggling to figure out what to do because at that point you were, you were either deemed essential or not essential.

Um, but what ended up happening is, and we saw a lot of store closures and that just because businesses couldn't make it. Um, but that, you know, that, that. It was part of just the cycle. Uh, but what really was beautiful that came out of that is all of a sudden retailers understood the importance of that online channel and, and to build that into their business model as that's what they did.

And so starting, you know, 2021 and really 2022, uh, and through 2024, we started seeing fewer store announced, announced store closures, and. Far more announced store openings. So the openings were, were vastly outpacing the closings. Um, so now we get to 2025 and there has been a lot of news. You know, CoreSite has come out with their predictions on what's gonna, what those numbers are gonna look like this year.

And they're scary. Um, until you look at the fact there is very little available space. Um, we're sitting at about a. 4% vacancy rate. Um, yeah. And, and so, but there is incredibly high demand from retailers for space. So we are now looking at it from the perspective of this is a fantastic opportunity. Um, and, and some of these stores we're not surprised by, some of them have been, right.

It's a little bit like the, the Kmart era that just. Kmart just wasn't coming to an end despite bankruptcy after bankruptcy. Um, you know, so you saw, you saw when, when Bed Bath and Beyond closed all of those boxes, uh, there were bidding wars on some of those spaces because people wanted them so badly. So this is a great opportunity because we have had so little new development.

To your point, there had been so much development over the years, it didn't make sense to do more development, and then we hit again. 2020 we became, you know, we entered this high inflationary environment, interest rates went up and then, which meant construction costs went up. So it didn't even make sense to start construction then.

So these store closings are a great opportunity. Will you see your neighborhood Joanne store, which is probably six months away from closing turnover a month later into something else? No, because that build out has to happen. You know, the right. The right tenant has to go in there, but those spots are also in high demand.

So we're actually, uh, uh, this is a great opportunity for retailers who want space to now get space.  Yeah, I think that, I think that's great and I think that, um. You know, when we looked at kind of the retail landscape and we look at what's happening, it also gives us an opportunity to revive the space that we're going into.

Right, right. So talk to us a little bit about how looking at space differently than just four walls, a bunch of shelves and some tea stands to sell goods.  Yeah. You know, I think it, it, it's, it's this broad thing where it, you know, whether you're seeing, whether you walk into your local mall, and when I walked into my local mall in the eighties and nineties, it was all apparel.

You walk into those spaces now and it's the Apple store, it's restaurants, it's dining, it's all sorts of different things. It's experiences and, and so here's an opportunity to look at those four walls differently.  Um, and you have even, you know, brands like Macy's who are not just looking at that department store space, but they're looking at what those Bed, bath and Beyond boxes look like for a smaller footprint.

And so the nice thing about some of these boxes that are coming available is it is four walls. And so the opportunity to turn it into, you know, your, your. Trampoline park is, is there, you know, you're like I  your CrossFit gym or whatnot. So  it's great because it isn't just traditional retailers going to these spaces.

It is an opportunity for, um, other brands. And a lot of the brands we're seeing are, um, the home goods, the burlingtons, those lower price point because that's what the consumer's really looking for, especially in this inflationary environment.  Yeah, they definitely have a value mindset right now. So they are kind of gravitating toward that.

And that kind of Joanne's box that you talked about, that's like the perfect size box for a, you know, multi, uh. Multi-tiered retailer that says men sells many different brands and stuff. So I think the opportunity is, uh, certainly there. Tell me what's happening, uh, with malls. What I'm seeing, and certainly I'm not the expert you are, but what I'm seeing is I have, I see this like community involvement that's happening in terms of real estate development that has been a little bit, uh, different than I've seen in the past.

Are you seeing that as well? Yeah, so, you know, malls are interesting because I, I think for so many years they didn't really evolve. It was, it was that t-shaped with the four anchors, and if you built a new mall, you, you, you, you brought in your tenants based on who those anchors were. That has changed, and now what we're seeing is just sort of a, a reuse of that space, whether it's.

I, I am headed to Charlotte, North Carolina next week and was looking at, uh, the, I was actually looking at the retail in the area and there is a Simon property down there that they have put in, and, and this, this partnership is, I, you know, I think Simon announced this partnership. Five or six years ago, they've put in a hotel at that property.

