Brick-and-Mortar Retail Can Thrive In the Internet Age
Landlords and investors just need to perform more due diligence when leasing and buying properties in the age of e-commerce.
CHICAGO—It’s easy to find bad news about the retail sector these days. The rise of e-commerce has put the squeeze on thousands of brick-and-mortar outlets, and iconic brand names such as Sears are shutting down across the nation.
Even shopping malls, the places where most Americans shopped for decades, have felt the pinch. By 2022, one out of every four malls in the US could be out of business, according to a new report from Quantum Real Estate Advisors, Inc. And e-commerce is not the only culprit.
“We are over-retailed,” says Ronald Friedman, a partner at New York City-based Marcum LLP. He estimates the US has about 26 square feet of retail for every person, roughly ten times the space per capita in Europe.
But Chad M. Firsel, president of Chicago-based Quantum, tells GlobeSt.com that whatever the pressures, many brick-and-mortar stores will continue to thrive. After all, even the biggest internet heavyweight around has placed a number of bets on existing retail outlets.
“Amazon bought Whole Foods for a reason,” he points out. “They obviously felt it was imperative to be a part of the world of brick-and-mortar retail.” Furthermore, hundreds of new retail concepts debut each year, along with thousands of new stores, and many existing retailers reinvent both their looks and how they interact with the demanding consumers of today.
Firsel believes landlords and investors just need to work harder at identifying the concepts that will bring foot traffic to their properties and prove resilient to internet competition.
More than 3,800 US stores will close in 2018, according to Quantum. But some retailers, including Dollar General, 7-Eleven, AutoZone, Warby Parker, Gap, Aldi, Ulta Beauty and Ross Dress for Less, will expand. What ties these stores together is they are primarily either food, quick service restaurant or discount retail concepts where consumers can get deals at or below the pricing on the internet. And sometimes, it’s not just about pricing.
“Ulta Beauty has done a fabulous job of reinventing itself,” Firsel says. Customers, for example, have opportunities to meet up with stylists that provide just the sort of personal attention not available online. But shoppers can also quickly order products online through an easy-to-use app. This flexibility has helped generate net sales of $5.885 billion in 2017, a 22% boost.
Retailers using such dual strategies will probably occupy smaller footprints, and power centers will need other creative solutions to fill up space. Firsel suggests that entertainment options, hotels and even residences can provide not just paying tenants, but levels of activity that can draw in even more potential shoppers. And empty big box spaces could make excellent last-mile distribution centers.
A lot of the responsibility for changing US retail will fall on municipalities, he adds. “If the villages are not flexible with needed zoning changes, that will cause a significant amount of delay.”