The Sports Authority bankruptcy filing was just one in a recent series that has also included RadioShack and Wet Seal. And some sources predict many more will follow this year.

“When you combine a critical mass of Internet shopping, the growing reach of same-day shipping and huge amounts of financial leverage, you have a pretty potent cocktail for disaster,” sums up Tom Mullaney, managing director of restructuring services at JLL. “Financial leverage feels great when it works, but when your top line begins to come under attack—as was the case with Sports Authority or Men's Wearhouse and its Jos. A. Bank division—your cash flow shrivels pretty quickly, and even more than just small same-store sales declines would imply.”

Mullaney tells Real Estate Forum that “there has been far too much money chasing a limited number of deals. And much of that money is fueled by debt, rather than equity. With equity, you can skip dividends.”

Bondholders and lenders, he adds, are not quite as forgiving. That would explain the “growing number of highly leveraged retailers that are exploring bankruptcy or are taking dramatic action to stop financial losses before it is too late.”

Sports Authority's initial announcement is another example of the evolution of retailers working to “right-size,” with some having more success than others, notes Ben Terry, a senior associate at Coreland Cos.

Some of the retailers Terry expects to hear similar announcements from this year likely will come from the soft goods and electronics categories. “Best Buy might be the next to announce store closings, while Staples has been trying to aggressively downsize from its traditional 20,000- to 25,000-square-foot footprint to 12,000 square feet, to remain competitive,” he says. Staples and Office Depot, which planned to merge, called off the deal earlier this month.

Terry explains that “retailers are challenged by the need to correctly balance their brick-and-mortar presence with a powerful online presence. Some, like Dick's Sporting Goods, are doing it very well and expanding. Others—like the aforementioned Sports Authority—have not been able to figure it out.”

The best example, Terry says, might be Circuit City, which filed for bankruptcy in 2008 and is now reentering the market with a 4,000-square-foot footprint. He describes this as “much more realistic in an era in which all electronics can easily be purchased online, but the need to touch-and-feel still exists.”

Filling traditional big-box space with a single retailer is a challenge today, Terry continues. “There are a number of new concepts expanding in and entering the market looking for the 'sweet spot' between 8,000 and 25,000 square feet,” he says. “Many of the vacant big boxes will have to be subdivided to accommodate smaller discounters, gyms, specialty grocers and even a few soft goods and electronics concepts.”

Hibbitt Sports is entering Southern California with a 5,000- to 6,000-square-foot concept, he says, similar to Big 5, “but with a strong online brand and a brick-and-mortar target presence in secondary and tertiary markets.”

And Ryan Imbrie, managing director for SVN—Imbrie Realty and chair of SVN's Retail Product Council, agrees, noting that retail companies must adapt or perish. The question becomes, what changes are necessary to survive?

At a macro level, Imbrie says, retail sales grow as a whole, but unfortunately, not all retailers are experiencing this trend. “With the announcements of the Chapter 11 bankruptcies of Sports Authority, Radio Shack, American Apparel and several others in the past 12 months, it is apparent that these brands, or potentially their shopping experiences, have fallen out of favor with shoppers. Retailers need to continue to think forward and target the emerging demographic groups.”

The importance of the Millennial shopper—“the Holy Grail for retailers,” Imbrie says—is ever-present. “They represent the largest age demographic and have an increasing earning power, but their shopping behavior is radically different than prior generations. Millennials don't desire the all-in-one shopping experience and are more likely to search for products online. With detailed product information, customer reviews and price comparison at their fingertips, products are only a click away. Retailers who hope to remain relevant must adapt their business model to court this new style of consumer.”

And while some retailers file Chapter 11 to help “streamline” their business, others are joining the retail revolution by looking to scale down or vacate their premises altogether.

In Phoenix, for example, many retailers are looking for a more efficient footprint that meets the needs of the modern user. LevRose Commercial Real Estate retail team recently told Forum sister publication GlobeSt.com that there is a lot of “push for adaptive reuse” for many cities in the Greater Phoenix market.

For example, “our major cities are working with specialists in economic development to create strategies that can revive their downtown areas. The need for a center of entertainment, culture and influence is becoming increasingly popular and of high demand. Each city is looking for a way to define itself with a significant downtown development,” reports the Scottsdale, AZ-based team, made up of senior vice presidents Trenton McCullough, Peter McQuaid and Greg Vanlerberghe, plus associate Mark Cassel.

New retail development and “adaptive reuse” is something to pay attention to, according to the LevRose team. “Although good for the economy and state development, it can potentially have a negative impact on the existing retail centers in the area since they would no longer be as desirable to prospective and current tenants. Future development will add retail space that will begin to replace the less desirable product, growing vacancy in older, less up-to-date centers.”

The team adds that “This clearly can present opportunities for some buyers that are more hands-on and have the wherewithal to revitalize a center.” Further, the team says that “sellers with older or outdated retail centers may not see benefit from these new developments as they will need to adjust their property values or pricing accordingly.”

Whether a seller or buyer of a retail asset, both will need to pay attention to interest rates in the coming year, says the LevRose retail team. “The value of retail assets should continue to grow, and buyers can expect to pay prices that reflect lower cap rates and a higher price per square foot. There should be some good opportunities this year and into 2017.”

It isn't just the retail tenants that must evolve, but retail owners as well. One company that has focused on finding new ways to optimize retail assets is Irvine, CA-based Passco Cos. LLC. According to the firm's VP of retail acquisitions, Bob Peterson, the retail sector is undergoing tremendous change as consumer wants and needs evolve. “The ability to adapt quickly to changes in consumer preferences has never been more critical for retailers and retail owners.”

Like the LevRose team, Peterson agrees that consumers today are demanding retail environments where they can not only shop but also build meaningful experiences with friends and family. “Retail owners who are shifting the focus of their centers to highlight this experience are the ones that will continue to thrive and drive traffic.”

Peterson tells Forum that this shift in consumer preferences places a higher emphasis on retail owners to acquire top-tier centers in high-quality locations, or necessity retail centers. For example, he points out that premium class A centers in top locations and necessity retail are well positioned to withstand shifts in consumer preferences, whereas inferior centers will continue to struggle as the retail landscape evolves. “Retailers today are focused on driving sales and traffic and are less concerned with the overall cost of rent. Therefore, these retailers are gravitating to the sales-driven centers that can provide increased traffic, and that is the premium centers.”

These centers remain a top choice among retail investors because they are positioned to increase rents and attract high-quality tenants over time, Peterson explains. “Inferior centers, on the other hand, are unable to simply lower rents in an effort to attract new tenants and will likely have difficulty attracting and retaining tenants as the market continues to shift.”