Um, so it's this great thing where now all of a sudden you've got these people staying in Charlotte and they're gonna go to the mall 'cause they're going to eat because it's not just the McDonald's or the, or the pizza place, it is Cheesecake Factory or California Pizza Kitchen or whomever. And so you're, you're bringing in that traffic.

So you're seeing some of that, but you're also seeing other just creative uses. Um, I mean, we are seeing some mixed use go in, but. Well, you know, the, when you look at like a university, they may be outta space to add classroom space, but there may be a mall nearby or even an open air center that had one of those, those boxes that now makes great classroom space.

Uh, so I think what we're really seeing is, you know, 2008 that the Great recession. Was was hard on the industry as a whole, and you're starting to see like, just really some of the recession proofing of that, that it doesn't have to be what it always was. Um, and, and really whatever a community wants or needs, it, it's become, I.

The thing, I've got a, I mean, I live in a small town and we have, we have this, um, kinda open air center and my husband is always amazed that, you know, it's, they, they put in the Starbucks 'cause it was on an end and they could do a drive through. Um, but you've also got a primary care physician with one, the hospital's there and the yoga place, but there's also Banana Republic.

And so you're really seeing that mixture. Um, and it not just, it doesn't just, you know, drive. Dwell time. It's just a convenience for the consumer and consumers are demanding convenience,  definitely. And I love, I love learning things, so I never thought about the classroom. I. You know, and you know, I'm a professor.

I teach at Fashion Institute of Technology and we have Hudson Yards, which is like right there in our back door. Yeah. In fact, our senior dorms where the students live is right across from Hudson Yards. It never even dawned on me to think about classrooms space there. Wouldn't that be cool to teach in Hudson Yards?

Oh, it would be fantastic to teach in Hudson Yards. And, and think about it too. I mean, if, if you are part of Hudson Yards, you've got. You know, Hudson Yards is so. Such an interesting, um, development, not just the, the housing and the business piece of it, but when you're actually in the inside mall piece, you've got luxury.

It, they, they have, they have tiered it, um, based on price point. And so the each level is, has something for every like, sort of income level, if you will. Uh, and so you do bring people in and, and help, help them to stay there and make it an interesting experience for them. Yeah, I think one of the best use cases, and this one was built a long time ago, I'm sure you're familiar with it, but the Columbus Circle, um, mixed use space.

And what I find super interesting about that space, um, it's very vertical, so it's not, doesn't have a large square footage in terms of, you know, how big the space is. Um. Horizontally, or I don't know, landscape wise, but you know, it's very vertical. But one of the things it does have, which I think is a home run, is they have the Whole Foods market in there.

Yes. So now you have the grocery, and you have the living, and you have the hotel, and you have the retail, and you have the food you do. And it's a great whole foods market, which is actually on the the below ground level. So you take the escalator down to it. The other great thing that they did there was there's a, an absolutely beautiful, um, theater space and, and, um, so you can do live performances in there, but there's also this, this, um, entertainment, you know, space that looks right out onto Central Park, and it's a simply stunning place to go to an event at.

Um, but yeah, you're right there. You, you can literally go to your Whole Foods right after you've been to see, I, I went to a, a, a charity event there and Nice. Did just go to Whole Foods right afterward. And it, so it was very convenient and I think people think that's a New York thing because there's a, a limit of space.

But I I, I am seeing that sort of concept across the US now because it is just, um, in demand. And it goes back to convenience, right? So today's consumer, they want what they want when they want it, and they want convenience. So they wanna be able to like make less stops in that shopping journey. Um, the other question I was wanted to ask you is, so there was a big kind of push a few years ago with, um, outdoor space and kind of converting the enclosed malls to more outdoor living and entertainment spaces.

Can you tell us a little bit about what's happening in that area?  We're still seeing a lot of that. Um, and we've seen some of that, especially in the mall space where maybe they had an anchor who closed or, uh, you know, went out of business or decided to close that location and they decided not to try to repurpose that space.

And there have been some really great things done with, um, former boxes. I've got one near me that was, uh. A Sax fifth Avenue that now has, um, the top floor is Crate and Barrel. The bottom floor is Indigo Books to kind of show you didn't have to keep it as, as one retailer. Um, but some of those, those spaces then were demolished for outdoor space in green space.

