While all eyes have been on the occupancy-challenged office buildings or the thriving industrial space, retail real estate has been going gangbusters. Not even the notable list of retailer bankruptcies and accompanying store closures has slowed the retail real estate market. Brick-and-mortar retail is alive and well, despite the predictions that it would be replaced by e-commerce. A burgeoning sector, circular retail, is yet another adaptation helping brick and mortar retail fight back against its online competition. Circular retail plays off the growing demand for reused or repurposed products (think yesterday’s thrift store or second-hand shop) and it’s an emerging segment of retail that will likely become a larger part of our in-store spend.
Circular retail is growing in popularity for a couple of reasons, one of which is its inherent eco-friendly nature. The reuse of products plays to consumers’ growing dedication to sustainability. Another reason is the economy, circular or resale retail appeals to cautious consumers’ pocketbooks. At one time “second-hand shopping” may have been relegated to the 20-something crowd or lower-income shoppers, but the resale world has evolved to embrace consumers of all types.
Aside from Goodwill, circular retail activity is predominantly Internet-based, like online consignment and thrift store thredUP and peer-to-peer thrifting platform Poshmark. But increasingly, circular retailers are expanding their online platforms with the addition of actual stores to provide customers with the “in real life” experience. “I think these online resellers’ physical stores really offer an opportunity for discovery that the consumer is looking for,” said Alanna Loeffler, managing director of business strategy with Cushman & Wakefield’s Americas Retail Services. “There’s something about an in-person experience that you just can’t really mimic online.”
Started as Borobabi in 2020, ManyMoons, an online platform for renting new and pre-owned children’s clothing, opened its first flagship store in a 5,000 square foot space in Manhattan’s SoHo neighborhood in 2022, the same year it closed a $4 million capital raise led by Lightbank. The company, which is a model of circular retail as it has committed not only to keeping products in use throughout their lifecycle but also to eliminating waste and regenerating natural systems, opened a location at the multi-billion-dollar Hudson Yards mixed-use development on Manhattan’s Far West Side in 2023. ManyMoons also has a store in Nantucket, Massachusetts, and Ridgewood, New Jersey.
Luxury goods providers comprise a substantial segment of those online circular retailers that are expanding their presence into retail real estate. The RealReal, the world’s largest online marketplace for authenticated resale luxury goods, debuted in 2011 and today the 30-million-member circular retailer has a real estate footprint encompassing 12 stores in premier markets of U.S. cities from Los Angeles to New York. The locations consist of flagship stores that range in size from 8,000 to 12,000 square feet, and neighborhood stores, which can be as small as 1,800 square feet or as large as 3,500 square feet.
Granted, The RealReal is rethinking its real estate footprint and shuttered four stores in the first half of 2023, but the company labeled the closures a consequence of market locations or the rental rate on some of the leases. Moving forward, the company has no plans of exiting the brick-and-mortar world. “We’re still quite bullish on stores,” Rati Levesque, president & COO of The RealReal, said during the company’s second quarter 2023 earnings call on August 8. “We’re continuing to look at new locations, we expect to do one to two stores a year. But the company is executing its plan with a new sense of caution. “The neighborhood store is definitely the winning recipe and we have a playbook here on this and we expect to see more of these in the future, but we’ll be quite prudent in how we operate, and the operating expenses involved as well as the lease negotiation,” Levesque added.
The RealReal’s restrained approach to store growth mirrors that of the retail sector in general. “On the tenant side for retailers, we’re seeing them be a lot more thoughtful with their brick-and-mortar expansions, and that applies to circular retail concepts and across all categories,” Loeffler said. There will be a careful approach to store expansion among circular retailers, but there will be more expansion. The public demands it. The thrift store or second-hand store category recorded an approximately 10.5 percent year-over-year growth in visits in 2022, outpacing growth in visits to apparel chains and off-price chains, according to research from Placer.ai.
Circular retail is in growth mode, with different types of retailers entering the arena and dipping their toes into the retail real estate pool. AptDeco, a New York-based furniture resale marketplace, took its online platform national in 2022 with the launch of national shipping, and now the company is reportedly in the market for a retail showroom space. “The showrooms or flagships are so important for these furniture concepts because it’s not only just showcasing the used furniture that’s within the area that they can resale but also creating the entire curated space, and selling through every aspect of that,” Loeffler explained. In-store resale and thrift activity is on an upward trajectory and will likely reach roughly $8 billion by 2027, according to research from thredUP. It will be quite some time before circular retail accounts for a notable percentage of retail leases, but with this niche retail segment on the rise and customers increasingly embracing the in-store experience, circular retail will ultimately have a seat at the retail real estate table.