In this episode, Alissa DeJonge, Vice President of Research is joined by Mia Ying, CERC's Research Analyst to share recent research conducted on the Northeast states for a presentation given at the Merge Conference held by the Society for Marketing Professional Services.
As a transplant to Connecticut, I think my favorite time of year here is summer. Everyone talks about how beautiful the state is in the fall, as the foliage takes on those great colors, but I’ll take late spring into summer as everything turns green, the days just keep getting longer, and the temperatures keep going up.
In this episode, Alissa DeJonge and Courtney Hendricson sit down to share highlights from the recent workshop that they led, hosted by the Connecticut Conference of Municipalities, on how global and national trends are affecting Connecticut’s economy and real estate markets, and how uncertainty has implications for businesses and residents.
The retail industry has gone through a substantial transformation over the past decade, and it continues to evolve. Brick and mortar stores still dominate retail sales transactions. However, they are under siege from online competition, causing them to adopt strategies that involve creating unique customer experiences and making customer purchases easier. At the same time, the online threat is evolving; online stores are also working to increase market share, improve the customer experience, and increase profitability. Online retailers are looking for ways to offer more personalized assistance to shoppers, as a way to increase sales, and also decrease the amount of returns.
Some other interesting trends transforming the retail industry include:
Brands as Culture: Increasingly, consumers are prioritizing corporate responsibility and social consciousness, and brands are responding by thinking about their companies as a culture and way of life more than just a series of products to be sold. Marketing efforts are designed to reveal the internal culture of the company rather than just trying to sell its products.
Faster Shipping: Most major brands have an online presence, in addition to brick and mortar stores. With the onset of Amazon Prime, two-day free shipping is a standard offering, and people expect low-priced or free shipping for many items. Reducing shipping time is essential for any e-commerce business to stay competitive. However, companies do not necessarily have to turn to Amazon or Walmart as the hub for online shopping; for the right shipping option consumers are willing to purchase their items directly from their traditional retailers.
Growing Subscriptions: Consumers are interested in purchasing items that are based on their preferences and delivered directly to them. Businesses in the subscription market curate products and ship them to consumers on a recurring basis. Subscriptions are popular: according to a McKinsey & Company report, 15% of consumers who shop online also signed up for at least one subscription service in 2017. Indeed, new brands such as Harry’s razors have been created with a business model based on subscription purchases. The trend is expected to continue to gain increasing popularity in the marketplace. Examples of this trend include Stitch Fix for clothing and KiwiCo for children’s STEM projects.
Integration of Channels: Even though the closure rate of brick and mortar stores is higher than ever, these stores can still play an important role in the sales process. Instead of being the primary sales point for many products, the store can be one of a variety of touchpoints for consumers that, when used together, help the consumers feel comfortable enough to make their purchases. Consumers use websites, marketplaces, social media and brick and mortar stores when determining purchases, and it is this integration across all of these channels that makes a compelling case for companies’ sustainability. Furniture stores, for example, increasingly center their sales pitches around online searches followed by “touch and feel” advantages.
There is no doubt that technology and the growth of online commerce have significantly shifted the way real estate is used for retail, in a number of ways. Initially, online sales led to the closure of a number of brick-and-mortar stores and a decrease in the demand for space as stores used space more efficiently. However, trends in the demand for retail real estate continue to shift as companies adapt, and businesses learn how to meet new consumer expectations. We note a number of related trends.
One major trend is the growth in experiential retail. Consumers do not want to spend a lot of time at a store shopping for basic goods, which can be done online more quickly and easily. However, they will pay for entertainment, and retail locations that include an experiential component (dining out, activities such as movies or other entertainment, or which are designed with place-making in mind like “paint and sip” galleries) are performing well. Millennials and the younger generation may be contributing to this shift, as many exhibit a preference for spending money on entertainment and experiences, while the minimalist trend advocates consuming fewer traditional goods and living with less. In response to these trends, retailers are now growing more savvy and retooling their existing stores to align with consumer demand. Examples include Jordan’s Furniture with indoor ropes experiences; and grocery stores with children’s care clubs contained inside.
