After a sharp decline in January, U.S. retail sales in February 2025 edged up by 0.2%, falling short of expectations and highlighting ongoing volatility in the sector. This tepid performance has significant implications for retail real estate, as shifting consumer preferences and spending patterns continue to influence demand for different types of commercial spaces. While online retailers, grocery stores, health stores, and home and garden centers saw modest gains, key categories such as auto dealerships, furniture, clothing, electronics, and restaurants experienced declines—putting pressure on these segments.
Last month’s drop in inflation seemed to do little to buoy discretionary spending. The Consumer Price Index (CPI) rose 2.8% year over year in February, slowing from January’s 0.5% monthly increase to a 0.2% rise. While this marks the first deceleration in annual inflation in five months, the impact on retail remains mixed. Lower inflation may provide some relief to consumers, but new uncertainty tied to tariff policies continues to weigh on consumer confidence, which fell to a two-year low. That sentiment is resulting in more pessimistic earnings outlooks from some retailers, even as they emerged from a strong holiday quarter at the end of 2024.
But the impact of these trends has been uneven, creating winners and losers in the retail sector. Off-price retailers such as TJ Maxx, Ross, and Burlington, which benefit from budget-conscious shoppers seeking value and convenient locations are less concerned about the tariff squeeze. Meanwhile, major chains that have traditionally catered to middle-income shoppers are feeling the pressure as shoppers trade down for affordability. As a result, retail investors are being forced to rethink their leasing strategies and redevelopment plans as consumer trends and retail demand evolve in an uncertain market.
Winners and Losers in a Changing Retail Landscape
Off-Price Retailers Expand as Consumers Trade Down
Discount chains like TJ Maxx and Ross continue to focus on strengthening their position in the retail landscape, benefiting from shifting consumer preferences toward value shopping. Unlike traditional retailers, they are less exposed to tariffs, as their suppliers absorb most of the costs before products enter the off-price supply chain. This advantage, coupled with steady access to excess inventory, is fueling expansion strategies in growth markets.
TJX Companies delivered strong Q4 earnings, reporting a 4% increase in net sales to $56.36 billion. The company opened its 5,000th store last year and plans to add 130 net new locations in 2025, including 40 Marmaxx stores, 30 HomeGoods stores, and 20 Sierra stores. CEO Ernie Herrman noted that big-box and department store closures create opportunities to expand into new areas or relocate to stronger shopping centers.
Ross Stores is also accelerating growth, now operating 2,205 Ross Dress for Less and DD’s Discounts locations across 44 states. With long-term plans to reach 2,900 Ross stores and 700 DD’s Discounts locations, the company is capitalizing on consumer demand for value and convenience.
Retailers Struggle with Shifting Consumer Preferences
Not every retailer is thriving. Forever 21 is closing all 359 of its stores, liquidating 7.6 million square feet of retail space. Once a dominant force in fast fashion, the brand has struggled to compete with e-commerce giants like Temu and Shein, which offer ultra-low prices through direct-from-manufacturer shipping and benefit from duty-free import exemptions. Additionally, consumer preferences have shifted toward resale and sustainability, making fast fashion a harder sell. Forever 21 has filed its second bankruptcy in six years, underscoring the difficulties faced by traditional mall-based apparel retailers.
Kohl’s shares sank 24% following a bleak earnings call, where the company slashed its dividend and issued guidance well below even the most pessimistic forecasts. While inflation has eased, shoppers earning under $100,000 are pulling back on discretionary spending, with lower-income households showing the sharpest declines. Kohl’s now expects net sales to drop 5% to 7% this year, signaling ongoing struggles for middle-income-focused retailers.
Meanwhile, Advance Auto Parts is shuttering 300 locations amid declining sales and restructuring efforts, highlighting the challenges facing retailers reliant on discretionary spending. Rising costs and shifting consumer spending habits have put pressure on the auto parts sector, as more budget-conscious consumers delay vehicle maintenance or seek alternative repair solutions
Retail’s Middle Ground: Growth Plans Meet Consumer Headwinds
Dick’s Sporting Goods is investing in large-format, experience-driven stores while navigating economic headwinds. Its 140,000-square-foot House of Sport locations cost $15 million more to build than smaller stores but generate more than double the revenue in their first year.
While Dick’s reported its largest sales quarter in company history, it also lowered its 2025 profit outlook, citing sliding consumer confidence and potential tariff impacts. However, the company has successfully expanded private-label offerings and maintained steady foot traffic, positioning itself as a retail survivor in a shifting landscape.
Dollar General provided a mixed outlook, projecting long-term profitability growth while warning of ongoing challenges for its core lower-income customer base. CEO Todd Vasos noted that growth was driven entirely by consumables—like food and personal care items—while sales in seasonal goods, home décor, and apparel declined.
The company is also reevaluating its store network, closing 96 underperforming locations and 45 PopShelf stores—a relatively new higher-end concept aimed at suburban shoppers. While Dollar General remains a dominant force in budget retail, its store portfolio is undergoing a necessary shift toward profitability over rapid expansion.
Walgreens Buyout Raises Questions for Landlords
On March 6, 2025, Walgreens Boots Alliance announced a $23.7 billion buyout by Sycamore Partners, ending its nearly 100-year run as a public company. The deal comes as Walgreens faces a credit downgrade, store closures, and ongoing industry challenges.
For landlords with Walgreens leases nearing expiration, negotiations may become more challenging, and vacant locations—averaging 13,500 square feet—could require costly renovations to attract new tenants. Investors exposed to Walgreens properties across the capital stack are watching closely for potential disruptions.
Retail’s Shifting Landscape Demands Nuanced Decision-Making
The retail sector, in response to consumer spending trends, is becoming increasingly differentiated which continues to reshape how investors, landlords, and developers approach their decision-making. Value retailers are expanding selectively, while some legacy brands struggle to stay relevant or pivot. Store closures are leaving millions of square feet vacant, creating both risks and opportunities for repositioning retail spaces. Limited new retail development in recent years, due to high construction costs and cautious investment post-pandemic has helped keep vacancy rates relatively stable or declining in many prime locations.
For retail investors, the challenge is about anticipating where retail demand is heading next as trade policies and inflation impact prices and consumer preferences. Those who adapt to shifting consumer patterns and economic pressures will gain an advantage as market dynamics unfold. For more insights on retail trends, subscribe to Insights and the CRE Weekly Digest Podcast for regular updates and real-time data.