E-Commerce: Shaping Retail 'For the Better'

NEW YORK CITY—As part of our ongoing 15th-anniversary celebration, GlobeSt.com this week has been sounding out members of our editorial advisory board for their views on events, trends and individuals that have helped shape the commercial real estate industry since the website launched in 2000. Yesterday, it was the impact of cloud computing and the infrastructure necessary to support this format—data centers—and today it's another tech-oriented subject: e-commerce. Its impact has been profound, most likely permanent and, as some of our advisors' comments make clear, not necessarily what we would have anticipated 15 years ago.

“Everyone was terrified of Internet shopping, but it's remade retail in most part for the better,” says Faith Hope Consolo, chairman of the Retail Group at Douglas Elliman Real Estate. “While sectors such as electronics and bookstores have largely gone by the wayside, we've seen many more retailers improve their service, and embrace technology to become truly omni-channel merchants.”

Consolo adds that “Stores are being redesigned to include areas to pick up online orders, and distribution centers are being outfitted differently as well. And the very retailers that began online now are opening stores, as they realize that consumers still find shopping a social activity and want to touch the merchandise. Retail is becoming more convenient and smarter every day.”

Sean O'Shea, managing director of the net lease group at BRC Advisors, points out that Internet shopping, “once feared,” now represents an opportunity for selected retail sectors and service providers to expand their customer base. Merrie Frankel, VP and senior credit officer with Moody's Investors Service, cites the way the Web has  “changed the way retail tenants interact with customers and utilize real estate.”

For John Petrovski, SVP and managing director, US commercial real estate at BMO Harris Commercial Bank, says that Internet shopping has had a “profound impact on retail,” one which will increase each year with a concomitantly smaller share for brick- and-mortar operations. His advice: “Adapt or back into the tar pit.”

On the subject of capital markets, Ann Hambly, founder and CEO of First Service Solutions, notes that “there are hundreds of billions of dollars of CMBS loans maturing over the next few years and a large amount of that is backed by retail properties. To originate a new 10-year loan in 2017 backed by a shopping mall, the lender will need to feel comfortable that shoppers will still be going to the mall in 2027 with enough cash flow to pay the loan off at that time.”

Given the most coveted shopping demographic, Hambley observes that “20-year-olds in 2027 will have been born in 2007! How many people born in 2007 will be inclined to go to a shopping mall to purchase an item versus go to the internet and have it delivered to your door the same day? It is hard to really comprehend how significantly shopping trends will change in the upcoming years.”

In the near term, Marcus & Millichap notes in its summer 2015 report on retail that e-commerce “has grown dramatically, with sales up 80% since the end of the recession. Despite concerns that e-commerce cannibalizes brick-and-mortar sales, the maturing sector has demonstrated success with omni-channel retail.”

Via this model, MMI says, “retailers bolster their online presence with brick-and-mortar locations to facilitate logistics, returns and customer care. This emerging trend, highlighted by sector leaders like Wal-Mart and Apple, has inspired Amazon.com to consider physical store locations.”