The retail industry finds itself at a critical inflection point as it grapples with a global trade war, inflationary pressures, shifting consumer behaviors, supply chain disruptions and the aftershocks of the COVID-19 pandemic.

Yet, amid these significant challenges lie opportunities for reinvention, strategic adaptation and innovation — both for landlords and retailers alike. From redefining space utilization to capitalizing on the rise of off-price retail, industry leaders are finding creative solutions to weather these economic storms, according to executives from Hilco Global.

Inflation and Consumer Behavior: The Ripple Effect on Retail Real Estate

As retailers and brands try to figure out and manage the impact of a day-to-day changing global trade war, they’ve been dealing a persistent and nagging problem for businesses and consumers alike: inflation.

For retail real estate, the effects of inflation have been far-reaching, straining both tenant operations and consumer spending patterns. According to Dan O’Brien, executive vice president and partner at Hilco Real Estate, inflation has negatively impacted retailers’ top and bottom lines, creating significant distress for those already facing operational challenges. Overexpansion post-COVID-19 and underperforming brick-and-mortar locations have made many retailers reevaluate their real estate portfolios, leading to store closures and cautious approaches to expansion.

Landlords, too, are feeling the pressure.

While some are adjusting lease terms to retain tenants or maintain occupancy, others are hesitating, weighing their options until distress becomes unavoidable. For landlords with high-quality “A” class commercial properties, long-term deals with creditworthy tenants have been the preferred strategy, providing stability amid market chaos. However, where securing such agreements proves elusive, flexible and innovative lease structures are becoming increasingly vital. Variable rent deals, shorter-term leases and even property conversions to residential or hospitality use are emerging as creative ways to hedge against inflationary risks.

Diversification of Space Utilization: Beyond Traditional Retail

Post-COVID-19, the retail real estate landscape has seen an ongoing diversification of tenants and space usage. “We’re seeing shifts away from traditional retail concepts as health and wellness services, education centers, dining establishments and even e-commerce fulfillment centers take over once-retail-dominated spaces,” O’Brien said, adding that vacant department stores and large anchor spaces, in particular, are being transformed, with landlords backfilling these properties with tenants from non-retail sectors, such as logistics centers, trade schools and medical service providers.

Dining and quick-service restaurant concepts have also risen to prominence, as delivery services and changing consumer dining habits redefine what retail spaces can offer. This shift underscores a growing emphasis on experience-driven and service-oriented tenants who can complement the broader retail ecosystem.

Resilience Amid Bankruptcy Reshuffles

Meanwhile, retail bankruptcies, while devastating for some, are creating opportunities for others. According to Raymundo Armendariz, chief operating officer of Hilco Consumer Retail, the wave of closures — from department stores to mid-tier chains — has opened up opportunities for off-price and discount retailers. Brands such as T.J. Maxx, Burlington and Ross Stores are capitalizing on this moment, expanding their footprints by taking advantage of below-market-rate leases and acquiring surplus inventory from faltering competitors. These off-price retailers thrive by offering a sense of discovery and budget-friendly price points, proving particularly enticing in today’s inflationary environment.

This dynamic has positioned the off-price sector as a beacon of resilience and adaptability. Unlike their e-commerce-reliant counterparts, these retailers continue doubling down on the in-store experience — a move that aligns consumer needs with a penchant for value-driven shopping.

Navigating Supply Chain Challenges with Nearshoring and Technology

Supply chain complexities remain a persistent challenge for retailers. Inventory surpluses and rising tariff costs have forced businesses to negotiate tough trade-offs. As Armendariz noted, in the pre-tariff chaos period, the vulnerability of global supply chains had already accelerated interest in nearshoring — relocating production closer to demand centers in Mexico, Central America and South America. And the reason was that nearshoring not only reduces delivery timelines, but also enhances flexibility for inventory management at a time when agility is critical.

While investments in nearshoring may be on hold until trade war settles out, investments in technology will likely continue as it reshapes the retail landscape. Advanced predictive analytics, artificial intelligence and inventory optimization tools enable retailers to manage resources more effectively, streamline operations and engage consumers with precision. In an era defined by fluctuating demand and financial pressure, these innovations are no longer optional; they’ve become essential, the Hilco executives said.

Adapting to Evolving Consumer Dynamics

Consumer behavior is also shifting, with the rise of the resale market introducing both challenges and opportunities for traditional retailers. Platforms such as ThredUp, Poshmark and The RealReal are appealing to consumers seeking both affordability and sustainability. This trend underscores the importance of experience, affordability and value as drivers of customer loyalty. Retailers unable to adapt risk losing ground to these emerging competitors, particularly in the fashion and luxury goods sectors.

Another noticeable and recent shift, according to consumer data from Klaviyo, a marketing automation platform provider, reveals an expected decline in consumer spending across all verticals “with more than a third [of respondents] planning to buy now before prices go up.”

Due to tariffs, inflation and other factors, 83 percent of those polled said they expect to pull back on spending in the coming weeks. Authors of the report said consumers polled have “a different theory about what the impact of tariffs will be, but 35 percent plan to buy now before prices go up” and 25 percent of respondents said they “are waiting to see if prices actually increase.” Of those polled, 28 percent said they plan to wait “and potentially switch to cheaper alternatives.”

The report’s authors said the impact of reduced spending “is being seen across every vertical — likely due to recent periods of high inflation plus tariff conversations.” The data revealed that 61 percent of respondents say they plan to cut down their spending at restaurants, followed by 47 percent with clothing/accessories and 41 percent on travel/hotels. “The good news is more than a quarter (28 percent) plan to remain loyal to their preferred brands, but they expect transparency and meaningful benefits in return,” the report stated.

“The best way to keep respondents loyal are frequent discounts or promotional offers (54 percent), better prices (33 percent) and consistent product quality (37 percent),” the report’s authors said, adding that the two biggest communication asks for brands right now “are transparent pricing updates and clear info about delays or supply chain issues.”

Jake Cohen, head of industry and insights at Klaviyo, said consumers aren’t just price-conscious right now. “They’re turning to brands they trust first and they’re looking for guidance,” Cohen said. “Brands need to use this moment in time to connect with their customers and start a two-way dialogue. Be transparent about pricing and supply chain challenges and find meaningful ways to reward customer loyalty. For many brands, this could be a big opportunity to build stronger and more authentic relationships with their customer base that can convert later down the line.”

Reimagining Retail for the Future

Amid the disruption and changes in consumer behavior, retail real estate players need to adapt, which O’Brien said is the key to thriving. Whether it’s landlords investing in property upgrades to attract high-end tenants or retailers expanding into discount and off-price sectors, the industry is recalibrating its strategies for future resilience. As O’Brien noted, maintaining tenant retention and optimizing space usage remain top priorities, while investments in technology and diversification of tenant mixes offer long-term stability.

On the retailer side, as Armendariz highlights, embracing agility — through nearshoring, tech adoption and reimagined inventory management — is critical to navigating these turbulent times. The sector is poised not merely to recover, but to redefine success in an age of constant disruption.

As the retail industry stands at a pivotal juncture where adaptability and innovation are no longer optional, but essential, retailers, brands and landlords need to rethink traditional models of doing business. From landlords diversifying space utilization to retailers embracing technology, nearshoring and off-price expansions, key leaders need to transform distress into opportunity.

Consumer loyalty will likely favor those who prioritize transparency, affordability and meaningful engagement. As the sector recalibrates, the focus on resilience and reinvention will hopefully pave the way for sustainable growth in a rapidly evolving landscape. Retail’s future may not lie in returning to its past, but in embracing a more agile, experience-driven and value-oriented paradigm. It may have no other choice.