The move of retail stores out of city centers is another blow to city centers

Large companies in the US are avoiding both downtowns and malls in favor of smaller residential areas, adding to the financial burden of vacant offices.

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Abercrombie & Fitch Co. closed a sizable store in Water Tower Place, a shopping district adjacent to Chicago's downtown, following Covid-19 lockdowns in 2020. It was one of several pandemic-related retail closures that occurred in metropolitan downtown neighborhoods and later become permanent. The apparel store, however, had different ideas.

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A new boutique-style store was opened by the business at the end of 2021 in Chicago's Lakeview area, where a sizable customer base was making online purchases.

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It follows a trend among American retailers that are moving away from malls and large-format stores in urban areas in favor of neighborhood stores that cater to the generation that works from home. In addition, even while the number of brick-and-mortar stores for clothes merchants is expanding overall, their presence is declining in many major cities. They are merely expanding, leaving smaller footprints in residential areas.

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Executives at Abercrombie based their store strategy on shifting consumer habits after using e-commerce transactions and other location data to figure out where customers are most concentrated.

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For the most frequent customers of the company, the new store in Lakeview aims to simplify the return and exchange procedure. Customers may be inspired to make a purchase once inside the establishment, which wouldn't happen if they dropped by otherwise.

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According to Samir Desai, chief digital and technology officer of Abercrombie, "that consumer is perhaps going to the mall a little less with our Abercrombie & Fitch brand in particular. "So it actually favors local mall streets where they might be participating in a fitness session or whatever else that's bringing them there," said the researcher.

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Similar techniques have been used by brands including Macy's Inc. and Kohl's Corp., which have experimented with various formats and communities. Customers increasingly prefer to buy in their ZIP code, according to Macy's Chief Executive Officer Jeff Gennette, who also noted that "off-mall is pretty desirable."

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While the change benefits the merchants by enabling them to interact with customers locally, it also poses a challenge to traditional malls and metropolitan downtowns, which have long profited from shopper foot traffic and tax income. Fewer retail establishments in crowded urban areas will only make the problem of drawing people back worse. Cities have already been experiencing a sharp decrease in office occupancy, which is currently at approximately 50% of pre-pandemic levels.

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According to Christopher Wheat, president of the JPMorgan Chase Institute, who published a report on Covid shocks to brick-and-mortar retail, the shape of the challenge for an economic development entity in a city is to now determine what kinds of businesses will work here and what kinds of services are going to be needed in a place that has a different population trajectory.

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According to a JPMorgan analysis, a number of major cities, including San Francisco, Los Angeles, New York, Seattle, and Miami, had fewer retail businesses in the fourth quarter of 2021 than they did before the epidemic. According to a Trade Algo report, however, the apparel industry witnessed the second-highest number of store openings in 2022, totaling 1,395, despite closing 750 stores overall. Lots of these new stores were in the suburbs.  

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City Centers Are Vacant

During the start of the pandemic, the biggest fall in establishment growth was seen in downtowns.

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Wheat added, "It's not obvious that it indicates that there are overall aggregate losses in demand; it may just be more of a mix and shift. "When those habits shift, you might be spending a lot more time near your home and doing a lot more shopping there than you were doing it on the way to or from your employment."

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Retail store locations have occasionally relocated a few miles down the road to shopping malls that customers in this technologically advanced, work-from-home era are nevertheless likely to patronize. This often entails selecting shopping locations with restaurants and food stores rather than those that are dominated by clothing businesses.

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For instance, Macy's shut down a department store in the Chesterfield Mall in the St. Louis region and opened Market by Macy's three miles away in a retail center with Walmart and Aldi stores as well as restaurants like Olive Garden and Starbucks.

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According to a press statement from Macy's from July, the change is a part of the company's aim to build "off-mall, compact formats," sometimes to replace underperforming locations or open new stores where Macy's doesn't have a presence.

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Abercrombie, on the other hand, has so far experienced success with its Chicago strategy, generating more e-commerce demand "because people have a little bit of comfort and confidence knowing there's a presence nearby where they can go and swiftly return or exchange things," Desai said. According to the company's most recent earnings report, which was released on Wednesday, sales at the Abercrombie brand increased 14% in the fourth quarter of 2022 compared to the same period the previous year. In the upcoming years, the business intends to test the Chicago method in more cities.

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In particular, he said, "we're thinking about a neighborhood-based retail concept versus just simply inside a mall" as we investigate the tactic further. You can see that tactic is effective.