The Service Economy: A Shift from Goods 🛍️ to Services 👩‍🔧

If you want to call this the "new normal" (a vastly over-used term since the pandemic), it would be TBD. Once thing though is certain, we have witnessed a shift in retail growth, moving away from traditional goods toward a greater emphasis on services. This transformation reflects changing consumer preferences, economic factors, and technological advancements.

Understanding the Shift

Consumer Preferences: Today's consumer prioritizes experiences (see my last newsletter). Millennials and Generation Z, in particular, are driving this trend as they seek services that offer convenience, personalization, and engagement. From specialized fitness classes to gourmet food delivery, consumers are more inclined to purchase services that enhance their lifestyles rather than accumulating physical goods.

Technological Advancements: The rise of e-commerce and digital platforms has changed how we shop. While online shopping continues to thrive, many consumers crave experiences that can't be replicated digitally. This desire has sparked growth in sectors like hospitality, wellness, and entertainment. Retailers are adapting by creating hybrid experiences that blend physical and digital offerings, such as virtual consultations or augmented reality showrooms.

Economic Factors: Economic uncertainty and a changing job market have also influenced spending habits. Consumers are more cautious about their discretionary spending, often favoring services that provide immediate value or enhanced experiences. Subscription services, resale, travel, dining out have all been beneficiaries of this "movement."

Implications for Commercial Real Estate

As the focus shifts to services, #CRE professionals must understand the implication to space, location and properties as a whole. A few key considerations:

1. Redefining Space Utilization: Retail spaces traditionally designed for merchandise display may need to be reimagined. Companies should consider flexible layouts that can accommodate service-oriented businesses, such as salons, fitness studios, or experiential retail spaces.
2. Enhancing the Customer Experience: Designing spaces that foster unique customer experiences will be essential. Incorporating elements such as interactive kiosks, customer lounges, and community areas can help create an inviting atmosphere that attracts foot traffic.
3. Diversifying Retail Offerings: Understanding the services in demand in specific markets can help developers curate diverse experiences. Collaborating with service-oriented businesses can create a dynamic mix that draws a wide range of consumers.

The transition towards a service-focused retail model presents both challenges and opportunities. By recognizing and adapting to these changes, those involved in #location decisions can create value, enrich customer experiences and improve NOI.

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Nostalgic Retail Spotlight:

FOTOMAT

Fotomat was a retail chain of drive-thru kiosks that handled photo development and sold a limited supply of flim and photo accessories.

Founded by Preston Fleet, the first location opened in Point Loma, California in the early 1960's. At its peak, over 4,000 Fotomats filled shopping center parking lots around the country to provide a convenient, overnight way to have your photos developed (at least convenient at the time!).

Fotomat had both franchise and company-owned locations and constant disputes over territories created a very litigious relationship between the company and its franchisees.

The company was sold to Konica in 1986 and again to Viewpoint (a computer graphics software company) in 2002.

"In addition to photo developing, Fotomat was one of the first companies to offer movies for rent on videocassette—a new concept then—starting in December 1979. Customers would browse through a small catalog, call a number and order the movie or movies of their choice. The following day, the customer would pick up the cassette at the Fotomat kiosk of their choice. The rental cost was $12 per title (equivalent to $50 in 2023) and the customer could keep it for five days. The price was later reduced to $9.95 for a five-day rental. The service was called "Fotomat Drive-Thru Movies."" [Wikipedia]

As most know, overnight photo development became obsolete in the 1980s with the launch of one-hour photo locations and eventually digital cameras. To meet this changing landscape, Fotomat tries its hand at digital image processing at Fotomat.com until it ceased operations in late 2009.

Some of the Fotomat kiosks were converted to drive-thru coffee kiosks and other uses. This 2017 post on the Messy Nessy website shows great photos of "What became of America's Drive-Thru Fotomat?"