Services Replace Retail as Main Streets Shift Nationwide

Last year marked the first time the majority of U.S. retail space was leased to tenants selling services rather than goods, according to real estate data firm CoStar. The shift is transforming malls, suburban shopping hubs and Main Streets across the country, including downtown Ridgewood, New Jersey.

"We have now 11 barbershops in town," said Joan Groome, executive director of the Ridgewood Chamber of Commerce, who has lived in the town since 1968. On just one block near her, three ice cream cafés have opened, with a milkshake shop on the way.

CoStar data shows retail tenants in the 20 biggest U.S. metro areas declining for a third straight year, while personal services and entertainment — escape rooms, virtual golf, medical spas, Pilates studios — are expanding rapidly.

"Over the very long term, consumers have switched a lot of spending from retail goods to services in terms of share of wallet," said John Mercer, who tracks retail trends at analytics firm Coresight Research. "We think that that kind of long-term pattern will continue."

The pandemic briefly interrupted the trend, but it has since accelerated, driven largely by wealthier spenders, though some consumers are trading down on goods to redirect money toward experiences, Mercer said.

In Ridgewood, the building that once housed Groome's ski shop is now a sushi restaurant, and her old bank is an Italian restaurant with a rooftop bar. The town still has more than 100 eateries, dozens of coffee shops, spas and salons alongside its remaining stores.

David Logan, manager of Bookends bookstore, said a new bakery across the street has brought him foot traffic, but acknowledged the tradeoff: "Because there's not as much retail, people are basically coming in just to go to the restaurant, and they may not necessarily walk around town."

Gina Jeon, owner of jewelry store Hot Jewelry Box, said she is torn on whether the shift helps or hurts. "I wonder if a town changing from beautiful boutique shops to more food and services — I wonder if that enriches the value of the town or takes away from it," she said. Shopper Kate Ulrich said she still makes the trip to browse and buy jewelry in person rather than pay markups she sees online.