How Retailers are Competing with Amazon

SAN FRANCISCO—Everyone is talking about how Amazon is turning retail on its head and what it will mean for the future of brick and mortar retail. Home building professionals at PCBC 2018 learned more about this disruption in the session, Retail Realities in the Age of Amazon, led by Garrick Brown, national retail research director and vice president of Cushman & Wakefield. In the first of a two-part exclusive, GlobeSt.com covers the history of e-commerce and some of the positives in the current retail market.

The growth of digital experiences, platform businesses and the shared economy have upped the ante for physical places—and the retail world is responding with new amenities, ever-changing offerings and a food- and experience-driven approach that keeps people coming back for the connection aspects that can be derived from the experiences. As the retail market continues its rapid evolution, it is going to great lengths to create an in-person, experiential and essential counterpart to the online world, sometimes through mixed-use villages and redevelopments.

“The three driving forces behind bricks and mortar retail that get shoppers to show up are value, convenience and experience,” said Brown.

Adding to the convenience component is grocery store, Amazon Go, with no wallet or credit card required, which opened in Seattle in January 2018. This was roughly a year later than originally planned as engineers worked out issues in the technology. BingoBox has been active with a similar technology in China for a couple of years now.

Brown pointed to the wisdom of Viktor Gruen, the father of the American mall, with an observation on retail experience that still rings true today, and perhaps more than ever.

“Good design equals good profits. The more beautiful the displays and surroundings, the longer consumers want to stay in a shop,” Gruen said. “The more time a shopper spends in a store, the more they will spend.”

Brown reviewed the evolution of e-commerce, from the early days of 1995 to 2000, when desktops were the only form of technology. This marked the initial launch of e-commerce, and the rise and fall of early players. The pure play years from 2001 to 2009 saw the addition of mobile devices. This was the “post-tech wreck” ramp-up of new pure play Internet e-commerce and the distribution strategy emphasized tax advantages over speed. The age of Amazon is 2010 to the present, as tablets were introduced. The Amazon distribution strategy was speed to the consumer over tax advantages. Other retailers rush to build e-commerce infrastructures during this time. The omnichannel age began in 2015 and continues to prevail. And, the Amazon dominance remains, while retailers continue to build e-commerce infrastructures. The emergence of the bricks to clicks movement came about during this time. Finally, the new commerce age began last year and is a seamless integration of omnichannel, now a given for retail survival, Brown said. E-groceries, e-pharma and e-furniture are part of this equation.

What are some of the positive signs for retail real estate? Brown says there are many positive underlying consumer fundamentals of unemployment, wage growth and consumer confidence. In addition, the US had its strongest holiday season since the Great Recession (+5.5%). The Trump tax cuts are also having a positive corporate and consumer impact.

But while everyone is talking about how SCOTUS saved retail in South Dakota v. Wayfair, where pure play e-commerce retailers now must collect local sales taxes, Brown said not so fast. The game has already changed, i.e., 3.9 of the top 20 Internet sales companies already collect local sales taxes so the impact for bricks and mortar retail is minimal, Brown says. It is mostly confined to big-ticket items sold by smaller e-commerce firms. And the impact for e-commerce players is also minimal except for site selection. Players that had chosen tax advantaged states for warehousing over proximity to consumers may rethink this strategy, but most already have, Brown said.

All of these will help retailers in 2018. But will these factors help slow closures and bankruptcies heading into 2018? More about this in part two.