Ecommerce Will Continue to Shape Retail for Years
Ecommerce is still in its infancy and will continue to grow significantly in its share of retail sales over the next five years.
“Consumers want things faster with more flexibility and less hassle and there are no signs that the trend is likely to slow down but rather the opposite,” Scott Recknor, managing director and head of asset management at Black Creek Group, tells GlobeSt.com. “For instance, Cyber Monday sales this year were higher than ever before totaling $9 billion, up 19% from $7.9 billion last year. And, ecommerce is still in its infancy with the sector making up about 12% of total retail sales and is expected to grow to 25% by 2025.”
While online sales will gain market share, brick-and-mortar will continue to play an important role in the market. Retail and ecommerce will continue to balance the retail market. “We are actually seeing ecommerce complementing retail with greater adoption of omnichannel distribution,” says Recknor. “Businesses are changing how they operate, understanding the importance of offering the consumer more flexibility by either purchasing or returning products either online or in-store. Warby Parker, Casper, Wayfair and Amazon have really done this well. I recently read that competition among retailers has led to a 41% growth of BOPIS (buy online, pickup in-store) services this year, which proves the point that shoppers are increasingly looked for convenience and time saving.”
Industrial, however, will continue to be the darling of the market has ecommerce sales grow. With more online shopping, demand and pricing for warehouse space will only surge even more. “Ecommerce requires up to three times as much warehouse space on average than traditional brick-and-mortar retailers with the average consumer product like toothpaste being stored in four or more distribution warehouses from point of manufacture to point of retail consumption,” says Recknor. “So as ecommerce continues to grow so will the demand for space as every $1 billion of online sales equates to roughly one million square feet net new demand for warehouse space. Additionally, as consumers’ expectations accelerate to same-day fulfillment—and even one-hour delivery—many industrial tenants are sourcing smaller distribution sites in more densely populated locations. Not to mention the reverse logistics aspect of ecommerce as retailers need facilities to process returns which adds to overall demand.”
These users aren’t just looking for any ecommerce space, either. They are looking for last-mile delivery that is close to the end user and with state-of-the-art features. “Online retailers are seeking to optimize last-mile delivery, which means they are constantly looking for space that is closer to the end user, so we are seeing a variety of warehouse needs depending on what a tenant is delivering,” says Recknor. “For example, Amazon ended its ground delivery contract with FedEx earlier last year as part of a plan to grow its own logistics network in order to provide millions of Amazon Prime customers with same- or next-day delivery. To achieve this time-sensitive goal, the company is increasing reliance on last-mile distribution centers near population centers. This last-mile focus is driving Amazon and other retailers to seek additional warehouse space near large cities to facilitate quicker and more efficient distribution to customers. It is estimated that Amazon already has centers located within 20 miles of half the population in the U.S.”
To take advantage of these trends, Recknor recommends investors should pay close attention to online retail sales activity. “Investors should continue to monitor these trends and consider how they may impact demand for different types of commercial real estate and the performance of their own portfolios,” he says.