According to Barron’s, consumers may have been allocating a bigger share of their budgets toward gift buying rather than dining out or groceries, as these two latter categories saw sales declines. Concessions and sales also played a role. According to Steve Sadlove, senior advisor to Mastercard, “This holiday season, we saw consumers motivated by deals and retailers respond with promotions to meet the demand.” Although luxury retail sales slowed through the Third Quarter 2024, many brands experienced a rebound during the Fourth Quarter, especially with regard to jewelry, where sales increased 10% over 2023. Per Joanne Hsu, director of consumer surveys at the University of Michigan, wealthier households felt more comfortable making discretionary purchases during the holiday season due to stock market gains and house price appreciation.

According to Placer.ai, the gap between high end and budget shoppers may be narrowing, as consumers increasingly seek value in terms of product, price, convenience and experience. The former seemingly limitless growth of dollar and discount stores seems to be slowing, perhaps as a resut of changing neighborhood demographics.  As noted by Lululemon CEO Calvin McDonald, “the consumer is looking for value, quality and experience. Those brands that don’t provide this will fall behind – the chasm between the have and have-nots will grow.” For example, innovative specialty grocers like Trader Joe’s, Sprouts Farmers Market and Great Wall Supermarket have earned customer loyalty by offering low prices, new products, unique deals and what Placer.ai characterizes as “surprises, indulgences and entertainment.” The three chains offer quality and value and have seen an increase in their respective share of visits from shoppers traveling 7+ miles, as customers have displayed a willingness to prioritize special trips over more convenient options and also shop at multiple stores. Stores like Whole Foods and Macy’s have introduced smaller store formats to capitalize upon strong real estate locations and curate merchandise to local markets. Resurgent legacy brands like Anthropologie, Abercrombie & Fitch and Barnes & Noble have introduced innovative products and experiences to resuscitate brand equity and leverage people’s emotional attachments. Similarly, numerous news outlets reported on increased visitation at malls in 2024, led by Generation Z shoppers who recognize the multiple advantages of in-person shopping (including sales help, merchandise in hand, and easy returns), as well as the social benefits of a physical “third place.” The mall remains a community center.

With regard to dining out options, all restaurants were challenged by high food and labor costs. The fast casual sector continued to dominate, led by innovators Cava, Chipolte and Sweetgreen. According to Bisnow, fast-casual chains are experiencing a 6.6% compound annual growth rate, leading to an outsized share of the restaurant sector. Per Vivek Sinha, a partner with retail estate developer Banyan, “We speak of it anecdotally, about fast-casuals coming up and taking over, but the growth in market share in same-store sales….and the compounded annual growth rates far outpace sit-down restaurants to the point that they’re becoming a dominant force. They’re small setups, but to some extent, they’re taking over markets.” Placer.ai expects that the fast casual segment and quick serve chains will continue to experiment with automation to try to reduce labor costs, increase efficiency and reduce waste, while still prioritizing personal contact with customers.

In this environment and as noted in previous SageTrust white papers, the key to attracting shoppers is for landlords and tenants to curate rich and meaningful brick and mortar experiences, in combination with online efforts. Mark Matthews, executive director for research at the National Retail Federation, comments, “No one feels like stores matter less than they did 10 years ago. In some ways, they matter more because it’s part of one ecosystem where you need to cater to the consumer.” According to JLL, in its report “Experience Matters: What’s Driving Consumer Choice and Experience Across Places and Spaces?”, “…experience can play a key differentiating role in successful real estate developments and the creation of ‘destination’ places and spaces but should be carefully tailored to the local context and expected consumer base.” Entertainment coupled with community interests and needs breeds customer affiliation and loyalty, the report suggests.

Strong Fourth Quarter Performance Closes the Year on a High Note and Encourages Optimism for 2025

U.S. open air retail finished the year strong with 1.4 million square feet of net absorption, accounting for 89% of the 2024 total of l1.6 million square feet. Most of this leasing activity occurred in the Northeast and Midwest, as other parts of the country experienced softer conditions.