This newsletter focuses on what we are seeing on the ground, reading and thinking about, and synthesizes those trends for the "so what?" We question conventional wisdom, reframe the usual premise and aim to ask unvarnished, thought-provoking questions about (sometimes) under-the-radar issues that drive opportunity and risk.
I love hearing from you; feel free to reply with your thoughts or comments: laura.barr@cbre.com
Welcome to the fifth issue of the Voice of Retail. My husband Noah and I have just welcomed our second baby! I will resume this newsletter series early next year, upon my return. In this issue, we explore how the desire for in-person interaction is playing out in unexpected ways including quirky new retail concepts; shrinking store sizes; consumer perspectives on sustainability, or ESG more broadly, and the upshot for retailers; the role of underconsumption core; more new vocabulary; and how 90s nostalgia is translating into consumption. Happy holiday season!
Reversing the 'Flight from Conversation'
Humans are social creatures; we want to feel connected and engaged in real life (IRL). In her 2019 book, Reclaiming Conversation: The Power of Talk in a Digital Age, Sherry Turkle explored the “flight from conversation” that has occurred since the advent of cellphones. Turkle, director of the Initiative on Technology and Self at MIT, has spent decades studying human-machine relations. She argues that all the apps and messages on our devices have divided our attention, reduced our capacity for empathy and made us increasingly terrible at IRL interactions. However, Turkle noted that she saw a glimmer of hope in "young people's discontent with purely digital interactions." We are now seeing that play out in retail.
One example: They're sick to death of dating apps and looking for love in the grocery store. A recent viral TikTok described a trend in Spain, in which singles go to Mercadona (a national chain) between 7 p.m. and 8 p.m., and put an upside-down pineapple in their carts if they're open to a relationship — then head for the wine aisle. If you spy a dating prospect with an inverted tropical fruit, you bump their cart. Videos show store aisles mobbed with young people — who in one case were escorted out by police after management called for help.
Talk about a traffic-driver. While Mercadona has ended up either removing or guarding its pineapples at 7 p.m. to avoid abuse by impassioned singles with no intent to buy, there is clearly opportunity to capitalize on this unmet desire. (The percentage of couples who met online is now 60%, up from 0% in pre-internet 1991, according to research by the content strategy firm Eeagli. It will be interesting to see if a Gen Z backlash reverses the trend.)
How can retailers profitably adapt offbeat ideas like this and tap into the fervor for IRL community in a tech-centric, post-pandemic world?
Other Innovative Concepts to Watch
While current space constraints exist on the creation of net-new concepts, we're still seeing innovation. (As we mentioned in issue 1 under the Current Headwinds are Inspiring Optimism section, constraint fosters creativity.) While not all new concepts are driven by limited space, we do expect to see an increase in creative thinking inside the four walls. Consider hybrid laundromats: The Wall Street Journal recently discussed the growing trend of clothing care coupled with bars, cafes, bakeries, live music, pinball machines, health and wellness educational events, and parties. Or the furniture retail/factory combo: Couch Potatoes & Mattress Stores unveiled a new "community engagement" concept at its 100,000-square-foot flagship in Austin, Texas. The brand calls the store the first integration of a factory within a retail space, offering customers a live view of craftspeople making couches.
Meanwhile, a different series of TikTok videos encourages tourists to seek out grocery stores as cultural destinations. Smart retailers are already embracing this vibe: A FreshTake supermarket in Augusta, Georgia is allocating part of its 42,000 square feet to a five-hole golf green as well as an on-site café, bar, barbecue smokehouse and fire-pit.
We’re also keeping an eye on the trend where health and wellness meet private clubs. For a growing number of consumers, the basic workout equipment or group fitness class at the gym doesn’t cut it anymore. They want a holistic center that serves mental health and social well-being — a mix of personalization, exclusivity and community (and, for the army of newly sober, an alternative to hanging out at bars.) This shift has led to the rise of private wellness clubs, which combine fitness programs, luxury spa treatments, social gatherings, and even coworking spaces. New bathhouse concepts have been on the rise for nearly a dozen years but only now seem to be fully taking off. Brands to watch include Bathhouse, Myodetox, Remedy Place and Peoplehood.
While current space constraints exist on the creation of net-new concepts, we're still seeing innovation.
Honey, I Shrunk the Store
Another innovative trend we're watching is the shrinking store. As we mentioned in issue 1 under Current Headwinds are Inspiring Optimism, there's a dearth of new retail space, and nearly any new development of quality is being pre-leased. Many brands have been testing smaller spaces, whether to fit into the remaining space, get creative in denser environments or meet consumers closer to where they live or otherwise spend time.
Earlier this year, Whole Foods Market announced the launch of a quick-shop format ranging from 7,000 to 14,000 square feet — about a quarter to half the footprint of current stores. The first one opens this year on Manhattan’s Upper East Side, paving the way for expansion in dense metro areas. Nordstrom, Macy's and Target also have launched downsized footprints in recent years. New retail leases for spaces larger than 25,000 square feet have declined over the last two years, according to CoStar data.
Here's the small trend in a nutshell: In the first three quarters of 2024, more than 800 retail leases were signed in spaces 25,000 square feet or larger, according to Costar — a decline of nearly 25% from the prior year. Notably, retailers signed longer leases for cozier footprints in that time frame: an average of 95 months for spaces of 1,000 to 4,999 square feet, 10 months longer than a year ago, according to our own CBRE data.
Does ESG Affect Buying Behavior?
In March, the Securities and Exchange Commission adopted new rules requiring public companies to provide more information about climate-related risks. The rules are just one piece of the ESG puzzle companies are solving, along with stated consumer preferences. The question is, do those preferences translate into spending behavior? Results are mixed.