And granted, you know, it depends on where you live. Uh, Minnesota, it may not be as easy to do that  no, as it is in Florida. Um, or a Colorado, but it is offering people more outdoor space. And it's nice too because then, then you're providing, um, an oppor a a, a place for people to sit down and either, you know, just get together and talk or have a coffee or whatnot while still drawing them inside.

So we are seeing some of that. I think there's just a lot of demand for outdoor space and. In a time when it feels like, um, we don't have enough of it. Uh, yeah. So, and, and that's such a big footprint. It's easy to do that.  And Stephanie, I'm glad you brought up, uh, Minnesota. Uh, I was at Mall of America recently, like in January.

I. Don't even ask me why I chose to go to Mall of America in January, but I was there  with everyone else in Minnesota.  But I have to tell you that here's a couple things I saw in the mall. First of all, you probably have been there. Um, but they've completely upgraded the Wall Look Mall. It looks amazing.

The management team has done a fantastic job, but two things I noticed about that mall, which I think retailers might wanna be thinking about is one, um, there was Rent the Runway was there. So Rent the Runway, which has always been a rental kind of business, opened up a space in the mall. It's great because it kind of gives them this physical presence that mm-hmm.

Customers know, they recognize they go in the store. Um, so that was a little bit different. So, um, the other thought thing that I found fascinating was they had brands that are well known on Instagram and TikTok. That don't have physical stores, again, opening up spaces in the mall. And so that was really fun.

I felt, and I won't name the store, but I felt I would go into these stores, these, uh, I'd call them young stores where you have like brands from TikTok and Instagram. And I'd walk in there and there'd be like, cool visuals and there'd be like Instagramable moments and it was just so fun to walk in the store.

Then I'd go into another retailer who's been around a very long time, who hasn't updated their stores in like 30 years, and when I walked in, it fell flat. So how do these, how do retailers that are in these retail locations, how can they make it more environ,  you know, environmentally fun and more of an experience because it's, you know, these younger.

Uh, generations are looking for more interaction, I think. Absolutely. So I mean, I, I would say a couple things about that. One, we have found that Gen Z loves to go to the mall, so it's great to hear that a lot of these brands are opening up spaces, um, because they. They, you know, obviously it's, it's expensive to, um, be an online only retailer to get that, that customer base.

So, you know, you, you get some low overhead in, in a mall and you get a lot of exposure because those, those young people are. Are then going on TikTok or on Instagram while they're in the store. Um, and then it just, you know, kind of now organically promotes the store. You know, to your point of some of these other stores, I've had that experience recently too, where I was like, this feels exactly like it did in 1992. 

Um, and so the investment wasn't made to do that, which is why we're seeing some of those, those retailers struggle is they just didn't keep up with it. So, you know, it is. I, I mean, each brand obviously has to be true to themselves. We've seen that a lot over the last couple of years with, with brands trying to to just be something for everybody.

Um, and they can't. But there is something to be said for, you know, just a little. You know, facelift, if you will, to, to freshen the store. And so many people of, of, of most generations, I don't know so much about boomers, but you know, do use social media. And so make it that experience, make it fun, make it something that you wanna share with your friends and family.

Uh, and that goes a long way. Uh, and the young people today, just, they really have that mastered.  Yeah, they certainly have it mastered. Um, what other thoughts do you have about retail locations, retail space, or maybe you could give us some advice in terms of, you know, what should retailers be thinking about in terms of retail locations and retail, um, spaces in the US market? 

I. Well, you know, as always, do you know, do your due diligence. Know, know your audience. Know who's in your community. If, if you're a brand that you want to appeal to 24 year olds, you know, going to that community that's a 55 plus retirement community probably isn't the right choice, even though, you know, Florida might be beautiful.

Um.  But know the community. One of the things that, that I see most when I see a struggling mall or a struggling center, is it's either a lack of investment or they haven't, um, kept up with the changing demographics in the community. And some communities, you know, people go and they live there their entire lives, but many don't.

And we've really seen over the last six or seven years when we thought, you know, millennials were never gonna get married. They were never gonna move to the suburbs. But yes, we all knew that they would because that's what you do. Um, and you have kids and you need schools. If you are not bringing in brands that appeal to them, you're going to struggle.

So just really being mindful of. Of who your audience is. And, and like I said, stay true to your brand, uh, because that will, that will create the loyalty that will carry you through.  Yeah. That's great advice. And it's so true. And I, I'm wondering if, um, over the past decade, and you mentioned two kind of big.

