Housing Recovery Bodes Well for Retail Sector
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IRVINE, CA—The continued national housing recovery is having a positive effect on the retail sector, according to Peter Muoio, senior associate and economist with Auction.com. Muoio tells GlobeSt.com that the increased home sales lead to increased retail sales in a noticeable way.
“There’s a lot of retail spending in relation to the housing recovery,” says Muoio. He points out that when people buy homes, they tend to spend money on furnishings, household items and renovations, which directly boosts retail sales.
Also, greater home sales mean greater household wealth, he says. “US household wealth is coming back to above where it was before the financial crisis. Equities and financial assets have been doing well for some time now, but now it’s translating to a broader swath of the American public. We’re starting to see home prices rise, and the tailwind of that is a willingness to spend. Job growth is better, unemployment is down, and this is all suggestive of a firmer position for people to spend at retail.”
Since there’s not a lot of construction taking place in the retail segment at this time, construction companies can concentrate on the housing sector, he adds. But he expects retail to rebound from its current tepid pace. “The thing that’s working against retail is they’re really battling against e-retail. Yes, we see improved demand for retail and rents are beginning to increase in a stronger way, but the new normal is not the old normal. The erosion is coming from e-retail.”
Muoio acknowledges that e-commerce has virtually eliminated record stores and vastly impacted bookstores—possibly electronics stores are next since these items can easily be purchased online. “Changes in the footprints of stores is significant. Many are going to the showroom model, where they don’t have a lock of stock or inventory in the back. Instead, this is stored in warehouses and can be delivered to homes the next day in the color that consumers want. The bank industry has done the same, installing micro bank branches and cutting footprints or eliminating stores completely.”
Muoio adds that perhaps Congress will tip the scales in favor of brick-and-mortar stores by passing a sales tax on e-retailers, “but the reality is they’re already paying sales tax because companies like Amazon have a physical presence in most states. E-retailing is higher in the UK than in the US, and yet it’s not an issue for those retailers. People like the convenience, the delivery is instantaneous, the apps are easy to use, and people have other things to do with their time. Particularly as gas prices go up, people are not visiting stores.”
Still, as we’ve heard from many experts, some brick-and-mortar stores cannot be replaced with e-commerce. As GlobeSt.com reported last week, Alan Clifton, Passco Cos.’ VP and newly appointed Western divisional operations chair for ICSC, told us, “Everybody in retail talks about the experience. I’m pretty tech savvy and my friends, too, but if you were to ask them if they’d wait a day to get something 5% cheaper, they’d say no. If they can get it right now, why not? I’m not going to go buy a suit online and hope it fits right and is tailored properly.”
As a GlobeSt.com thought leader, Auction.com provides expert commentary and analysis around economic drivers impacting commercial real estate. For MORE insights and updates on upcoming online property auctions, click here.
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