Northeast Ohio Regional Retail Analysis
Executive Summary
Future Retail Industry Practices
The rapidly changing dynamics of the retail industry can make future trends difficult to predict. While many of the patterns which began in the past few years will continue, others are just evolving.
Continued emphasis on value retailing and less emphasis on traditional malls. The amount of time Americans spent in malls decreased from an average of 12 hours per month in 1980 to 4 hours in 1990. In order to compete, major malls will require significant re-investment in order to remain competitive with everyone from upscale retail centers to value retail superstores. Major renovations at Randall Mall, Summit Mall, Beachwood Place and Richmond Town Square are indicative of this trend. Lesser performing malls may be converted to power centers, such as at Severance Town Center, or mixed use developments.
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Increase in e-commerce. As more consumers come on-line and as shoppers become more comfortable purchasing by computer, particularly as it relates to security, delivery of merchandise, and refund policies, the percentage of goods purchased over the Internet will rise to 7% of all goods purchased in 2004 and even more towards the end of the decade. With its potential impact on sales tax revenues and the current store inventory, e-commerce could pose major challenges for state and local governments and existing stores by mid-decade. However, intense competition and financial turbulence may result in bankruptcies and consolidations for many firms selling products over the Internet. Large retailers will continue to offer more products to online shoppers.
Continued emphasis on consumer information. National retailers are digesting vast quantities of information on existing and potential customers, relying on new technology to provide data on consumer preferences, shopping habits and spatial patterns. New software will allow more stores to have access to this technology.
Focus on providing a "shopping experience." Retailers who add value to the shopping experience by providing service, selection or entertainment will have increased success. The development of urban entertainment centers, which provide movie megaplexes and unique dining experiences are another trend manifesting itself throughout the Greater Cleveland area. Urban villages, which mimic the successful concepts of established centers such as Shaker Square and Coventry by mixing residential and office uses with entertainment and shopping, are another format being developed.
Continued emphasis on "bigger is better." In order to provide more diversified formats, many store types such as drug stores, supermarkets and general merchandise will continue to expand, further blurring the delineation between stores offering convenience and shopping goods. Ramifications include demolition of existing contiguous stores, elimination of competing smaller retailers and increased parking demand. Superstores the size of three or four football fields are now becoming commonplace throughout the region, threatening the vitality of existing stores and becoming major destinations for consumers. As a part of this trend, larger retailers are choosing to own their stores rather than pay rent. A few chains, concerned about lack of sizeable sites in more densely developed areas, have compromised by downsizing their stores.
Improved delivery services. As on-line retailing becomes more ubiquitous, delivery systems will need to improve significantly. Expansion of e-commerce into convenience products may result in more local emphasis on store delivery of groceries and pharmaceutical products reminiscent of previous decades.
More bankruptcies and consolidations. Increased competitiveness in the retail sector will force some smaller retailers to sell to or merge with larger firms. As a result, more store vacancies could occur, ultimately leading to abandonment or demolitions. Larger firms will also be less vulnerable to economic downturns than small businesses.
Fiscalization of land use. Having lost much of their control over tax rates and revenues, local governments elsewhere in the United States are trying to regain their fiscal power through a land use policy that encourages tax producing commercial development at the expense of residential development. While rejecting housing, cities and counties have engaged in competition for retail development. Ohio communities have engaged in similar activities to encourage retail development, including providing infrastructure, rezoning assistance and even tax abatement. With densely developed residential areas needing tax relief for homeowners, many local officials feel that tax revenues from retail development will offset any negative impacts that may occur, including direct competition for existing commercial districts. Some owners of vacant residential property in the more developed parts of the region have recognized the potential profits to be made if their land is sold for commercial use and have thus sought to have their property rezoned for this purpose.
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Redevelopment of older districts. Because many national chains have bypassed older commercial areas in favor of easily developable sites on the urban fringe, it is important to note that many of these districts are underserved by a variety of store types. In many parts of the country, national retailers have recognized the potential of this underserved market and have sited stores in these areas. In a recent H.U.D. sponsored study, it was noted that inner city residents in the U.S. spent $331 billion on retail purchases in 1998, but not in their own neighborhoods which were severely deficient in retail outlets. Cities such as Cleveland, its inner suburban communities and older cities in the surrounding counties have a great deal of untapped potential in this regard. In addition, larger vacant stores in older downtown districts, many with architectural or historical significance, should be encouraged to be reused rather than demolished when a new retail store is proposed for these areas.
Continued development in exurban areas. As long as residential subdivisions continue to be built in outlying areas of Cuyahoga County and contiguous areas of adjoining counties, retail development will follow. Lured by large tracts of undeveloped land and aided by increased accessibility from interstate highways, these areas are already being targeted for a number of commercial developments.
Concern over threats to retail development. As noted in the previous chapter, retail sales throughout the past decade have continued at record levels. However, a number of factors could threaten the expansion of retail development in the near future. These factors include a downturn in the economy, low savings rates by consumers, high credit card debt, overbuilding, or an escalation of gas prices. Coupled with the continued growth of Internet commerce, these factors could put the brakes on accelerated retail growth in the real estate market. Consequently, almost no retail projects are being built on speculation, and most have the majority of space rented before construction.
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Change in store design. With the public becoming increasingly concerned about historic preservation and sense of community, national retailers will need to cooperate with local officials regarding store design and compatibility with the neighborhood. Corporate policies regarding the use of prototype stores surrounded by a sea of parking may need to be changed, particularly as they relate to older communities. Since large sites are not available in these densely developed areas, sites in neighborhood shopping centers may attract national retailers. Store design will also need to cater to an aging population. The development of "lifestyle centers," which will place an emphasis on serving the needs of consumers on the basis of age, income group and product preferences may also result in changes in store design and format.
Hybrid malls, which combine a large, traditional mall or power center with an urban streetscape retail/entertainment component, may be the prototype mall of the early 21st century.
Continued globalization of retailing. Though most domestic government regulations do not directly affect the retailing sector, some agreements, such as NAFTA, have encouraged another wave of companies to cross borders. Some retail establishments, much like their manufacturing cousins, have taken advantage of international treaties in order to stay competitive and have moved part of their operations abroad or sold to foreign or transnational corporations. In the search for price reduction, companies are always looking for cheaper sources of their products. This has caused an increased reliance on overseas producers. This trend is expected to continue, with more stores in the Cleveland area featuring products manufactured or assembled in other countries.
Corporate involvement in retailing. Many retailers have now become public corporations to support the huge financial investments needed to sustain growth. Because they are shareholder funded, the retailers are more likely to close and abandon sites to cut losses rather than invest the time required to generate profits.
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