New York (CNN) Nordstrom. Walmart. Whole food. Starbucks. CVS.
These big chains and others have recently closed stores in major US cities, raising concerns about the future of retail in some of the nation’s major downtown and business districts.
Several forces are pushing chains out of some city centers: store gluts, home working, online shopping, exorbitant rents, crime and public safety concerns, and difficulties in hiring workers.
Reinventing downtown retail may require drastic change.
Large retailers have withdrawn from the cities. A redesign of inner cities will create better retail conditions.
That means denser neighborhoods with a broader mix of affordable housing, experiential retail, restaurants, entertainment, parks and other amenities, which won’t happen overnight.
“Once [these cities] “As we become real neighborhoods, retail will come back in different ways and in different forms,” said Terry Shook, founding partner of consulting firm Shook Kelly.
How policymakers redesign their inner cities – with retail as a key draw – will be critical to the financial health of cities and the regional economy.
A glut of shops
Some of these policymakers, including both Republican and Democratic leaders, have pointed to crime as a key reason for the closures after posting videos of brazen shoplifting.
“We are losing chain stores that are closing. People who are employed in these businesses are losing their jobs,” New York Democratic Mayor Eric Adams said in February due to crime.
In some cases, however, the impact of shoplifting may have been overstated.
Walgreens said it has seen a spike in losses, known as shrinkage, during the pandemic and cited organized retail crime in its decision to close five San Francisco stores in 2021. But the company recently backed down.
“Maybe we cried too much last year” over the shrink numbers, a Walgreens executive said in January.
And while there’s a strong association with crime rates, the closures aren’t a new phenomenon either.
San Francisco, Los Angeles, San Diego, New York City, Seattle, Miami and Chicago lost retail stores from early 2017 to late 2021, according to a study by the JPMorgan Chase Institute, a think tank.
What’s more, experts agree that the closures aren’t just about crime. Several trends have come together to jeopardize these deals.
Perhaps most important is the abundance of stores in America.
According to Morgan Stanley, more stores closed than opened each year from 1995 to 2021. The trend became popular as the “retail apocalypse.”
While major city closures draw national attention, in reality they are often part of the closures that a brand is conducting nationwide.
“The logic of wholesale is a lot weaker than it was 20 or even 10 years ago,” said David Dixon, Urban Places Fellow at Stantec, a global design firm.
Walmart, for example, has closed about 40 stores since 2021 and will close 20 this year. Nordstrom will close 15 locations in 2023.
CVS also announced in 2021 that it would close 900 stores over three years.
homework
Even in shops that are still in the inner cities, fewer people shop.
A key factor in this is the pandemic-driven shift to remote work: According to the Census Bureau, the number of people working primarily from home tripled from around 9 million to 27.6 million between 2019 and 2021.
The rise of remote work has damaged inner-city shopping districts originally designed for office workers who commute back and forth on a daily basis.
According to a study by Stanford University economist Nicholas Bloom, the typical office worker in city centers currently spends about $2,000 to $4,600 less per year.
How policymakers transform inner cities will be critical to the financial health of cities and the regional economy.
They are shifting that spending to the suburbs as a million people have also left inner cities during the pandemic, he said.
Retail has followed this change.
They left pricier cities like San Francisco and New York for cheaper Sun Belt cities like Phoenix and Houston, the JPMorgan Chase Institute found.
San Francisco lost around 6% of its retail operations from 2019 to 2021, according to a study by the think tank. Los Angeles lost around 4% and New York lost 3%.
Meanwhile, Houston and Phoenix added 4% of new retail stores during the period.
Shopping online
Retail stores are also under pressure from the ongoing shift to online shopping.
According to the Census Bureau, e-commerce accounted for 14.7% of all retail sales in the last quarter of 2022. The pandemic accelerated this growth.
For example, chain store closures in New York City are related to the top products purchased online. Clothing, footwear, accessories, vitamin and electronics stores have fared the worst, said Jonathan Bowles, executive director of the Center for an Urban Future, a public policy think tank.
And while crime is not the biggest factor in many cases, the rise in shoplifting and other casualties has taken its toll.
According to the National Retail Federation’s annual survey of about 60 retail member companies, retail shrinkage reached $94.5 billion in 2021, up 53% from 2019. (The biggest factor behind shrinkage is customer theft, but the metric includes also employee theft, human error and other losses.)
Finally, the struggle to recruit workers at higher wages and penalties for rents in cities have contributed to retail closures.
In San Francisco, the average rental price reported by landlords in the first quarter of 2023 was $43 per square foot, almost double the national average, according to data from Cushman & Wakefield. It was $32 per square foot in New York and $33 in Los Angeles.
In cities like Phoenix, Houston, and Dallas, where retail is growing, average rents were $22 and $23 per square foot, respectively.
“The city center is there for people”
There is no easy solution to halting the exodus of retail chains from cities.
Replacing a Nordstrom with another department store or replacing a CVS with another drugstore chain is unlikely to be sustainable, according to experts.
“It’s a really tough problem for cities and business developers,” said Chris Wheat, president of the JPMorgan Chase Institute. “How do you design these neighborhoods to live, work and play? That was a question before the pandemic, but now it has become more important.”
It harks back to urbanist Jane Jacobs’ influential 1958 essay “Downtown is for People,” in which she argued that vibrant street life was vital to neighborhood safety and community.
This model, which focuses on the vibrancy of streets and the people who inhabit them, is required to create vibrant and exciting communities and shopping districts.
Roads may be closed to cars on weekends and other times. Cities can also host street fairs, food festivals, live music, art exhibitions, and other events to attract foot traffic to the downtown area.
These so-called “placemaking” investments – which Bowles said are not “massive, multi-billion dollar” investments – could be backed by dedicated business improvement districts, where local stakeholders fund maintenance and promotion of the area.
bring streets to life
If the future of shopping doesn’t lie in huge department stores, a broader mix of stores is needed to make inner cities more attractive.
Traditionally, retail landlords aim for the longest leases. But this makes it difficult to open new stores.
Cities can offer financial incentives to encourage landlords to offer fixed-term and more flexible leases, and relax regulations to speed up their approval process.
This allows for pop-up stores, seasonal retailers, and a mix of food and beverage vendors.
“Can retail be more responsive?” said Paco Underhill, founder of behavioral science and consulting firm Envirosell. “Can you have a room that houses Crocs in the summer and Canada Goose in the winter?”
In addition, there are insurmountable challenges such as improving local public transport and creating more affordable housing in the inner cities.
The zoning laws need to be updated to allow some vacant office buildings and commercial properties to be converted into affordable housing.
The density of apartments that will replace some office and commercial space is important, Stantec’s David Dixon said. People want to shop just minutes from home and a critical mass of living space is required to service surrounding retailers.
“A vibrant inner city full of housing can bring its streets to life,” he said. “It’s a much bigger story than the fate of the retailers themselves.”