Occasionally I get asked about commercial retail investing. Is it a good market? Should I invest my money there?
I don’t do retail. I’ve met some investors where this is their niche, but it certainly isn’t for me. Think about the last time you went to the mall or shopped in store. I buy all my clothes online. I hate going to stores. It’s too much hassle, takes a lot of time and is often more expensive.
Shopping malls drive me crazy. I don’t like the crowds and the slow walkers. I walk pretty fast to begin with so being in a mall feels like true torture.
I must not be that unique though because retail is pretty much dead in the U.S. Malls and retail spaces are closing all over the country. I guess other people must hate shopping, too.
Is Retail Dead?
In 2019, 9,300 chain stores closed in the U.S. That’s places like Payless Shoes (2,500 closures in 2019), Gymboree, Dress Barn, Fred’s and Charming Charlie’s. This trend has been growing since 2017 (102 million sq. ft retail space closed) and 2018 (155 million sq. ft retail space closed).
These figures don’t even take into consideration the small Mom & Pop shops that are suffering even worse. I think of small bike shops where people go in to check out different models and styles, only to order their new bike online where it’s cheaper and less hassle. These brick and mortar spots can’t compete on price when they have property taxes, merchandising and personnel expenses.
There are a few exceptions, like Dollar General which is still going strong (we have six in our little town). Walgreens is another; they bought out Rite Aid but still had to make adjustments including closing pharmacy locations up to 200 stores.
My point is, I don’t do retail because it’s not my market, not my niche. If you’re going into retail, you had better be really good at it! I’ve had opportunities to invest in strip malls and other retail spaces in the past, but I haven’t. It doesn’t feel like a safe market to me. I see a lot of empty retail in strip malls and high turnover.
Where Would Retail Investing Work?
Most service industries like orthodontics or hairstylists are still doing well because they can’t be replaced or replicated online. Notice I said most, because even some service industries can be replaced. The Smile Direct Club allows people to go to kiosks in the mall for teeth scans and then have their liners shipped straight to their home. Again, online presence is creeping into the service industry and their profit margins.
With all this retail space closing, it does provide an opportunity for repurposing spaces, such as into self-storage or apartment complexes. Right now, we’re looking at a Fred’s that closed in Birmingham, AL as a potential for building and buying a storage facility.
On our Fultondale project we had two available acres zoned for retail property. Instead, we ended up using that space for storm water retention. This is space on a busy U.S. highway, and we passed on it. That is how little I want to get involved with retail.
One thing to always keep in mind with investing: you can’t be good at everything. If you’re going to be in retail, you had better be the best of the best because it’s a tough industry to be in.
Especially as a commercial retail developer.
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