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Why the retail apocalypse is the main factor in restaurants’ traffic problems

The industry will have to adapt to a new reality with fewer shoppers, says RB’s The Bottom Line.
Photograph: Shutterstock

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Restaurant traffic has been weak for three years, and we’ve analyzed plenty of reasons for that, including grocery prices, changing consumer habits, oversupply and even weak movie receipts. All of those reasons are valid, but none are as big a factor as the retail apocalypse.

The issue has come up again as Red Robin Gourmet Burgers has struggled and faces an activist investor.

The chain has had a major problem with dine-in sales, which are more pronounced at the 76 locations it operates inside of malls. Seven of the 10 underperforming locations Red Robin recently opted to close are located inside of enclosed malls.

Retailers have struggled broadly in recent years as consumers have shifted more of their shopping online to places such as Amazon and Wayfair. Sears filed for bankruptcy and closed numerous locations.

In recent years, dozens of retailers have either completely shut down or greatly reduced their retail footprint. This year, that list includes Gap, which is closing 230 locations, Dollar Tree, Shopko, J.C. Penney, Office Depot and CVS.

According to real estate data firm Reis, the retail vacancy rate was 10.2% in the first quarter of the year, up from 10% a year ago. Late last year, the mall vacancy rate hit a seven-year high.

The retail vacancy rate has been increasing since 2016, according to the firm, while rents have been falling. “As the retail sector continues to undergo restructuring, a number of retail real estate markets face more vacancies and falling rents,” the firm said.

Local stories of retail problems abound across the country, such as the failed Harborplace mall in Baltimore’s Inner Harbor to a now-boarded up mall in Pennsylvania.

Even malls that have relatively low vacancy rates still see different tenants than they once did.

A mall in suburban Minneapolis, for instance, includes one furniture shop occupying two anchor locations, one of which had been a Herberger’s—which shut down all of its locations last year. Inside the mall, local shops are nearly as prevalent as the chain retailers that once dominated malls, and there is a table with brochures advertising opportunities for local entrepreneurs to open “pop-up” shops.

And it’s not just malls. Even popular urban retail areas, such as Grand Avenue in St. Paul, Minn., worry about the impact of empty storefronts.

The simple fact is this: If consumers are not shopping, that means there are fewer occasions that can get them to dine out.

This is a problem for many restaurant chains, and especially casual-dining concepts, that emerged with many retail developments and sought locations in and around them to give those shoppers a reason to dine out.

To be sure, many chains have taken advantage of this retail problem to find locations. Many landlords have turned to restaurants to bring in traffic, which has helped concepts such as Shake Shack and Punch Bowl Social grow and add locations.

Restaurant chains have already started evolving their strategies, focusing more on locations with heavy takeout and delivery business and daytime business traffic versus retail hot spots.

The industry will ultimately adapt to this shift, as landlords are working to do right now. But the evolution in the retail business will continue to have a major impact on restaurant operators in the coming years.

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