Creating a retail-based experience to meet the needs of the next-generation consumer will be integral to the future of the retail market, experts said during the Business Record’s Project 515 discussion on May 29.

The Business Record brought together panelists from a broad spectrum of the retail sector to learn more about challenges the sector is facing, strategies being used to address those challenges, and to take a look at trends and the future of the sector over the next year.

Panelists who participated in the discussion included Mike Draper, owner of Raygun; Caroline Harrelson, strategy director at The Retail Coach; Aaron Hyde, senior vice president at JLL; Kara Kelso, co-owner of Slow Down Coffee Co. and commercial agent with NAI Iowa Realty Commercial; and Peter Ralston, associate professor and the director of the Ivy Supply Chain Forum at Iowa State University.

They shared their thoughts on topics ranging from the effect tariffs are having on the sector to the need to have a good mix of national, retail and local businesses in order for the sector to be successful.

Here are some takeaways from the conversation. Responses have been lightly edited.

How is the current tariff environment affecting retailers?

Ralston: Supply chains want certainty and what we don’t have right now is certainty. When we lack that certainty that prevents retailers from creating a cost profile for an item they want to sell, and when you have that uncertainty companies don’t always know how to respond. I think where we could get some benefit is certainty around the costs of how our supply chains need to operate and that will filter through to the value propositions we offer customers. With tariffs themselves, I don’t know if they’re going to go away, but I wonder if the tariff charge will come down and become more consistent across the board, and that can benefit consumers as we move through this time period.

Kelso: It’s changing every day and we know one of the last things a small business owner wants to do is raise their prices. Coffee has gone up 100% over the past year, and all of our vendors are sending out notices saying tariffs are coming. Outside of just the coffee product, everything else is going up, too. Packaging is a huge thing. Ingredients. So many things that come from overseas that it’s not feasible at times to find a domestic alternative. We like to be upfront with our guests and customers and we like to be transparent with them. It’s changing on the daily and we’re grateful we have a community in Des Moines who is willing to pay higher prices for a better product and a better experience.

Harrelson: There are a couple of retailers who have locations outside the United States that have been interested in opening their first store in the U.S., but with the uncertainty and tariffs and certain things they have pulled back from those decisions. And from the national brands we’ve spoken with that are considering locations in our client communities, I was on a call recently with one of those national brands, and he said it’s crazy to be talking about new locations with all the uncertainty about how we will be sourcing our products moving forward. Retail is still alive and they’re looking for new locations, but it does affect things.

What space issues are retailers facing?

Hyde: It’s hard to find good space. Des Moines’ vacancy rate for retail space is at 3.7%. Nationally, we’re at about 4.1%, so if you want a good pad site, even though your construction costs are going up, labor is going up, if you don’t take that someone else will take that. We don’t have all the big boxes and junior box centers going up like we did in the past to create all these pad sites. So, if you’re coming to town and you want a pad site, you’re competing for it. We’re seeing a lot of these guys who are out looking and they’re looking hard to grow, so much so they’re not just looking at the big markets, but especially the ones that are publicly traded,  they’re looking at the 30,000 population markets, too, because they have to keep growing to report to Wall Street.

Harrelson: The price of new development is an issue, so second-generation, vacant boxes, things like that is where retailers are looking for. Second-generation restaurants are where restaurants are looking just because of the cost of new construction. Retailers are smart when they go to the city’s economic development office and say, ‘Hey is there anyone at the city who can help us out? Can you help with infrastructure? Are there incentives or small business programs we may be eligible for?’ I think there are challenges but I think cities are very open to bringing more retail into their community and they’re interested in finding solutions to overcome those challenges.

Kelso: The vacancy rate is so low in Des Moines it’s hard to find small spaces. Smaller spaces are often more expensive. And for restaurants, it’s hard to find a second-generation space. The rent may be less, but there can be so much that goes into renovating a space. I think one thing that will help that the city of Des Moines is doing now is having a property maintenance code. We have a lot of old buildings that haven’t been taken care of, and the cost is just extreme to bring them up to code, and that’s cost prohibitive for a lot of people.

Draper: This is the time when people are nervous about growth, but we take the Warren Buffett strategy of that’s when we want to go as fast as possible, so we’re trying to open and expand as much as we can while everybody else is frozen in place. But you have to select your city and wait so we look at five cities at the same time. But we’re fairly flexible in that we can open in anything from as small as 1,200 square feet to something as big as 7,000 square feet. For us, it just depends on the cost.

What areas of retail are seeing the greatest growth?

Hyde: I think you’re going to continue to see a lot of growth in the discounters, the Dress for Less, the Ross, the TJ Maxx, Dollar Generals. You’re going to see food growth, eater-tainment, the experiential stuff, you’re going to see more and more of that as people look for ways to come together. That will be the hottest growth. Another area I’m seeing a ton of stores, the oil change and tire places, a lot of auto related. Another one is health and beauty services and fitness as well. I’m seeing more spa-like concepts out there as well.

Harrelson: Communities of all sizes are wanting those entertainment, eater-tainment users. People, especially since COVID, want places to get together, and that flows into that experiential component as well. Another category I’m seeing a lot of desire for are these specialty grocers, so the Trader Joe’s and Whole Foods of the world, or even a neighborhood grocer who has that specialty grocer feel. And the more boutique fitness users. Every day I see some new ones pop up.

What is the forecast for the retail sector for the next year?

Kelso: I think the growth is going to look different with costs of building materials, and insurance rates, so a lot more second-generation spaces and redevelopment and hopefully we can have a good mix of national, local and regional businesses coming together. I think people are craving more places where they can go shopping or an afternoon or hang out or have experiences. Although there are a lot of challenges, I think we’re at an exciting time of creativity and growth in the metro.

Ralston: There is going to be an opportunity where some retailers figure out the tariff and supply chain implications before others and it’s how they take advantage of that opportunity. That might be an ability to grab market share, or potentially an ability to recapture margins, so maybe those high prices might stay around a little bit longer, but I think the opportunity for retail will all be about delivering customer value. The retailers that deliver customer value will be the winners. It’s about finding a way to connect with customers in a way they deliver value to them. The ones that deliver values will be the big winners coming up.

Draper: Whenever there is chaos you can move into that space. I’m interested to see what happens with the next generation of people. It’s one thing to attract businesses then it’s another thing to create businesses. The thing that will make Des Moines interesting is growing our own crop of businesses and I’m interested to see these kids who grew up in a digital age but crave physical space, what is going to be interesting to them, because it’s going to be different from what we’ve been doing in the past, and there is only one way to find out, which is to give them room to maneuver.

Hyde: From a space perspective, it’s going to keep trucking along. For us the biggest challenge is the lack of space and I don’t see that stopping anytime soon. We have a resilient consumer in the U.S. and it seems like there’s a new issue every year, every six months, every month and the consumer and business owners have gotten more and more used to fighting through the headwinds. I think we’re going to have a strong year this year and it’s going to continue for the foreseeable future.

Harrelson: I think we’re going to see more redevelopment as opposed to new development.  We’re seeing developers contact us and ask what communities we’re working in and if there are any blighted shopping centers and opportunities for redevelopment, so we’re seeing some of these spaces turn over to create some real class A space for retail. Another thing we’re seeing more of is downtown redevelopments, whether its streetscape improvements, creating downtown neighborhoods, trying to recreate that 1950s feel of those traditional downtown centers. So we’re seeing a lot of downtown redevelopment, too, and I think we’ll continue to see that.

To watch the full conversation, click here.