With pandemic-related disruptions fading with time, the retail sector has recovered in impressive fashion. Capitalizing on a flight to quality, 2021 ushered in a dramatic increase in deal flow and revealed surprising resilience following an unusually challenging 18 to 24 months. While market-to-market and sector-to-sector variations remain, the overall mood for retail and mixed-use developers is one of grounded optimism. The pandemic prompted changes in the ways spaces are used and prioritized, and it also accelerated existing trends. Perhaps the most notable acceleration is the pressure on anchor-dependent enclosed malls. The continued loss of so much square footage (some experts have predicted that we could lose more than half of traditional malls in the next decade alone) has prompted retailers to seek shoppers in new formats and locations. This phenomenon has also spurred innovation with respect to more diverse layouts and co-tenancy options.
One of the biggest growth opportunities is in lifestyle centers. Since our first lifestyle center development in the late 80’s, we have always sought to evolve retail, even if that includes self-disruption. The way we defined lifestyle centers when we developed Saddle Creek in Germantown, Tennessee, is not how we would define lifestyle centers today. As we continue to adapt to consumer trends, we are constantly looking for ways to help our tenants thrive and increase their sales.
The growing focus on mixed-use has developers looking for different ways to add new uses and complement their retail with synergistic components that drive traffic and boost bottom lines. In some cases, that means adding residential concepts, bringing in more service uses, and augmenting experiences — whether through dining, entertainment or events. In others, it means converting existing retail GLA to office or rezoning underutilized parking to add multifamily.
One of the most intriguing and creative adaptations that we are exploring is the potential to introduce micro-fulfillment centers into new and existing lifestyle centers. The concept that we envision is an approximately 10,000-square-foot micro-fulfillment center that would function as a complementary amenity for tenants. At a time when e-commerce numbers continue their steady, albeit profit challenged, growth, the ability of smaller retailers to access that kind of fulfillment infrastructure is appealing — if not a potential game-changer. While big brands like Target have the capital and the square footage to fulfill up to 95 percent of orders through their existing stores and infrastructure with significant savings for their ecommerce, mom-and-pop retailers and emerging digital native concepts may find expansion into brick-and-mortar for the first time to be difficult and costly. If we can help our customer, the retailer, to maximize their sales in any format, it is a win/win/win for retailers, owners/operators, and ultimately, for guests.
Robotic micro-fulfillment options, unlike traditional fulfillment centers, can fit into a second-generation store and fulfill hundreds of millions of dollars’ worth of product. This option can offer many potential benefits for retailers. National retailers who want to locate merchandise closer to their stores and shoppers would benefit, as well as digitally native brands or smaller mom-and-pop shops who need a distribution option that they wouldn’t have otherwise without significant capital expense. At a time when prime industrial space has become expensive, adding micro-fulfillment centers into the lifestyle center environment makes sense on multiple levels. For digitally native brands, it would enable lifestyle centers with a facility to function as a place for the buy online, pick up in store model, as well as an innovation-friendly incubator for emerging concepts and products. Retail tenants would also enjoy more flexibility with footprints and square footage needs because an on-site micro-fulfillment center would allow them to optimize their in-store inventory.
While specific structural and operational details would need to be ironed out, the general micro-fulfillment center concept envisions a space that accommodates automation, vertical storage and fulfillment, and still fits into a relatively modest footprint within the context and design of a lifestyle center environment. The potential exists for a hybrid facility behind a more traditional brick-and-mortar retail storefront. Whatever form the finished product takes, adapting micro-fulfillment blended with new and emerging retail formats and mixed-use environments is almost certainly going to become more common in the years ahead.
From offering small business incubators last-mile support, to optimizing retail store space for maximum sales, the micro-fulfillment concept certainly feels like an ideal solution for the current retail environment. In the face of increasing e-commerce demand, we can’t fight it. We must embrace ecommerce and improve bricks and mortar for retailers.
Supply chain delays, and an evolving industry landscape that’s increasingly attractive to digital native brands who want a brick-and-mortar presence, are creating a set of circumstances where traditional definitions and assumptions are being challenged. Lines are blurring between different industry segments and developers, and owners and operators are getting more creative in exploring new formats and opportunities. Lifestyle centers are poised for a resurgence and a reimagining, and micro-fulfillment presents a bright future.
— Josh Poag is president and CEO at Memphis-based Poag Shopping Centers, a retail management company who operates 12 retail lifestyle centers in multiple markets across the country.