We dive into the current state of the US retail market, offering insights on emerging trends in retail real estate and evolving store formats. John Mercer, Head of Global Research at Coresight Research, highlights the resilience of the retail market, the shift toward smaller stores, the importance of experiential retail, and the integration of technology to enhance customer experiences. The conversation also touches on the entry of international retailers into the US market and offers recommendations for brands to succeed in this evolving landscape.
Takeaways
Chapters
00:00 This Week in Research: New Reports and Data
02:55 Current State of the US Retail Market
03:10 Emerging Trends in Retail Real Estate
06:10 The Role of Technology in Retail
07:33 Experiential Retail and Immersive Experiences
09:40 International Retailers Entering the US Market
11:39 Recommendations for Retailers in an Evolving Landscape
Complementing this episode of Retaili$tic, look out for our upcoming report detailing trends and developments in the US retail real estate landscape, which will publish soon on coresight.com. Uncover more insights on real estate and technology from Coresight Research.
Welcome to Retaili$tic, the official podcast of Coresight Research for February 25th, 2025. This week, John Mercer, Head of Global Research, is back with us to discuss the latest trends impacting retail real estate in the US. But first, Georgina Smith, Head of Editorial, has the latest on new research publishing this week on coresight.com.
This week, we will explore the implications for the social commerce landscape of TikTok's ban in the US, which has been delayed to April. We will analyze proprietary survey findings to understand consumers' use of TikTok and competing social media platforms. New survey-driven research also includes the latest installment of our monthly US Consumer Survey Insights Extra series, which offers a more detailed or specific take on trends and data from our weekly surveys. The latest report, publishing this week, will dive into shopper demographics, analyzing regional trends.
We also spotlight beauty shopping trends in our weekly report, pointing to the dominance of Amazon and Walmart as beauty destinations, though we have seen a decline in the beauty purchase rate overall over the past year. As well as shopping behaviors, our U.S. Consumer Survey Insights reports and Associated Databank track consumer sentiment, revealing trends in economic and financial optimism, and how tariffs, inflation, and other factors are impacting consumers' outlooks. We recently discussed the downward trend in sentiment and the upward trend in inflation, potentially representing alarm bells for the consumer economy. And this week, our survey reveals pessimism among all income groups regarding their expectations for the economy. The first time this metric has been negative for high-income consumers.
Elsewhere in research, our Earnings Insight series continues, bringing together recent management commentary from major retailers on their performance. New for this quarter, we call out management commentary on consumer health and sentiment, real estate, and technology. In addition to our regular reporting on headline financials, performance by segment, channel and region, and financial guidance. Last week, we covered 12 companies in the Core Site 100, including Cairng, which reported that retail revenues for the Gucci brand fell 21% in its latest quarter. This week, featured companies include Walmart and Wayfair.
Finally, I wanted to call out that Shop Talk Spring 2025 is now one month away. Coresight Research is a long-standing research partner of Shop Talk, and we are looking forward to connecting with other innovative minds in retail at this year's event and hearing their perspectives on how the industry is evolving and what's in store for the future. Spanning operations to technology to experiences, Shop Talk Spring will uncover key issues and opportunities, helping decision makers understand consumer and competitor trends and future-proof their business. Which sessions will you attend and which key themes should you know in advance? Look out for our essential guide to the events to effectively plan your time.
We hope to see you at Mandalay Bay in Las Vegas for Shop Talk Spring from March 25th. But if you can't make it, you can keep up with developments from the show through Coresight Research reports. You can also check out our coverage of previous Shop Talk events on coresight.com.
Thanks Georgina. This week, John Mercer is back to dive into the exciting world of US retail real estate. Thanks for joining us, John. Let's start with the big picture. What's the current state of the US retail market?
Hello, Philip.
So the US retail market is proving really pretty resilient. It's obviously huge valued at about $5.3 trillion. It's growing at about 4% in value terms and that's well above the rate of inflation in retail. So that equates to positive real terms growth. E-commerce is growing faster than that, but physical stores still dominate accounting for over three quarters of total retail sales. As e-commerce grows, retailers are adapting to changing behaviors and shifts in demographics, and that's leading to exciting trends in retail real estate.
What's the first retail trend that comes to mind?
So one big trend is smaller stores. We've been tracking this for a few years. Smaller stores, especially in urban areas, improving convenience, efficiency, often offering a quicker shopping experience, optimizing space utilization, often targeting neighborhood specific demands. Target is a name that has offered smaller store formats for a number of years. We're seeing other companies such as Burlington open smaller formats. Whole Foods also introduced relatively recently a new daily shop, mini market format. And these are proving generally quite popular at a total level.
So Coresight recently surveyed US consumers on whether they prefer small format stores and if so, why. About four in 10 of those we surveyed said they did prefer smaller formats. And amongst those who like those small formats, convenience is really the driver for those small shops. About two thirds say they find these smaller format stores easier to navigate, about half say they're more conveniently located and about 40% say they have shorter wait times at the checkout. So really convenience getting in and out quickly and conveniently is driving demand for these small format stores.
But it's not just about size though, is it?
No, absolutely not. Technology is playing a role at revolutionizing physical retail as is digital retail. We're seeing innovations like AI-powered stores, pricing optimization software, cashierless checkouts. It's enhancing really operational efficiency as well as the customer experience. Amazon Go were kind of quick off the mark to really introduce game-changing technology for the consumer experience, know, that walk-in, walk-out technology.
We're seeing retailers, including Amazon, incorporate now smart carts to expand checkout free concepts across retail. Again, we recently surveyed US shoppers on which technologies they think would enhance their experience in stores. About four in 10 said self-checkout options and 30% opted for mobile apps that aid navigation in stores and surface deals for them. However, also quite interestingly, 38% said no new technologies appeal to them in terms of enhancing their experience because they prefer a traditional shopping experience. There is demand for technology, but there's also demand for a shopping experience that is kind of aside from that technology and has traditional components.
