Will a Tumultuous Year Bring about Turnaround for Chicago’s Magnificent Mile?
The Magnificent Mile has long been regarded as Chicago’s premiere shopping district and a destination for tourists and retailers alike. However, the future of the retail corridor has come into question as more and more brands have vacated their flagship locations in recent years. Economic downturn due to the pandemic, multiple waves of looting last summer, and crippled tourism have further accelerated the departure of major retailers from Michigan Avenue.
Companies have historically paid a premium for flagship stores in high traffic locations in order to build visibility for their brands and offer a destination for customers to engage with their brands. However, many are beginning to question whether the high-street rents are sustainable as coronavirus-related restrictions and economic downturn persist while retail sales increasingly shift online. Gap and Express recently closed their doors on Michigan Avenue and Macy’s in Water Tower Place shuttered earlier this month after weeks of closeout sales. Victoria’s Secret is currently seeking a new tenant to take over its 23,000 sq. ft. flagship space on the Magnificent Mile.
Other major shopping districts across the United States have faced similar challenges amid the pandemic. In Los Angeles, nearly a dozen upscale brands have closed their doors on Rodeo Drive. On the East Coast, Lower Fifth Avenue rental rates dropped 7.6% from 3Q20 to 4Q20 and overall New York retail rents plunged by as much as 25% year-over-year during the peak of the pandemic, according to the Real Estate Board of New York.
Although these brand departures would seem to paint a grim picture overall for brick-and-mortar retail, some of the companies who left the Magnificent Mile were already struggling and scaling back prior to the pandemic, and elsewhere thriving retailers are planning for aggressive growth amid a boom year. For the first time in years, store openings are projected to outpace store closings in 2021, according to Coresight Research who reported 3,199 planned store openings and 2,548 announced closures to-date. Among those looking to expand this year are dollar, off-price and discount players, all of which have historically fared well in economic downturns as Americans demonstrate a greater need for value. Dollar General, Five Below, Burlington, and specialty retailers including Ulta, Sephora, and Dick’s Sporting Goods are among those looking to take advantage of cheap rents this year to drive plans for store growth.
Higher vacancy rates and favorable rent prices create conditions for a tenant’s market and welcome the opportunity for increased innovation along Michigan Avenue. Brands who normally would not be considered for Michigan Avenue or typically could not afford the rents may seize the opportunity to claim a storefront on Chicago’s famed shopping corridor. We can likely expect to see landlords experiment with new concepts, offer more flexible and shorter rental terms, and allow new retail entrants to Michigan Avenue. The enclosed vertical shopping center Water Tower Place is currently slated for a remodel and industry sources say that Target is considering taking over part of the Macy’s space as the retailer eyes a potential entry to the Magnificent Mile. Although uncertainty about the future of the Magnificent Mile remains top-of-mind, favorable conditions for retail tenants create ripe conditions for innovation in brick-and-mortar and ultimately the post-pandemic customer will determine whether Michigan Avenue will flourish or fade.