Another growth market arising from the shift to online retail is the growth of more flexible commercial space. The internet has allowed many start-up businesses to gain a foothold with minimal overhead, so real estate space is being adapted to accommodate the growth of these businesses as they evolve; for example, when someone is ready to move out of their home office, garage, or basement into their first commercial space. Uses such as business incubators, maker-spaces, coworking space, shared offices, and leases with more flexible terms have all grown in the last few years, to try to provide support for the expansion of these businesses.
Another area in which retail-related real estate growth has been strong is in logistics and warehousing. Online sales have increased demand for these services, and warehouse technology has allowed for faster processing and delivery of orders. In recent years, consumer expectations regarding delivery times has narrowed; while in years past, orders could take a week or two for delivery, consumers now expect to receive their items within two days, so demand for “last mile” warehousing and logistics is expected to continue to grow. Retailers such as Amazon even promise same-day or next-day delivery in certain areas, and many stores use their retail locations to double as fulfillment centers or offer next-day pickup in-store, when home delivery may take a bit longer.
Another current trend in retail real estate involves dark stores, or vacant big box stores. The “dark store valuation method” argues that comparables for assessing the value of operational big box stores should be the sale prices of similar buildings, including vacant big box retailers, rather than the price paid for the building plus renovations minus depreciation, which is how big box store valuations have traditionally been calculated. Since demand is so much lower for dark stores, the vacant stores stay empty longer and often sell for lower prices than the sellers paid for the properties. This market mechanism drives down the assessment values and thus the property tax revenues for operational stores. As owners of properties for operational big box stores contest each assessment using the dark stores, the value of operational stores tends to go down as assessors try to compromise with property owners; one big box store in a community winning a lower revaluation using dark stores can also set the precedent for other operational big box stores contesting their valuations, thus compounding the effect.
How consumers shop has changed drastically over the past decade, with implications for real estate, logistics and warehousing, and marketing. Retailers and related property owners that stay competitive are embracing the changes and adapting accordingly.
When the great recession in 2008 hit the economy, recently graduated students in addition to experienced professionals struggled to find jobs. One path to weather the economic storm was delaying entering the job market by continuing school, or going back to school, thereby waiting for a better labor market when the economy turned around. The result is a much more educated labor force today: the percentage with bachelor’s degrees or higher among the population of 18 years old and over increased from 25% in 2005-2009 to 28% in 2013-2017 for the US, and from 32% in 2005-2009 to 36% in 2013-2017 for Connecticut (US Census data, ACS 5-year estimates, 2009 and 2017; calculation by CERC)—more than a 10% increase from the pre-crisis level.
Such a change in the labor force brings potentially higher labor productivity, paving the road for long-term economic growth, while also contributing to a formidable student debt challenge in the US, which sows the seeds for the next recession. For better or worse, the following two maps take a more in-depth look at how higher education attainment level manifested during this period for each town in Connecticut.
The first map uses different shades to present, at the town level, the percentage with a bachelor’s degree or higher from the population 18 years old and over during the recent period of 2013-2017.
The second map shows the change in this measure from the pre-recession 2005-2009 period to the period of 2013-2017. A blue tone represents an increase from the pre-recession period, while a red tone represents a decrease.
Overall, the increasing trend in higher education rate at the national and state levels hold true across most towns in Connecticut, but not uniformly so—the same measure sees a decrease in many towns. This decrease could be driven by many factors such as local-level migration, decreasing state investments in public higher education—a question beckoning more exploration case-by-case.
The state’s budget issues have precipitated significant financial tightening for many municipalities and agencies across the state. This environment has generated renewed urgency to realize cost savings, while maintaining or increasing the level of service provided. Similarly, businesses that need to improve their performance need a decision-making process to determine where to most effectively spend limited resources.
While preparing an economic outlook for a recent edition of the Connecticut Economic Digest, Alissa DeJonge, CERC’s Vice President of Research, investigated global and national trends focused on several industries that are in transition - and what these changes mean for Connecticut’s economy and business sectors.
In this episode of CERCONOMY, guest Ana Pritchard of Compass Research Solutions, joins Alissa DeJonge to discuss why organizations conduct surveys, along with the methodologies used, and how the results can be leveraged to create impactful outcomes.
As I write this blog, the partial shutdown of the U.S. government shows no signs of abating. Local and state news have covered the impacts on the state, with most of the focus on the federal employees who are furloughed or working without pay. As just one example, see this recent article from The Hartford Courant.