A comprehensive study by McKinsey and NielsenIQ says yes. Products making ESG-related claims (ERC) averaged 28% cumulative growth over the past five-year period, versus 20% for products that made no such claims. In two-thirds of categories, products with ERCs grew faster than those without. More importantly, brands with more sales from ERC products enjoyed greater loyalty.
It's unclear whether the added loyalty is correlation or causation, but there's considerable food for thought here, because the study was extensive. It analyzed five years of U.S. sales data, from 2017 to 2022, covering 600,000 individual product SKUs that represent $400 billion in annual retail revenue. The products came from 44,000 brands across 32 food, beverage, personal-care and household categories.
However, a separate study of 24,000 consumers, published this year by University of Chicago researchers, suggests the opposite: ESG disclosures had minimal impact on spending. Though the sample was smaller, the approach was more focused. Researchers used survey participants' actual purchase histories to create an individualized portfolio of 15 products, some of which contained ESG information. Though participants indicated upfront they'd be more likely to buy the ESG-friendly items, the effect on their actual spending behavior was small, and the effect disappeared within weeks. About two-thirds of respondents said they didn't remember the ESG information or didn't have time to consider it.
Many retailers are, of course, already leaning into sustainability, decarbonizing their value chains, working to minimize waste and embracing more ethical sourcing. (Of note: A U.S. startup called Galy aims to grow cotton in a lab and help retailers skirt the environmental and labor challenges related to harvesting.) While the jury seems to be out on how such efforts may affect buying, there is one area where the evidence is resounding: recommerce.
Eco-Warriors or Bargain Hunters?
Recommerce is the selling of previously owned or used products. Some 86% of consumers say they have bought or sold pre-owned items within the last 12 months, according to eBay's 2024 Recommerce Report. While the source may not be perfectly unbiased, its numbers show that the market is projected to grow 55% by 2029, reaching more than $290 billion, and resale is expected to comprise 8% of total retail. With the exception of peer-to-peer models, the economic viability of recommerce remains a wild card. As a recent Bloomberg article noted: eBay earns billions in profit, while brands that hold inventory, so far, do not.
Recommerce aligns with a larger trend: underconsumption core. “To me, ‘underconsumption core’ means making use of what you already own, not buying into every trend you see on social media and living with a sustainability mindset,” designer and slow fashion advocate, Natalia Trevino Amaro, told British Vogue. Case in point: The “Buy Nothing Project” has grown from one to 8,000 groups on Facebook and 11 million members around the globe since 2013.
And yet, the reason for these secondhand purchases is telling: Some 62% of respondents in eBay's survey said they buy pre-owned to save money; just 26% cited the environmental benefit. It’s hard not to draw a direct line between this and falling spending power within Millennial and Gen-Z cohorts who don’t want to feel they are trading down. Instead, it’s cool to be a minimalist. (It's also cool, apparently, to decline social invitations that conflict with budget priorities and to say so, loudly — a tangential trend known as "loud budgeting.") It’s hard not to think of these as particularly creative ways our brains are fighting cognitive dissonance when budgets are squeezed.
From our viewpoint, the psychological pull of consumerism, combined with brands’ increasingly creative methods of tapping into the deep human need to feel connected, are likely too strong for recommerce to have any material impact on spend (the belt-tightening that occurs with an empty wallet is another story). But as always, we will keep an eye on the trend.
Just to bring us full circle: 63% of secondhand buyers and sellers enjoy meeting in person for transactions. About half say they have made new friends or formed meaningful connections through recommerce experiences, and 46% view resale as a way to meet new people and feel connected to their community.
Deeply knowing the customers, and creating ways for them to feel connected, has never been more important.
Beyond Real Estate
In this section, we share recent readings that have piqued our interest and somehow relate to commercial real estate.
Newer and trending words that you may hear more of: "friendshoring," "agentic AI" in addition to "underconsumption core" and "loud budgeting" mentioned above.
Friendshoring: Rerouting supply chains to countries perceived as politically and economically safe to avoid disrupting the flow of business.
Nearshoring: Relocating business operations to a nearby country, often with a shared border, to circumvent supply-chain disruptions, avoid paying import tariffs on goods and decrease shipping costs.
Reshoring: Transferring operations back to the business' home country (a.k.a inshoring or onshoring) to reduce exposure to outside risks, be more selective with partnerships and choose more reliable supplier networks.
Offshoring: Moving business operations to another country to reduce labor costs and increase proximity to certain raw materials.
While we are writing much of this after the October hiatus in the port strike, we anticipate continued focus on risk reduction around supply chain for retail and consumer brands.
Agentic AI refers to artificial intelligence systems that have a degree of autonomy and can achieve specific goals with minimal human intervention. Unlike traditional AI models that simply respond to prompts or execute predefined tasks (even chain of thought AI), agentic AI can make decisions, plan actions and even learn from its experiences all in pursuit of objectives set by its human creators.
As AI becomes increasingly broad and adapts with greater speed, it’s more important to know the difference between generative AI, agentic AI and the future systems that will build on them.
Within retail, this advancement could be a meaningful way to increase the customization of a consumer’s experience with a given brand. On the operational end, agentic AI could autonomously manage supply chain, forecast demand and even make complex logistics plans.
According to Mintel, 44% of boys ages 12 to 14 years old and 57% of boys ages 15 to 17 years old use fragrances.
Circana also shared that men’s fragrance is the fastest-growing beauty category in 2024, up 15% since January. Fragrance overall is the fastest-growing category in the prestige beauty sector with first-time buyers and men driving much of the gains.
This shift also aligns with underconsumption core and loud budgeting, in which fragrance is a more accessible way to buy into luxury at hundreds versus thousands of dollars, for a longer-lasting purchase.
