Retail Growth Shifts To Suburbs And Smaller Markets

As retailers outgrow the dense urban markets that supported their early expansion, many are looking to suburban communities and smaller cities for their next locations. The move is changing the real estate playbook for growing brands, which must identify new customer pools while adapting site selection, development and operations to less familiar markets.

In a panel discussion at ICSC@Western in San Diego last week, retail real estate leaders described how companies launch, scale and sustain their growth. The discussion was moderated by Robin Bhalla of The Robin, Retail Round Robin.

For owners and investors, the takeaway is clear: tenant expansion is no longer confined to the core markets where brands established themselves. As retailers become well penetrated in those markets, their next wave of demand may emerge in suburban centers and smaller communities that can support their evolving customer bases.

Bryan Bauer, Chipotle's development director, said the company initially concentrated on business districts. Starting in Denver, Chipotle expanded into markets including Columbus and Washington, D.C., targeting locations with strong daily populations.

But its customer base changed as the brand grew. As Chipotle attracted more high school students and parents, the company began placing greater emphasis on suburban locations after achieving significant penetration in business districts, Bauer said.

Fitness Concepts Broaden Their Footprints

Purpose Brands has seen a similar evolution across its fitness concepts. Beckie Schultz, the company's senior director of real estate, said Anytime Fitness began in Minnesota before expanding more broadly, while brands such as Orangetheory have historically focused on higher-income customers.

Now, Purpose Brands is moving Anytime Fitness deeper into suburban areas and bringing some studio concepts into smaller markets. That progression illustrates how the addressable market for a fitness brand can change as a concept matures—and how its real estate needs must change with it.

The expansion of fitness uses can be particularly relevant for shopping-center owners seeking traffic-generating tenants that draw customers throughout the day. John Harmon, director of real estate at EoS Fitness, said the company has demonstrated that it can serve as a daily driver for a center.

Harmon, who came to fitness real estate from the grocery business, said relationships with grocery and restaurant operators matter because the various uses must be able to coexist within a project. Fitness concepts can overlap with other tenants' customer bases and traffic patterns, but they can also help support a broader mix of uses.

Competition Drives Site Strategy

Retailers are also defining their competitive sets more broadly as they enter new markets. For Chipotle, convenience has become a more important site-selection consideration, Bauer said, though the company's competitors vary by region.

In San Diego, Chipotle may compete with independent restaurants and taco stands. In the South, its competitive set can include chains such as Qdoba and Moe's. The distinction underscores the need for retailers—and the landlords pursuing them—to understand the local market rather than relying on a uniform national view of competition.

Other concepts are deliberately pursuing a different position. Gretchen Zalamea, head of real estate and construction at Showa Hospitality, said the company emphasizes the customer experience over speed and convenience. Tortillas are made in front of customers and churros are fried in the restaurant. Customers may wait 15 to 20 minutes for tacos because the concept is not designed to be the most convenient option, she said.

At EoS, Harmon said the company views Crunch Fitness and Planet Fitness as competitors based on price and offering. EoS is differentiating itself with recovery amenities that include cryotherapy beds, hot tubs, cold rooms and red-light rooms.

Schultz said several fitness concepts can operate in the same market despite overlap. Anytime Fitness, Crunch Fitness and EoS may compete for some customers, but boutique studios offer specialized workouts that larger full-service gyms may not provide. Consumers can also belong to multiple studios or use services such as ClassPass, she said.

Execution Becomes More Important

For retailers moving into new markets, expansion depends on more than identifying the next promising trade area. It also requires controlling development costs and maintaining the experience that attracted customers in the first place.

Zalamea said her role includes projecting how a store buildout will perform and identifying potential problems before they become more expensive to solve. "The sooner you see it, the less expensive it should be," she said, adding that working with cities can create challenges.

That focus matters as retailers expand into jurisdictions with different approval processes, construction conditions and local requirements. Development missteps can erode returns and delay openings, particularly for concepts pursuing a larger number of sites.

Harmon said EoS is also focused on preserving its operating standards as it grows, including cleanliness and a friendly environment. For tenants expanding beyond their original markets, maintaining those basics can be as important as selecting the right location.

Growth Requires A Flexible Playbook

The panelists' experiences point to a broader shift in retail expansion: growth strategies must change as customer bases, market penetration and local competition evolve.

A concept that initially succeeds in dense business districts may eventually need to follow families into the suburbs. A fitness brand may find new opportunity in smaller markets. A restaurant may need to compete on convenience in one city and on a differentiated experience in another.

For retail investors and landlords, the opportunity is to recognize where those evolving strategies create demand. The strongest prospects may not always be in a retailer's traditional markets, but in the next set of suburban and smaller-market locations where a mature brand can still find room to grow.

Check back with GlobeSt.com for more coverage from the ICSC@Western event last week and click the stories below for what you might have missed.

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