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
It’s nearly Halloween, an event that inspires parental larceny: 60% of parents say they steal treats from their kids’ stash. Unless, of course, it's an Ozempic household. In this issue, we explore the emerging effects of popular weight-loss drugs on retail, from clothing and candy to groceries and dining out; the growth and relevance of retail media networks; and the surge of social platforms as the search engine of choice for Gen Z shoppers. Some of the more tech / digital sections may feel less immediately relevant, but I promise that both retailers and property investors (and their advisors) will be better able to make decisions with a stronger understanding of these topics.
The Ozempic Economy: How Weight-Loss Drugs Are Shifting Consumer Behavior
About 15.5 million Americans, or around 6% of the population, have already tried weight-loss drugs such as Ozempic and Wegovy (GLP-1). Two-thirds of GLP-1 users say the injectable medicine has been either "extremely effective" or "effective" at helping them lose weight. Goldman Sachs predicts the market will grow to $100 billion by 2030. Now, we're beginning to see the downstream effect on retailers:
Clothing stores report higher demand for smaller sizes, and styles that show off slimmer figures and more skin. The retailer Lafayette 148 says 5% of customers are buying new clothing to fit thinner bodies; Rent the Runway reports a 15-year high in customers sliding into smaller sizes. Anecdotally, sales of button-down shirts in the three smallest sizes grew 12.1% in the first quarter of 2024 on Manhattan’s Upper East Side, the nation's epicenter of GLP-1 users.
Grocery stores are seeing a spending drop, especially among households using the drug specifically for weight loss. These households spent 3% less on food and alcohol in the first nine months of 2023 compared to the year-earlier period. That drop was six times the consumption decline of non-GLP-1 homes. Hardest-hit categories include packaged sweet bakery goods, cold cuts, chips and packaged cookies.
Investment analysts estimate that consumption of ice cream, cakes, cookies, candy, chocolate, frozen pizzas, chips and regular sodas could fall 4% to 5% by 2035 due to the use of GLP-1 drugs. Analysts anticipate a decline of about 3% in consumption of alcohol, popcorn or pretzels, crackers, cereals, cheese, gum or mints and energy drinks, among others.
Alcohol purchases tumbled 14.5% in GLP-1 households focused on weight loss, the Numerator report said. But that compares to an 11% decline among non-users — figures that may point to the larger trend in sober-curious lifestyles, especially among Gen Z. The non-alcohol industry grew 31% to $510 million in revenue in the year ending July 2023, according to NIQ. About one in seven bar and restaurant patrons drink non-alcoholic alternatives, rising to 25% of customers under the age of 35.
Many are responding to the weight-loss trend with innovation. Nestlé SA, for instance, is launching a new line of frozen foods, Vital Pursuit, specifically targeting GLP-1 users. Restaurants are experimenting with smaller portions and lower-priced options that eliminate sides. With an emphasis on higher density, protein-forward, healthier meals among GLP-1 users, fast-casual restaurants and coffee shops are well positioned to manage the weight-loss trend, including brands like Cava, Chipotle, Sweetgreen and Starbucks.
With an emphasis on higher density, protein-forward, healthier meals among GLP-1 users, fast-casual restaurants and coffee shops are well positioned to manage the weight-loss trend, including brands like Cava, Chipotle, Sweetgreen and Starbucks.
Investment banks say fast-food chains such as Jack in the Box, Wendy’s, Wingstop, Portillos and Shake Shack could face more pressure.
Think also about profit margin relative to the populations shifting their behavior. Alcohol tends to be a higher-margin sale within F&B — mocktails can be even higher margin, but only for a set of the population willing to pay premium prices for an elevated experience. Further, while healthier foods can come with higher price points and create more profit from a higher-income portion of the population, less healthy snacks are, arguably, higher-margin for a more cost-conscious set of the population. This will become more and more relevant assuming GLP-1 and related trends continue to impact a growing segment of the population, and the F&B industry is wise to keep a close eye on balancing the financial impacts.
The Growth of Retail Media Networks
Retail media networks are gaining enormous traction in the ever-important advertising world, with about $1 of every $7 in U.S. ad dollars — or $55 billion — expected to go to retail media in 2024. There are two critical points here: (1) retailers have access to higher-margin revenue than that of the sale of goods and services; and (2) retailer first-party data is highly valuable. This trend will unquestionably impact those of us focused primarily on physical retail. I enjoyed Joanna O’Connell’s explanation in this five-minute video.
