Retail Repurposing? Is it Complicated or Creative?
Retail assets and properties were already cycling downward in early 2020. If you remember, this was at the early stages of the Covid-19 pandemic, and the world had little preparation for the pandemic that would soon overwhelm everything in our lives, from how we work to how we educate and, of course, how we work.
Retail repurposing is not a new option for struggling retail businesses and other industries. Overhead costs, if underutilized, can be a huge financial toll on businesses. And retail space, without consumers, can break a company. Covid-19 has transformed the often challenging process of retail repurposing. It may be a complicated conversion in troubled industries; however, with clear takeaways and a creative approach, retail repurposing can be profitable.
5 Key Takeaways:
- E-commerce is pushing the need for repurposing retail space.
- The Covid-19 pandemic pushed businesses into rethinking how to manage their overhead. Therefore, millions of square feet of retail space are left empty.
- Complications such as short-term losses, location, and zoning can be challenging.
- Creative solutions to repurposing retail space are all about rethinking local needs.
- Retail repurposing is here for the long-haul.
What is Retail Repurposing
Retail repurposing is a creative way to rethink or imagine retail space. For example, what may have once been a clothing store, can be reimagined into a 24-hour gym. Often retail repurposing is looking at the future of sustainable repurposing. Such as identifying the long-term needs of your town or city. Yes, retail real estate used to be a fail-safe investment. That was when consumers did not have the expansive and growing industry of e-commerce.
According to Oberlo, since 2017, the e-commerce share of retail sales has grown by 2% or more each year, with growth projected to increase. This was before the pandemic. So, with retail sales moving out of retail space, valuable real estate needs a fresh look.
The three most prominent areas of retail real estate reduction are:
- Brick-and mortar retail space
- Big-box retail space
- Office space
While brick-and-mortar and big-box stores were transitioning to e-commerce, office space and industrial real estate were forced out of retail space with employees working from home.
Covid-19 and Retail Repurposing
Brick and mortar retail was already seeing a decrease in sales, impacted by aggressive e-commerce companies such as Amazon, Wayfair, eBay, and traditional retailers Walmart and Target joining. As such, retail stores have had to make the challenging decision to pay high rents for their retail space and keep prices affordable. All the while, retail stores need to worry about high rent, employees, theft, distribution, and more. With fewer than a third of brick-and-mortar businesses having a website or significant digital presence, the adaptation to e-commerce, where consumers are more steadily moving, has become challenging.
The challenges of Covid-19 gave a quick glimpse into the retail world and consumer expectations. Businesses that were afraid of employees working from home were now forced into this new business model. And guess what? It worked. Retail companies afraid of selling online, whether website, eBay, Etsy, or hundreds of other marketplaces, found their costs drop and consumer presence skyrocket.
Covid-19, as tragic as it was to consumers, closed the doors to millions of businesses and forced a reimagining. Many of those businesses will never make a comeback. And the ones that do will leave behind millions of square feet of still valuable real estate as retail moves online.
Complications of Retail Repurposing
The transition to e-commerce and Covid-19 already tests the limits of business real estate investors and retail owners. That means there are complicated decisions to make. Such as how to repurpose retail space.
So, what are the complications of retail repurposing?
Short-term financial loss for long-term financial gain
Repurposing retail space from a small grocery store or boutique clothing store to a gym, office space, or medical clinic takes time and money. The process of developing the area also comes with limited or no income during that time.
Identifying creative solutions
Identifying creative solutions may seem fun but also require a lot of collaboration and planning. Repurposing creatively is about understanding the community. Also, it is about understanding the future and long-term needs of the community. So, demographics, job growth, projected financial industries, and even local politics are essential in developing creative solutions.
In the business of retail, “location… location… location” is critical. Similarly, location is essential when repurposing retail property into office space, apartment units, and more.
Turning former retail space into distribution or fulfillment centers may seem like a simple transition. However, large retail spaces left behind by failing malls, former big-box stores, and smaller retail spaces may be challenged by local zoning regulations.
Does retail repurposing make sense for your needs?
Retail repurposing does make sense. However, you do need to understand that each retail space is different. Distressed properties may come with more challenges requiring additional permitting, construction, and costly unknowns. Also, your interest may not fit within the future progress (or lack thereof) of your retail area., you can’t build a Target in the center of Bentonville, AR – home of Walmart.
How to Creatively Repurpose Retail
Repurposing retail space comes with its challenges. However, creative solutions are founded on unique needs. Malls have been challenged over the last couple of decades as consumer shopping has moved online. Additionally, increasingly high rents and restrictions have led to many malls becoming retail obsolete. However, this also means malls have become popular as a relatively low-cost investment to creative repurposing solutions.
For example, here are five creative ways malls have been repurposed out of retail.
- Event centers
- Office space
- Business headquarters
In Conclusion: Retail Repurposing is a long-term solution.
If you are interested in retail repurposing, the good thing is that it is here for the foreseeable future. Millions of square feet of retail space are being rethought and repurpose for future demands of growing towns, cities, and regions. E-commerce has shifted consumer shopping online with quick checkout, free delivery, and easy returns. Though, new industries and growing businesses need creative solutions. This includes e-commerce and its growing demand for fulfillment and distribution centers.