The Resilient Retail Shopper: Strong Sales, Sour Sentiment, and What It Means for Retail Real Estate
Over the past decade, retail has survived more obituaries than any other property type. The internet was supposed to empty the malls, COVID was supposed to finish the job, and tariffs, wars, and inflation have each taken a turn as the next threat. Yet when we take a retail property to market at Bull Realty today, the response is consistently strong, with active interest from a wide range of buyers.
To find out whether the tenants behind those rent checks are as healthy as investor demand suggests, I recently welcomed Mark Mathews, Chief Economist and Executive Director of Research at the National Retail Federation (NRF), to America's Commercial Real Estate Show.
For owners and investors in retail real estate, his read on the consumer matters directly. Sales growth, pricing power, and the pull of physical stores are what ultimately support occupancy and rents.
Beating the Forecast: 5.3% Growth That Is Mostly Real
NRF entered the year forecasting retail sales growth of 4.4%, a strong number for a mature industry that historically grows about 3.6% to 3.7% a year. Mark admitted the forecast made him a little nervous. Retail sales are now running at 5.3% growth.
The natural question is whether inflation explains the gain. According to Mark, it does not explain much of it. Commodities inflation on the goods side is running about 0.8%, so most of that 5.3% reflects real growth in what consumers are buying. The inflation Americans feel is concentrated in services. Over the last 30 years, durable goods have actually deflated: a dollar spent on electronics or appliances three decades ago buys the equivalent of about 79 cents' worth today.
Griping but Swiping: The Price-Driven Winner
Mark described today's consumer with a memorable phrase: griping but swiping. Shoppers are worried about nearly everything, yet they keep spending. They are doing it cautiously, trading down and hunting for the best deal.
That behavior sets up clear winners:
· Value and Discount Retailers: Dollar stores, discount chains, and any retailer that convinces shoppers it offers the best price are performing well. Promotional activity resonates strongly right now.
· Mid-Market Retailers: Even higher-income shoppers are trading down from luxury. That shift brings new traffic to retailers priced in the middle of the market.
· Pricing Discipline: Retail pricing is transparent and competitive. Cost increases from tariffs and diesel have largely been absorbed by businesses rather than passed through immediately, because low prices are what win customers in this environment.
For landlords, that points to durable demand for value-oriented anchors and necessity retail in well-located centers.
The K-Shaped Consumer and the Tax Refund Cushion
Spending is heavily concentrated at the top. The top 20% of households by income account for roughly 60% of all consumer spending. Last year, the bottom 70% to 80% of households actually posted negative spending growth, and the top tier carried the total.
This year the shape is the same, but every income group is growing its spending. Mark attributes much of that to the Working Families Tax Cut Act, which has put about $60 billion more into consumers' pockets through tax refunds than last year. Through August, that extra cash more than offset higher gas prices. Around the end of August the two roughly equaled out, which means that cushion is now largely spent.
I felt the gas price increase at the pump myself recently, and lower-income households feel it far more. That is the variable I would watch most closely in the months ahead.
Sentiment Near Record Lows, Spending Holding Up
Consumer sentiment tells a very different story from the sales data. The University of Michigan index recorded its lowest readings in its history just a few months ago. The Conference Board's measures are less negative, and there is an active debate about sampling and methodology. Either way, people are worried about jobs, wars, and gas prices.
Mark pointed to a Brookings Institution study showing media coverage has become about five times more negative than in the prior 30-year period for equivalent data. Whatever the cause, the important point for retail property owners is that the gloom has not translated into lower spending.
Stores, E-Commerce, and the AI Shopper
Measuring e-commerce's share of retail has become difficult. A buy online, pick up in store sale is logged as digital by one company and physical by another. Mark's view is that the distinction matters less every year. Retailers want the sale, and customers want convenience. We are in a world of blended commerce, and he expects stores to remain highly relevant, particularly because younger shoppers enjoy shopping in person as a social activity.
I saw this firsthand when I bought a kayak recently. I researched online, then visited a few stores to see and handle the options before buying in person. Retailers are building their stores around exactly that kind of hands-on experience.
AI is the newest channel. Retailers are investing heavily, and the largest are partnering with providers such as OpenAI on shopping assistants. Estimates of AI's share of shopping activity range from 2% to 20%; Mark believes the true figure sits somewhere in between. The challenge is that retailers once competed for search ads and now must compete to appear in AI answers, sometimes without knowing a transaction happened. We see the same shift at Bull Realty, where prospects increasingly tell us an AI tool recommended our team.
Final Thoughts: Protect the Occasions, Meet the Customer Everywhere
Looking ahead, Mark is a little less optimistic than the current 5.3% pace. The tax refund boost has been spent, and gas prices remain high. The bright spot is holiday spending. Consumers have spent at record levels on Mother's Day, Father's Day, and back to school, and they protect spending on family by cutting elsewhere, such as streaming services or dining out.
His advice to retailers applies equally to retail property owners. Inspiration now happens everywhere, from Instagram and TikTok to apps and AI assistants, and the path to purchase has multiplied. The tenants who can turn that inspiration into transactions across every channel, while holding the line on price, are the ones best positioned to keep paying rent. As Mark put it, the customer is king, and perhaps now the customer is emperor.
Optimize Your Retail Real Estate Strategy
Every market cycle creates challenges and opportunities. Business owners who plan early, investors who stay disciplined, lenders who lean in thoughtfully, and agents who continuously improve will be best positioned to succeed in the year ahead and beyond. If you'd like to discuss any of these strategies in more detail, feel free to reach out.
Whether you are acquiring a net lease retail asset, repositioning a shopping center, or evaluating the tenant mix in your portfolio, Bull Realty provides the specialized market intelligence needed to execute clean transactions. Contact our Retail Advisory team today to position your retail holdings for the consumer of 2026 and beyond.
Michael Bull, CCIM
Michael@BullRealty.com
404-876-1640 x 101
https://www.bullrealty.com