These advertising ecosystems — containing a collection of digital and physical channels — are offered by a retail company to third-party brands for their advertising campaigns. Retail media networks focus on three main categories:
On-site ads, placed within a retailer’s own digital ecosystem (i.e., its website, app and emails), including the ability for third-party advertisers to buy keywords that drive prospective customer traffic to sponsored search results;
Off-site ads that appear in third-party channels, such as social media networks, other websites or connected TV platforms, deploying a retailer’s customer data and insights; and
In-store ads, placed within brick-and-mortar locations, such as screens in checkout lanes, audio ads on store speakers, and sampling and demo programs.
More than eight in 10 advertisers overall called retail media “very important,” higher than any other marketing channel. This is understandable, given the depth and breadth of retailers' first-party data, the trust consumers place in retailers and the appeal of reaching buyers at the point of purchase. Amazon is the Goliath in the space with a 77% market share (10 times its nearest competitor) and $38 billion in revenue, which accounted for 6.6% of 2023 earnings and likely an outsized impact on profit.
Walmart is in second place, with a roughly 7% share of retail ad revenue. The discount giant recently acquired TV manufacturer Vizio with a plan to combine its connected TV tech with Walmart’s consumer data. The retailer has also partnered with platforms such as TikTok, Snap, Roku and Firework to enable off-site, video-based advertising; and boosted in-store retail media inventory with more demo stations, sampling and TV Wall advertising opportunities. Walmart's retail media ad revenue grew 62% between 2021 and 2023 to $3.4 billion, making up 0.52% of overall revenue; it is targeting $6 billion by 2025.
Other retailers are innovating in the space: Best Buy combined its ad inventory with CNET, which will push readers to its products; and grocer Albertsons partnered with an AI personalization tech that will give non-endemic advertisers the opportunity to target their customers. One wonders how much this trend can grow before consumers get frustrated with the barrage of advertising.
This trend underscores the need to contextualize retail real estate in the bigger picture of retail customer acquisition and retention. It also demonstrates the critical interplay between the real estate department and marketing, and the need for coordinated decision-making. Retail media networks will also continue to drive the importance of analytics for physical space.
Beyond Real Estate
In this section, we share recent readings that have piqued our interest and always somehow relate to commercial real estate.
When it comes to researching and discovering local businesses, Gen Z consumers favor social media platforms over traditional search engines.
Among consumers aged 18 to 24, 67% relied on Instagram and 62% turned to TikTok; Google Search came in third at 61%. For example, when looking for a place to have lunch, 40% of Gen Z consumers would rather use Instagram or TikTok than Google.
This makes sense given how much noise there is to filter through and how much easier it is to trust feedback from someone you feel at least somewhat connected to in your network. The results also align with comments made in 2022 by a Google exec who suggested those platforms were providing stiff search competition.
After years of declining sales, brands like Gap, Banana Republic, Free People and, of course, Abercrombie & Fitch are bouncing back.
If you have somehow missed it, A&F's stock performance has even given Nvidia a run for its money — gaining 285% on the stock market in 2023 — by observing and listening carefully to its customers and leveraging TikTok, among other tools (hello TikTok search favorability in the section above). This relates back to my point in Issue 1: Success in retail starts with the consumer.
In our last edition of The Voice of Retail, under the section “A More Property-Type Agnostic Approach to Expansion,” we touched on some traditionally mall-oriented tenants becoming more property-type agnostic, so it will be interesting to see how many of these retailers remain in malls.
Amazon’s “Just Walk Out” technology is proliferating across malls, entertainment venues and more. While there is an initial “opt-in” needed from the customer, once completed, this removes even more friction from consummating a transaction. Imagine how much impact this will have on impulse purchases (you'll read more on cashless transactions below.)
It provides an opportunity for a better experience when the customer’s focus is a game or concert vs. waiting in line for concessions.
The real magic will come with individual profiles linked for VIP experiences or other more personalized consumption experiences.
Willingness to share and let brands use PII (personally identifiable information) is a discussion you will likely hear more about, which couldn’t be more relevant to the above comments on retail media.
Cashless transactions significantly influence spending habits, especially when it comes to impulse purchases. Consumers are twice as likely to make spur-of-the-moment buys when using card payments compared to cash. Think of the ease of tapping your phone.
This shift underscores the importance for retailers to optimize checkout experiences and leverage digital payment options to encourage these spontaneous purchases.
If cashless transactions can double the likelihood of a purchase, the frictionless "Just Walk Out" technology referenced above could have even more potential for impact.
