Retailers Back On Store Expansion Trail At 40,000-Person Conference, See Big Gains From AI

Through global downturns, political upheaval and economic crises, the U.S. shopper has defied forecasts and kept on spending.

But going into the National Retail Federation’s Big Show in New York on Jan. 12, there was a lot of caution about the year ahead among the 40,000 delegates who packed the annual expo and conference.

They need not have worried.

With retail sales up, senior executives from major global retailers were in the mood to talk about investment rather than the retrenchment of the past decade. Store portfolios are expanding, albeit modestly, and investment in stores is increasing as brick-and-mortar continues to be the bedrock of retail strategy — with a little help from artificial intelligence. 

On Jan. 17, the Commerce Department revealed that retail sales had risen more than expected in December, boosted by an increase in motor vehicle and online purchases. Retail sales rose 0.6% in December after a 0.3% gain in November, the Census Bureau reported.

Sales increased 5.6% year-over-year in December, and although low-income households are believed to have exhausted excess savings accumulated earlier in the pandemic and debt levels are rising, economists expect consumer spending to hold up this year, as long as the labor market doesn't weaken considerably.

On top of that, retail real estate fundamentals are expected to remain strong in 2024, thanks to a dearth of new construction over the past few years, according to CBRE. The retail availability rate is expected to fall by 20 basis points and end the year at 4.6%, while asking rent growth is projected to dip below 2% for the first three quarters of 2024 but rise above 2% in Q4. 

High costs in 2023 discouraged construction starts, with only a few markets able to demand asking rents high enough to justify building costs, while net absorption of retail space is expected to fall to 28M SF in 2024 from 35M SF in 2023. Nevertheless, only 14M SF of new multitenant retail space is scheduled for delivery in 2024 — half the projected demand.

Retailers that have traditionally been mall-based have been closing underperforming stores and are looking to smaller-format, open-air suburban centers for expansion. As a result, neighborhood, community and strip centers will maintain occupancy throughout 2024, but vacancy rates for mall and lifestyle centers are expected to rise by nearly a percentage point, according to CBRE.

Against that backdrop, sharply different from the picture across most of Europe, the NRF Big Show, as ever, acted as an early year litmus test of the mood of the retail sector and a showcase for 2024. Bisnow picked out four key trends likely to dominate the next 12 months.

1. Measured Expansion In Store Networks

While technology dominated discussions over the three-day event, few if any retailers were talking about more store closures. Instead, the message from New York was to expect portfolios to grow, but in a measured way.

Levi’s President Michelle Gass, leader of a global brand with around 3,000 stores worldwide, of which roughly 1,000 are owner-operated, highlighted the growth opportunities the denim giant saw in Asia.

“We’re just getting started in India, China and Latin America too,” she said.

She added that Levi’s continues to build stores in the U.S. as well. 

“We have more than 70 mainline stores and a big opportunity to grow that further,” she said. “For [sub-brands] Dockers and Beyond Yoga, I see a ton of opportunity. We foresee a long runway of store growth.”

Dick’s Sporting Goods Chair Ed Stack said retailers need to focus on what they believe to be the right strategy, not simply looking to appease the stock market.

“I think it’s an exciting time for retail. Inevitably, there will be some consolidation. The consumer is changing, but at the same time, there is an opportunity to carve out a niche,” Stack said. “What [Wall Street] wants you to do is not always right for the long term. The Street would say to all retailers that they have too many and too large stores, yet our larger-format House of Sports is exactly the opposite of what they wanted but is performing fantastically.”

BJ’s Wholesale Club celebrates its 40th anniversary this year, is opening around 10 stores annually and plans to continue moving into the Midwest.

“The last few years have been challenging, especially for consumers. I’ve long since retired my crystal ball, but the wholesale model brings discounts,” BJ’s Wholesale Club Chairman and CEO Bob Eddy said. “Value matters, and for 2024, the key point is that no matter regarding inflation, value always wins.” 

