Center City And Restaurants Are Philly's Saving Grace In Retail

The retail industry is still struggling to figure out how to adapt to the rise of e-commerce, but that hasn’t stopped Center City from undergoing massive changes and upgrades to its retail scene. 

By far, the largest portion of new entrants into the Philadelphia retail market over the last few years has been restaurants.

“One in four new businesses in the city has been a restaurant,” says Post Brothers’ Randy Hope, citing CBRE research. Randy will be a panelist at Bisnow's Philadelphia Retail Revolution event Nov. 22. “There’s been a massive trend toward new and emerging restaurants, which is a fairly low barrier-to-entry business to be in.”

Restaurants have not only been an important force in the market, they’ve also been coveted tenants for mixed-use developers who wish to make their ground floors amenities for residents. Beyond that, they’ve collectively raised the profile of Philadelphia as a city to visit and reside in.

“It started with Philly having some really high-profile chefs opening restaurants in the city,” says Metro Commercial’s Michael Gorman (below), “and then it got a reputation for being a good restaurant city, and that perpetuated itself.”

Lower rents and building costs than New York and Washington, DC, spurred restaurateurs to try Philadelphia, and that helped open the floodgates.

“What’s going on in retail in general,” Michael says, “with the contraction of traditional retail doing fewer stores and smaller stores—that opens a lot of space, and restaurants have been filling the space.”

Everyone has felt the life-changing effects of e-commerce, adding convenience for consumers while severely hurting the margins of brick-and-mortar stores. Retailers have still not universally answered the question: How do you bring consumers into your store when they can get the same or similar products online?

Every store must answer it differently, but it comes down to one central principle: creating an experience in the store that establishes value to the consumer beyond just finding products.

“There’s still a desire to have interactions with other human beings,” Michael says. “People still want to understand what they’re buying, and you have to hire people who really know what’s going on with the product.”

Michael cites Bonobos as a retailer that has made the jump from online to brick-and-mortar, setting their store experience apart by setting customers up with a beer and a personal shopper when they walk in the door. Randy also names Under Armour, with its Brand House on Walnut Street, as a retailer that has figured it out.

“[UA] has done a great job,” Randy says. “They’re integrating the social media web experience along with general interest and wellness of the residents that surround the store.”

Both of the above retailers established their Philadelphia locations in Center City, which has become a hotbed of activity of national retailers competing to gain a foothold in the most central location of the market.

“Irrelevant brands are turning over,” Randy says.

To suit the desires of those national brands, a whole bunch of retail space is coming into the area, with the massive Market East development, the rebirth of the Galleria just across the street, and another Brickstone project nearby. It’s effectively growing the retail corridor in Center City.

“Walnut and Chestnut used to be the two streets in Philly,” Michael says, “and things have changed now that we’re adding Market East.”

Beyond the downtown, the outlook is not as rosy. University City is doing fine, as deeply connected as it is to Center City, and Randy remarked that Fishtown is “on fire,” especially when it comes to restaurants. The suburbs are a different story.

“What’s happening in the suburbs is definitely concerning to all of us as retail brokers,” Michael says. “You look at what’s happened in the last five to 10 years, and the Class-B/C shopping centers have just not made it back, and don’t look like they will make it back. Class-A shopping centers have largely been fine.”

The appeal of shopping centers was always based on shopping-dedicated trips, where consumers could spend hours browsing, walking from store to store. Now, even if shoppers go to a physical store to buy a product, they go there having done research online and knowing exactly what to purchase.

In order to keep a shopping center viable, landlords and developers have to get creative.

“You need something other than tenants,” Michael says. “There needs to be a hook for the community. You need to offer an experience.”

And if you were wondering if these retailers and landlords can simply wait for the new trend to swing back around, that likely won’t be viable.

“I think it’s going to be a battle for a long time to come,” Randy says, “and being an online retailer has lower barriers to entry than being a brick-and-mortar retailer.”