The State of In-Store Retail 2023
The State of In-Store Retail 2023: Brick-and-Mortar Rebounds
For the past year, economists and consumers alike have been bracing for a global recession. A pandemic and the resulting inflationary woes have affected all business sectors, with the retail industry positioned to take a significant hit. But despite the fears of an economic downturn – fears which appear to be waning by the day – brick-and-mortar retail is poised for solid growth. New store openings, enhanced shopping experiences, and increased traffic all signal in-store retail’s strength in 2023.
In-store Purchases Continue to Dominate
The growth of e-commerce makes headlines, but the perception that online shopping dominates consumer behavior is grossly overinflated. While omnichannel shopping is now the norm, in-store purchases still make up 80% or more of all sales. More than half (54 percent) of U.S. consumers say they prefer stores to websites, according to a May 2022 report by the customer engagement platform Emarsys. And even if purchase is made online, a visit to a physical store is likely part of the journey; 76% of online shoppers visit a physical store before buying. Brands have responded by rapidly increasing their in-person presence, as evidenced by the surge of new store openings.
Retail Vacancies at Historic Lows
The biggest U.S. shopping mall owners say retailers are still forging ahead with their plans to open new stores in spite of recession fears. Simon Property Group, the country’s largest owner of shopping malls, reported an occupancy rate of 94.9%, up from 91.8% a year earlier.
Overall, retail vacancies in the U.S. reached a new low of 5.7% in Q4 2022, a level not seen since 2007. Currently, new store openings are outpacing closures at a rate of five to one, the largest net expansion in a decade.
Even direct-to-consumer (DTC) brands recognize the advantages of brick-and-mortar experiences, with more and more brands filling up these retail vacancies. Allbirds, Wayfair, Harry’s, Untuckit, and Everlane have all opened physical doors in recent years.
When it comes to location, DTC brands may have once pushed for Main Street retail space in dense, urban centers, but they’re increasingly moving to regional malls, says Amish Tolia, co-CEO and co-founder of Leap, a company that helps find and operate physical stores for digital-first companies. Simon Property Group is one developer working to capitalize on the DTC evolution, announcing a partnership with Leap in late 2022 to bring more DTC brands to its venues.
Experience is Essential
Today, having an in-store presence requires more than just square footage. Experience is critical for drawing in shoppers and enticing them to return.
Retailers need to provide something more than just a place to make a purchase – a global survey found that nearly 60% of consumers polled expect over half of retail space to be focused on experience rather than product. To remain competitive, retailers will need to shift their physical presence to surprise and delight rather than simply serve as end-of-funnel sales transactions. Whether it’s Sephora offering makeup application classes or Nike’s in-store sneaker customization studio, brands know that engaging with customers will require offerings beyond merchandising.
Malls on the Rise
The good news around physical retail is certainly benefiting the state of malls. Placer.ai reports that in January 2023, indoor malls, open-air lifestyle centers and outlet malls saw YoY visit increases of 4.1%, 5.2% and 2.7% respectively. The wider trend of YoY uptick is significant because of economic headwinds.
Lightbox has seen this rebound firsthand, with traffic to our network of malls hitting record highs. Full year 2022 traffic grew +21% over 2021, reflecting a recovery from the lingering pandemic. More impressively, 2022 traffic pulled ahead of pre-pandemic 2019 by +5%. The ongoing trends of store openings and enhanced experiences will only help draw even more audiences to our venues.
• PYMNTS, February 14, 2023: Surge of In-Store Shopping Triggers Rise in New Brick-and-Mortar Locations
• Retail Dive, November 22, 2023: Simon, Leap aim to bring more DTC brands to malls
• Inc.: The Future of Retail Isn’t Direct-to-Consumer. How Brands Are Embracing Stores in 2023
• The Future of Commerce, Retail trends 2023: Social commerce, personalization, omnichannel shine
• Retail Dive, February 13, 2023: The beauty of building the in-store experience
• Fashion Network: Experiential retail economy to reach tipping point in 2025