January 25th, 2018

The Changing Landscape of Retail

Over 5,000 brick and mortar retail locations closed in 2017, and the real estate industry is starting to show a change in direction. The front cover of one prominent retail publication went as far as predicting the "death of retail." However, before every city manager and budget director starts to freak out, let’s dig into what this actually means for taxing jurisdictions.

What are the facts? The face of retail is changing, and as a taxing entity, now would be a great time to start diving into data in order to understand your risk. How your local jurisdiction derives sales tax is the first step. If you are heavily dependent on anchored retail power centers with clothing, fashion, and electronics, take a minute to digest these numbers: 

  • In the year 2000, 22% of Americans shopped online. That number rose to 79% in 2016, and a staggering 96% in 2017.
  • In 2017, online commerce accounted for 8.2% of all sales.
  • In 2016, 51% of shopping excursions were made at a computer screen.

These trends aren’t just tied to your retail landscape. Without even realizing it, you may have a ticking demographic time-bomb in your city when it comes to families.

Only 23% of online shoppers without children at home make weekly online purchases, compared to 40 percent with one child, 56 percent with two children, and 66 percent with three or more children. More kids means less time to spend at brick and mortar stores, and more time spent shopping online.

For many of our clients, these trends aren’t yet causing significant impacts to major retail players. Walmart, for example, is still very profitable at $3.8b annual revenue, and same-store sales rose 1.8% in 2017. But it is not just about Walmart, which for many of our clients is the largest taxpayer. It’s the Walmart shadow tenants and mid-size retailers taking the brunt of the pain. We need a new formula for attracting retail sales dollars outside of GameStop and GNC.

How do we transition?

We need to change our 1990s mindset. Main Street and small business owners are on the rise again and we need to ride this wave. Take a look at some of the most successful sales tax jurisdictions (cities) throughout Texas and almost all of them have developed three essential things:

A Sense of Place

Focus on how retail is developed (the quality of the tenant mix) and be welcoming to different modes of transportation. Creating a downtown or central business district is crucial in bringing in retail dollars from stable small businesses and the food and beverage industry.

A Brand

People need to want to visit your jurisdiction, and you can no longer just slap a logo on a website and call it a brand. Brand is all-inclusive, requires a significant investment, and impacts the decision on where shoppers prefer to spend their money.

A Lifestyle

Focus the entire apparatus of your organization, not just economic development, in creating an environment in which people love to be. Create quality events tied into the local retail industry to drive customer experiences. In the world of Instagram, Facebook, Snapchat, and WhatsApp, marketing is a grassroots effort and requires great experiences to get exposure.

What is still safe?

Nothing is safe, but we can prepare and come out stronger. If a retailer is on the Most-Likely-to-Fail list of 2018, be careful with the amount of public investment in that project and start to focus on creating long-term financial health for your jurisdiction. Focus on retailers that sell products difficult to purchase online or that create a great experience for their customers. Most importantly, understand your exposure and see what is coming. Dive into the data! Retail will not close overnight, but utilizing the data ZacTax provides will prepare your jurisdiction.