Consumers have moved more and more towards online shopping, and physical retail has taken a hit. As a result, retailers have had to reinvent themselves to compete with these online retailers, who have much lower overhead expenses. For example, a brick and mortar retailer, Best Buy, has matched prices with Amazon and has retooled their physical locations to be showrooms and online order pickup locations. These changes have allowed Best Buy to offer an experience with their products that can't be matched online.
However, not all retailers have fended off their online competition. Amazon's first victim in the retail war was bookstores. Able to sell books online at lower costs than Borders, Books-a-Million, and Barnes & Noble, Amazon was able to use its cost advantage to shift the book buying process largely online. Now, that trend is starting to reverse, and Amazon is opening brick and mortar book stores.
Amazon isn't the only internet giant looking to go physical. Google has plans to open their first permanent location. They have been looking for retail space in NYC to sell their hardware offerings such as Chromebooks, Pixel smartphones, and Google Home speakers, directly to their customers.
It may seem odd that retailers who have thrived online, with minimal overhead cost, would venture into brick and mortar retail immediately after proving that goods can be sold cheaper over the internet. These companies see the value of Best Buy's strategy. Allowing customers to see a product in-person and discuss the pros and cons with a sales rep help the customers make an informed decision on their purchase.
This physical presence and in-person shopping experience has been shown to help a company's online sales. In areas surrounding recently closed stores, retailers have experienced a drop in online orders. Google and Amazon have recognized this pattern and they expect the reverse to hold true, an uptick in online sales in the regions surrounding their physical locations.
Opening brick and mortar locations could be the beginning of a larger trend being led by Amazon and Google. Once retailers build a customer base on the internet, retail space could be used to strengthen their relationship with customers. In the near future, owners of retail real estate may see internet-first companies leasing space. Retailers may put less emphasis on maximizing their sales per square foot and focus on leveraging their physical presence to connect with consumers.
The views expressed here are the author's own and not that of ALM's Real Estate Media Group.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
