
Reprinted from the article, The Evolution of Shopping Centers written by Chris Macke, Senior Strategist with CBRE in Boston who shares some parallel thoughts with the book “Who Moved My Cheese” a parable in which two mice discover the cheese they depend on has been moved from its usual location.
A Continuing Evolution
Retailers are continually evolving in an attempt to maintain and ideally increase their share of consumer expenditures. Similarly shopping centers are also continually evolving. Whether it was the creation of suburban malls, power centers, outlet malls or more recently lifestyle centers shopping centers have constantly evolved. And today we are on the cusp of the next evolution in shopping centers. It is an evolution driven by the transition of Baby Boomers into their “golden years”, the 65+ age segment.
This transition comes with two seismic shifts: A significant reduction in consumer spending and second, an accelerating of the shift away from GAFO1 store-spending to medical related spending. Shopping center owners who are aware of and capitalize on these shifts will not only survive the additional pressures of stagnant consumer wages, rising personal income taxes and online retailing but will thrive.
Over The Spending Hill
Peak consumer spending occurs between the ages of 45 and 54 reaching a peak average, annual consumer expenditure of $57,788. Once the consumer reaches the 55-64 age segment consumer spending begins to decrease. When consumers enter the 65-74 age segment it declines substantially.
The first wave of Baby Boomers celebrated their 65th birthdays in 2011. Consumers in the 65-74 age segment spend 28.3% less on average than during their peak years. It is estimated that between 2010 and 2020 there will be approximately 14.5 million more consumers aged 65 or older. Said another way, by 2020 14.5M consumers will on average be spending 28.3% less than they did during their peak years. And with the Baby Boomer generation encompassing a 16 year period this is going to last for a while.
Who Moved My Consumer?
The second seismic shift is more of an acceleration of an existing trend that occurs as a result of the Baby Boomer generation transitioning into the 65 plus demographic. It can be best understood through a parable. The book “Who Moved My Cheese” presents a parable in which two mice discover the cheese they depend on has been moved from its usual location. Not to worry. The resourceful mice thrive and survive because they stopped looking for it in the old place and instead began looking to where the cheese had been moved. Something similar is already happening to retailers and the shopping centers they occupy. The retailer’s “cheese”, consumer expenditures have been moving. They are increasingly moving from GAFO store expenditures to medical related expenditures.
This is more than a 25% increase in the portion of PCE that consumers spent on medical related goods and services. While part of this increase is due to the rate of inflation in healthcare costs that is irrelevant. The more consumers are forced to spend on medical related goods and services the less they have to spend on the traditional retail goods found in the stores that fill our shopping centers, regardless the cause. And this occurred before Baby Boomers even began hitting their “golden years” when healthcare spending accelerates substantially. That is why this trend will accelerate substantially.
While this is a problem for retailers it can be an opportunity for the more adroit shopping center owners. However, shopping center owners who continue to look for tenants only among retailers will find their “cheese” slowly diminishing each day while their investors will see a “bite” taken out of their returns. Follow the money or fall behind, presents a larger threat than online retail.
To view the complete article go to The Next Evolution in Shopping Centers by Chris Macke.