Points, uh, when we had the retail a apocalypse, you know, previously in 2008, 2010, and you're gonna laugh at this, Stephanie, and I've said this before on the podcast, but it bears repeating. I literally spent like 10 years of my, uh, career convincing, uh, the world that, you know, physical retail's not dead. I thought I was done with it and I've like dusted it off, but.

I get this feeling again, like everyone is under this impression that, you know, physical retail's dead and it simply is not dead. That's where consumers like being out and about. But I think one thing that might have changed and um, would love your perspective is if you go back 20 years, you know, the lease agreements were difficult.

There's, I mean, there's some. You know, retailers today that are still living in agreements they made 50 years ago. Yes. And it's just not realistic. Right. So if, if you could tell us a little bit about, have you seen changes in lease agreements or the ability not to get tied into these huge commitments for retailers? 

Absolutely. And that, you know, that was something that, as you mentioned, these, these TikTok brands and whatnot that you saw, or brands that you know, have, have become prominent because of TikTok. Um, a lot of the, the reason that they are able to be in those spaces now is because lease structures have changed drastically.

Uh, I can, I remember speaking to one of the co-founders of UNTUCKit, um, gosh.  Five, probably six, seven years ago now. And he said, you know, why would I sign a 10 year lease when I haven't even been in business for 10 years? Exactly. And, and he is right. And, and now you see untuck it everywhere, they've, they've really, really committed to the brick and mortar space.

Um, but we are seeing, um, a, a lot of changes to turn lengths of leases, um, because they can, um. You know, get the customer, get the client or get the retailer in there. And, and so you are seeing a lot more flexibility with that. You are seeing, um,  different, like I said, the different tenants. So the co-tenancy requirements aren't quite the same as they they used to be because.

Even retailers are understanding that having that, um, curated mix is of value to them. When I, when I can go over and get my massage after I've worked out and hit the grocery store, um, that's a huge benefit 'cause they've now kept me on the property and I've gotten my errands done in, in that space of time.

That was again, convenient for me. So we are definitely seeing that. We are seeing, um. Some properties take a, an empty space and just really use it for truly like a pop-up, short term. Yes. So now they can kind of get a bunch of different things. I was in Detroit a number of years ago and. At one of their malls, they had a designated area where they did actually, I think it was something like three or six month leases for women owned businesses that were startups.

So it was giving them exposure and they, they weren't tied to a long lease. So we've definitely seen a change in that. Obviously, you're gonna get.  Like large retailers, if you're, you're talking  Gap or Old Navy or Trader Joe's or whomever that are probably gonna sign that longer lease because it's, it's just of course, a good business decision.

But we are just seeing landlords saying, okay, we've gotta, we need to try something different and um, are much more flexible with it.  I think it's great. And I think just to kind of build on what you said, so that example where you have kind of this new vendor or new, um, retail, uh, wholesale person that wants to come in and do a retail store, they, they just kind of rent this space for a period of time.

I think that those two things, one.  Isn't it great to have the local market come in a mall and see something new and different? Absolutely. Like, absolutely. How great is that? Like I, for one, I think it makes it more exciting for the consumers and two, it probably kind of pushes this sense of, uh, urgency of purchasing.

'cause you don't know how long you know that person's gonna be there. So, I don't know. I think it's great, uh, for the consumers to see new, new goods and these, and helping these young brands kind of get bigger and grow. I agree. I also think it's a great opportunity for those entrepreneurs who really might wanna be in a physical space but aren't quite sure how it's gonna work or new to it.

And now they've got some sort of help and they've got this, this, this short runway to kind of figure it out and have an opportunity and get in front of people and that, that could very well turn into a five year lease for you then, um, because it was so successful.  Awesome. That is so true. Thank you Stephanie, so much, and, uh, love having you here.

You're always welcome on the podcast. Thank you. I,  I, uh, you know, if there's any, uh, research or any reports out there that might be helpful for retailers, you know, please let us know that we can, uh, make sure that, uh, we tag that. For our listeners, I wanna thank our listeners. Of course, if you have ideas, suggestions for the podcast, please go to the robin report.com and put, uh, put information in the contact us.

So thank you.  Thank you for listening to Retail Unwrapped. We'll be back in one week with another podcast. Please subscribe on Apple Podcasts, Spotify, or any podcast service if you have questions. Ideas for a podcast or anything else, please contact us via the robin reports.com.