WASHINGTON, DC—The retail real estate sector has feared the effects of e-commerce and the steady erosion of brick-and-mortar retail sales by online stores for years. The latest scare comes from a research note published last by Goldman Sachs analysts in which they addressed the future prospects of such big-box retailers as Walmart and Target.
It wasn’t pretty.
Essentially, the investment bank cut its rating for the retailers in part because their shoppers are turning the Web for better bargains. This meme was repeated in the unrelated news from last week that Dollar Tree and Family Dollar are merging to better target the low-price shopper.
It is true these are trends to watch. However, they do not augur the end of retail or even a radical realignment of the retail or shopping store model. Here are six reasons why:
Physical stores are where shoppers want to go. Earlier this month the A.T. Kearney Omnichannel Shopping Preferences Study found that some 90% of retail sales were purchased through physical stores last year. While e-commerce sales are growing every year, in other words, that growth is still marginal compared to the bulk of purchases still made in actual stores.
Outlets are very popular. One reason e-commerce has become so popular is because it arguably is cheaper as consumers rarely have to pay a state sales tax on their purchases and increasingly shipping is offered for free. However, those factors are not trumping the uber savings that outlet shopping malls are perceived to offer. That is why the development pipeline for outlet stores is so robust and why these new projects are delivering almost fully leased. Exhibit A is The Outlet Shoppes of the Bluegrass in Kentucky, which just opened its doors fully leased. It is also Kentucky’s first outlet center, developed by Horizon Group Properties and CBL & Assoc. Properties.
REITs are stepping up their game to keep shoppers coming back. Retail REITs such as Simon Property Group, General Growth Properties and Macerich are taking advantage of technology to drive traffic and sales to their tenants, using such ad technologies as geo-fencing and beacons to better target offers to shoppers and, it is hoped, keep sales lost to showrooming to a minimum. These REITs are also tapping such third party service providers as Deliv, which uses crowdsourcing to offer same day delivery for shoppers that either buy online or don’t want to schlep their purchase home themselves. Even grocery stores are tapping this model now — Instacart, as one example, uses crowdsourced personal shoppers to select and deliver groceries from such stores as Whole Foods, Costco and Safeway.
E-Commerce is increasing viewed as complementary to physical retail. Increasingly, its use augments physical retail store sales. As the aforementioned examples show, brick-and-mortar retailers are embracing technologies that arguably fall under the e-commerce category. That is because, as the A.T. Kearney report noted, physical retail and e-commerce is not only seen as complementary but is becoming increasingly intertwined.
Retail center owners are rebuilding to suit consumers’ tastes. One trend that has become clear is that shoppers do not like enclosed malls. The preference is for lifestyle centers, preferably with a mixed-use component and pedestrian-friendly design. Forest City Washington, for example, recently submitted plans to redesign Ballston Mall in Arlington, VA, along these lines.
Retail center owners are pulling in a wide range of tenants. Besides redesigning their facilities, retail center owners are refining who should be taking space in their assets in order to draw the biggest crowds. Entertainment facilities are important tenants as are restaurants. Dubai’s retail centers has taken this concept to a high art, going so far as to offer zoos and other exotic fare for shoppers to enjoy. In the US, the options are more mainstream, but the trend is still the same.