I-Tailing Is The Future of Retail

Bob Peterson, Passco Companies

This is a guest commentary from Bob Peterson, Vice President, Investments, Passco Companies. The views expressed here are the author’s own.

What’s new in retail? The short answer: industrial product. While the debate regarding brick-and-mortar vs. e-commerce rages on, a new movement has emerged, and many are adapting their investment strategies accordingly. At Passco, we’ve coined this movement “I-Tailing,” and we believe it will ultimately represent a very significant portion of all retail sales. What is I-Tailing? It’s a combination of Amazon in conjunction with UPS or Fed Ex – or more succinctly, the elimination of the middle man.  Today, goods are moving directly from industrial warehouses to consumers’ doorsteps. This movement introduces an opportunity for retail investors to open their eyes to industrial, or I-Tail product. As investors, we’re looking ahead, and we recognize that the footprint of brick-and-mortar retail stores is shrinking as more retailers migrate a larger portion of their sales to this more cost efficient option.  We also understand that two-thirds of the U.S. GDP is consumer spending, so retail activity is not slowing. The companies that will excel in I-Tailing are those that are able to get consumers to their website, while offering an easy way to exchange the goods. The goal is to make the process as smooth and friendly as possible for the consumer. Industrial Impact Industrial vacancy rates in the US are at an all-time low. In addition, rising costs of manufacturing in China are allowing businesses to move their operations back to industrial projects located in the US. The industrial sector is experiencing significant rent growth because of I-tailing and this migration. We increasingly see retailers migrating towards the I-Tailing option over traditional retail outlets to maximize profits. For example, a business owner can lease space to hold product in an industrial building for $0.40 per-square-foot and stack their goods up to 32 feet with minimal cost for utilities or staffing. If that same business owner invested in a storefront, he or she would be spending $3.00 per-square-foot, in addition to much higher common area charges and staffing costs. Retail Outlook I-Tailing will change the face of retail over the next decade. We will continue to see a rise in industrial-to-consumer product movement and a reduction in brick-and-mortar, and the effect on the industrial market will be strong. In addition, combo-retailers – which integrate I-Tail and traditional retail – are another trend to keep an eye on.  These businesses utilize a minimal storefront for consumers to get a tangible view of products, but hold their products and ship orders from an off-site warehouse. An increase in combo-retailers will fuel continued demand for smaller retail spaces coupled with large warehouse product in close proximity to major consumer hubs. This movement offers tremendous opportunity to savvy investors who are experienced in both retail and industrial product.  As retail continues to evolve, the most successful investors will evolve with it. Bob Peterson is Vice President of Investments at Passco Companies, a nationally recognized market leader in the acquisition, development, and management of multi-family and commercial properties throughout the US that has acquired, managed, and/or developed over $3 billion in property since its inception.