Medtail: Turning the Graying of America into Retail’s Silver Lining
By Chris Macke
A senior real estate strategist from CBRE, Chris has presented on a number of provocative topics during several NAREIM meetings in the last two years. This article posits a fascinating thesis outlining how an aging demographic may have a dramatic effect on the nature of retail for years to come.
The Changing Behavior of Boomers
Just as Baby Boomers changed retail throughout their lives they will once again change shopping as they move into their “golden years.”
According to the Bureau of Labor Statistics, consumer spending drops off significantly when consumers reach the 65-74 age range. It then drops off again significantly when they reach the 75 plus age range.
In addition to spending less, baby boomers have less time to shop as they spend more time visiting medical doctors. According to the Centers for Disease Control, individuals 65 years of age and older visit medical doctors 7.4 times a year as compared to those between the age of 55-64 age who visit medical doctors 4.6 times a year. This means more time spent at the doctor’s office and less time buying Dockers.
Lastly, according to Bureau of Economic Analysis, spending on healthcare increased from 16 percent of personal consumption expenditures in 1992 to more than 20 percent of consumer expenditures in 2011, a 25 percent increase. So as baby boomers spend progressively less, they will spend more time at doctor’s offices and more of what they do spend will be healthcare-related.
Medtail – Retail’s Silver Lining in the Graying of America
At face level, the changing pattern in consumer behavior among Baby Boomers can seem ominous for the prospects of shopping centers. However, this is based on the following assumption: Shopping centers don’t sell healthcare products and services. Why not? Why can’t shopping centers include healthcare-related tenants? Why should they only be found at the traditional medical office building or medical mall? Why should shopping centers wholly cede this tenant sentiment to another other property type?
Shrewd shopping center investors and lenders should begin asking shopping center owners, “why aren’t you proactively pursuing healthcare related tenants in addition to the traditional retail tenants?” Will these tenants become the majority of the tenants in a shopping center? Probably not. Can they make the difference between being stuck below 90 percent occupancy and being above 90 percent occupancy? Yes. Can they fill the “elbow” suites, the visibility- or foot traffic-challenged suites every shopping center has? Yes. Maybe most importantly, can they provide a new source of tenants as the Radio Shack’s of the world succumb to the ill effects of e-commerce? Yes.
As Baby Boomers age, their spending patterns will change. Will shopping center owners make this the silver lining in today’s challenging retail environment? Or will they be tarnished by their inability to evolve their tenant mix?
When I first came up with the concept of proactively mixing healthcare related tenants in with traditional retail tenants at shopping centers I didn’t realize how much confusion there would be around the concept. Maybe the best way to clarify the concept is to first outline what Medtail is not. Medtail is not reactively leasing space to the one-off eye glass tenant or dentist. It also isn’t about resurrecting “dead” malls by in effect turning them into medical office buildings. Lastly, Medtail is different from medical malls as medical malls only feature healthcare related tenants. Instead, to use a culinary term, Medtail is about fusion, the fusion of healthcare related tenants into the traditional shopping center tenant mix. It is adapting to the challenges and opportunities presented by the graying of America. It is what effective retail participants do –adapt and change as their consumers change. Let’s consider the benefits of fusing these tenant strategies.
Multiple Benefits of Medtail
First, while shopping centers traditionally thrive during weekends and after school they are foot traffic challenged during the week before 3pm. Most doctor offices operate Monday through Friday between 9am and 5pm. Medtail would offer a near perfect timing for consumer activity.
Second, healthcare-related tenants usually have high demands for parking, which typically, is a negative condition but may be mitigated in a shopping center environment. The limited overlap of healthcare-related shopping and traditional peak usage periods of shopping centers could accommodate the high demands of medtail tenants.
Third, some shopping centers may even find that their distant, unused parking fields, distant from the storefronts yet adjacent to high traffic arteries, could be sold or leased as “outlots,” increasing the return on investment. [how does this relate to Medtail?]
Fourth, how many times have you been to your doctor’s office only to wait 45 minutes while you desperately look for something other than the 1980’s People magazine still residing in your doctor’s office? Whether it is the patient, the caretaker or the parent of a child, they are a captive audience. Give them restaurant-style pagers for their appointments and convert them into captive foot traffic.
Fifth, while aging Baby Boomers were the genesis of medtail, medtail doesn’t have to relate only to products and services targeting Baby Boomers. Tenants such as dentists, orthodontists and pediatricians would bring in children, and more importantly, the adults accompanying them. A diversity of retail offerings could cater to this increased captive foot traffic.
Sixth, how often have you had to drive outside your normal traffic patterns to go to a doctor’s appointment because the provider closer to you was not in your insurance plan? Doctor offices can have a similar effect to destination retailers by increasing the center’s trade area.
Seventh, unlike many retail segments, healthcare related tenants are not subject to the fickle nature of retail fads. This can provide greater stability among your tenant mix.
Eighth, healthcare providers often sign longer term leases. This can provide even greater stability among your tenant mix.
Ninth, there are a number of other healthcare related tenants that can also be pursued. Some of these include hearing aid centers, medical supply stores, physical therapy centers and wellness centers among others.
Tenth, as the negative impact of e-commerce on shopping centers continues – and even accelerates – it will be hard to justify not capitalizing on this potential new category of tenants.
John F. Kennedy said, “”Some men see things as they are and say why. I dream things that never were and say why not.” Will shopping center owners resign themselves to capturing a smaller and smaller share of Baby Boomer spending? Or will they adapt and focus not just on Baby Boomer retail spending but also try and capture a share of Baby Boomer healthcare spending? The answer just may be the difference between shopping centers finding or not finding the silver lining in the graying of America.← A&IT Report: Impacts of Global Capital, Cyber Crime and Regulatory Shifts Performance not Guaranteed: How Collaborative strategies set portfolio and asset managers ahead of the competition →