2. It’s The Economy, Stupid

Stephen Sadove, best known for his seven-year tenure as chair and CEO of Saks Fifth Avenue, said that the holiday season continued to be influenced by the pandemic.

“We're still playing out rectifying the trends from the pandemic. We’ve seen some luxury, jewelry and hard goods losers, while restaurants and travel are still healthy,” he said. “The high-end consumer is doing great, the lower end is stretched, while the middle has been squeezed into value, such as Walmart and the dollar stores.”

Sadove predicted that 2024 would see a “reversion to the mean” and a post-pandemic world, adding that e-commerce was back to the same growth pattern as before the coronavirus, falling from a spike during lockdowns.

“This is one of the most interesting times I've seen since the recession,” he said. “At Saks after the Global Financial Crisis, we saw this huge disruption in what became omnichannel retail. What is happening right now is as big. AI, analytics, data segmentation are all emerging. That's why 40,000 people have turned up.”

Despite the advent of new technologies, Sadove said he remains positive about stores, noting that more physical outlets had opened in 2023 than closed. He said significant footprint consolidation was unlikely in 2024.

“For the first time ever, eating out spend has exceeded grocery spend,” he said. “Apparel remains a concern, work-from-home means less formal fashion requirements, but more eating out should have boosted dressing-up sales, so the question is whether that spend is going to international value retailers like Shein.”

3. Personalization And The Customer Experience

While AI was the dominant technology at the NRF event, personalization and data were also key areas for the retailers speaking in New York.

“E-commerce was the first time Saks changed its model. That was evolution. With the consumer moving online, we had to move that center of gravity, so we had to invert our business model,” Saks CEO Marc Metrick said. “You can still drive exclusivity through limiting product or introducing a different line.”

Shifting values and lifestyles since the arrival of the pandemic brought explosive growth for Tractor Supply Co., which expanded from $8.5B in revenues in 2019 to $15B now. That was due to same-store sales, in addition to opening 80 new stores each year, CEO Hal Lawton said.

Lawton spoke of the “GURA” approach to customer service: Greet the customer, uncover their needs, recommend products, ask for the sale. The company is incorporating generative AI into its Hey GURA tool, delivering knowledge directly to team members through their headsets. 

“Our issue is less around having a number of opportunities,” he said. “Our issue is much more about prioritization. We’ve got so much opportunity and so much growth ahead of us, we’ve just got to make sure we pick the right thing to invest in, in a stepwise fashion, to make sure it all syncs together.”

4. Retail's 3 Priorities: AI, AI And AI

The retail industry is transfixed by artificial intelligence, and it was the talk of the town at the NRF Big Show. Few sessions failed to feature AI, and the expo floor was awash with AI solutions for everything from back-of-house information technology systems to in-store merchandising and chatbots.

Generative AI could be as disruptive as the arrival of the internet or mobile phones, according to Google Cloud Managing Director of Retail Amy Eschliman, who called the possibilities endless.

“These massive transformations are nothing new to retail. The internet is a great example: It changed the way we shop. Mobile phones, same thing,” she said. “Now it’s generative AI, which has the capability of transforming everything from the customer experience to the associate experience. It’s about the ability to synthesize and analyze information that we did not have before.”

Macy’s Chief Financial Officer and Chief Operating Officer Adrian Mitchell said the retailer has made a “lot of progress” applying AI to pricing science and was continuing to experiment with AI-powered personalization and inventory allocation.

“No. 1, it can definitely make your business simpler. It can help you execute better and help you make better decisions,” he said. “What we’ve also learned is you have to lean in, because retail is a disruptive space. If you stand still, you’re falling behind.”

Ulta Beauty CEO Dave Kimbell, who oversees the brand's 1,400 stores and 500 Target locations, said AI provides ways to complement the human experience.

“Innovation starts with the human connection,” he said. “Despite all the technology, there’s a strong desire to connect on human terms. AI can complement the human. We have virtual chat tools, and AI can do guest services to bring more data, more personalization and a more human experience to this.”