Yes, seems like tech advance AI is everywhere. I know we have quite a few free reports on coresight.com covering the latest AI enabled tech innovation. How are retailers updating their stores to meet these changing customer expectations?
So away from tech, the big picture is we're seeing physical retail evolve beyond mere transactions. Stores are often an immersive environment now where customers engage with brands on a more meaningful, more interactive level. And at Coresight, we've actually pointed to this for a few years under a concept we call spectacular retail, which is really about retailers investing in the highest quality destination flagship stores. And those will often incorporate enhanced services such as product customization, personalization, in-store events, interactive technologies.
And since we've been pointing to spectacular retail over the past few years, we've been saying that consumers, especially in major urban centers, will enjoy access to what we call temples to brand. So, experienced rich stores offer very wide choice of products, add-ons that I've mentioned, such as customization, personalization.
And on the brand side, spectacular retail really reflects single brand retailers recognizing that stores are really about as much building the brand as about generating sales. So it's that holistic view of the store as a marketing channel.
Who's doing it? Can you give us some specific examples of retailers creating these immersive experiences?
Yeah, so in terms of experience, experiential retail, know, seen Dick's Sporting Goods, that's a good example. They're introducing interactive elements such as rock climbing, golf simulators, soccer fields into their stores. In grocery, H-E-B, a Texas-based chain, recently opened a massive multi-level store with a restaurant, bar and outdoor patio. In beauty, Ulta is another good example with salon services, product sampling and expert consultations.
And if we refer back to kind of the brands, like the mono brands retail outlets. Nike has been experimenting with immersive experiences in flagship stores with personalized services such as sneaker customization and fitness consultations.
Those are great examples of how retailers are kind of blurring the lines between shopping and entertainment. It seems like creating these unique experiences is key to drawing customers into physical stores.
Yeah, it's more important than ever. It's one part of drawing shoppers into physical stores, the spectacular retail component that we were discussing a moment ago. But in turn, that's one part of where we think physical stores will carve a role that complements digital e-commerce. It's not the only thing that physical retail can or should concentrate on.
For a while, we've pointed to what we call our future of stores framework, which has four components. And those components are convenience, collection, discount and destination. So running through those four convenience is really about immediacy when you need something quickly and you want a frictionless experience. Collection is about online offline integration when you're collecting online orders, returning online orders in stores. Discount is about when consumers are willing to kind of trade off the convenience of digital and e-commerce for low prices. So we see this in spaces such as off price, dollar stores, discount grocery. And then finally, destination really ties into that spectacular retail that we're talking about. Destination stores, flagship stores that offer these great retail experiences for leisure shoppers.
So are these trends something that you're seeing primarily with traditional American retailers or are there others doing it?
So in terms of physical retail expansion and that theme, we are seeing a number of international entrants in the US market. One very obvious name, for instance, is Aldi. They have very aggressive expansion plans. It's already got a huge physical presence in the US and we're seeing smaller players, especially in fashion, we're seeing a number of smaller players in the US market that is expand and enter the market.
Spanish fashion retailer Mango, for instance, that has ambitions to open a number of new stores in the US. Also Primark from K. Uniclo, owned by Fast Retailing. And this week, Coresight's Store Tracker report covered the first US store opening by British gym wear brand Gymshark. And we think what ties a number of these together, these fashion retailers in particular, is they stand for something distinctive. They've got a clear focus that can capture share in an apparel market in the US that is relatively fragmented, but that has seen resilient demand. So for instance, at Mango, you've got a distinctive European aesthetic. At Gymshark, you've got a clear, strong brand and product focus. Primark, you've got a really compelling mix of fast fashion and ultra-low prices. And these are companies generally that have honed these brand propositions elsewhere.
A number of these companies that have already done a lot of international expansion and the US is the latest of those. So they know that their distinctive propositions are working in a number of markets and they can transfer some of that to the US market. And I think once you've got that global brand, you've got sophisticated distribution, you've got a proven model, distinctive proposition, and especially if you've got a base of US stores, it's a matter of leveraging those assets with the addition of new stores. Really barriers start to come down once you've got that established base that you can leverage for that expansion.
So with everything that you've seen and you're staying on top of, what would be your key recommendations for retailers and brands that are looking to succeed in this evolving landscape?
So I think I would really refer back to some of what we discussed earlier. So brands, we think, will continue to look at stores as a brand building channel through high quality, experiential flagship stores. Now, relatively recently, we've seen some brands such as Nike rethink the balance of direct to consumer versus wholesale. Companies such as that previously pushed much more heavily into D2C direct to consumer. And recently, there's been some kind of questioning of that and pivoting back to wholesale partnerships.
But we expect D2C, including via physical stores, to remain central to brand building by brands such as that. At the same time, we continue to point to sustained functional opportunities for physical stores. It's not all about the purity of the experience. Stores have other areas where they can complement digital channels, including in the areas you've mentioned previously, such as convenience, collection, discount, and destination retailing.
John, this has been very insightful and I think helpful to those that are making these kinds of decisions. So thank you for joining us today.
Thank you, Philip.
And thank you! If you enjoyed this episode of Retaili$tic, check out our back catalog of episodes and follow Coresight Research on LinkedIn for even more great content. For more details about all the research and data we have available, head over to coresight.com. You can see a full catalog of our proprietary research, read and download dozens of free reports, learn about our AI Council, upcoming events, and Coresight Research Strategic Advisory Services.
Have a great day and we'll see you next week.