Expansion of Online Shopping Presents an Opportunity

JoAnn McGuinness of Oak Brook, IL-based Inland Real Estate Investment Corp.

CHICAGO— Sandeep Mathrani caused a bit of a stir two weeks ago when he was speaking on an earnings call. The chief executive officer of General Growth Properties hinted that Amazon was planning to open hundreds of bricks and mortar bookstores across the US, a potential earthquake for retail landlords as they navigate the challenges posed by the growing popularity of online shopping. GGP officials refused to elaborate on this possibility, and Amazon declined to comment. JoAnn McGuinness , executive vice president of Oak Brook, IL-based Inland Real Estate Investment Corp., tells GlobeSt.com that she has no knowledge of Amazon’s future plans for an expanded bricks and mortar presence. However, other e-retailers have discovered that many customers want the opportunity to pick up packages in an actual store. And this buy online, return in store tendency, or BORIS, is a growing phenomenon and has the potential to create a whole new type of tenant. “Retailers are trying to embrace online sales and reach customers who prefer to shop in different ways,” she says. And although many have feared that the online channel would curtail demand for retail spaces, the desire to quickly pick up packages may simply mean that in the future retailers will prefer a set of smaller stores spread across a region instead of a centralized big box store. Inland primarily owns necessity-based retail such as grocery stores, which are more insulated from the encroachment of online shopping, she adds. Therefore, “we see this as a potential leasing opportunity.” Other landlords could see less demand for space, and that is “a worry, but from a very short-term standpoint.” “There has been so little new supply in this sector,” she points out. In each of the last four or five years, developers have added just 10 to 20 million square feet of new space. Prior to this, some years saw 150 million square feet added to the market. “There is still a lot of demand from retailers that have come out of the recession with stronger balance sheets.” As a result, if retailers want to shift from the big box concept to a series of smaller stores, “there is an opportunity to capture some rent growth,” since the smaller spaces should command higher rents. A typical big box space will command only $8 to $9 per square foot, but “you are always looking at double digits when renting out smaller spaces.” “Online shopping is certainly here to stay, but it has also gotten to the point where it has somewhat leveled off,” she adds. Part of the reason is that, for many shoppers, the in-store experience remains an important part of their life. T.J. Maxx customers, for example, still enjoy the process of going through the actual store, finding deals and trying on the merchandise. McGuinness also believes that “retailers are really embracing technology to drive people into bricks and mortar stores,” giving landlords yet another reason to breathe a sigh of relief. Target , for example, has an app that allows customers to buy items and arrange a quick curbside pickup. The company believes that many customers will, once outside the store, decide to take a quick trip inside to browse for other products. And other stores now have systems that give customers points, and discounts, if they actually come into the physical store to shop. “Retailers have woken up.”