Long before COVID-19 spread, retailers were experiencing a different kind of epidemic: e-commerce was capturing consumer attention and pulling business away from in-store operators. Online shopping's growth seemed at odds with brick-and-mortar retail, and investors launched defensive acquisitions and operations strategies in response. That was a mistake, says Matt LoPiccolo, first VP of shopping centers at Matthews Real Estate Investment Services, and as the pandemic made clear, the future of retail will be a blended shopping experience with brick-and-mortar playing a central role.
"Brick-and-mortar is integral for both merchants and consumers," LoPiccolo tells GlobeSt.com. "Half of online sales are completed with in-store pick-up. From a merchant standpoint, profitability is marginalized due to the cost of the last-minute mile, and the consumer benefits from the ease and cost of in-store pickup. The profitability in e-commerce isn't strong as variable cost such as distribution and returns can quickly add up."
This future is already taking shape. In February and March online shopping sales fell 3.5% and 6.5% month-over-month respectively, even as overall retail sales grew. It's the first time since 2013 that online sales have decreased. "I don't know if that trend over those two months is going to continue, but it does dovetail into the importance of the relationship between online sales and brick and mortar," says LoPiccolo. "The synergy between brick-and-mortar and e-commerce is paramount for the viability of merchant tenants and the owner, as well as the consumer."
Pent-up demand is one explanation behind the decrease in online activity. After more than a year of sheltering indoors, consumers have made a fervent return to public life. The more critical trend, however, is the part that retail has played in supporting online orders through the pandemic. The physical store proved that it could fill a multifaceted role, not only in providing an experience serving the customer but also moonlighting as a fulfillment center and warehouse space for online orders.
"Omnichannel approach is very important to the customer's experience and the profitability for the operator," explains LoPiccolo. "The pandemic has accelerated that. It has put everyone through a crash course in terms of how to best optimize their products through brick-and-mortar and e-commerce."
Technology is also strengthening the relationship between brick-and-mortar and ecommerce. Smart phone data is tracking in-store visits—including who, when and where consumers are coming to a retail center—alongside online activity. It is crucial data for both landlords and tenants to understand how consumers are shopping.
As a result, LoPiccolo says that a hybrid experience is emerging based on how online traffic influences foot traffic at the property and ultimately where goods are purchased. "Technology is going to be able to give the tenant and the landlord some understanding of the location and how consumer traffic is being utilized," he says.
Brokers at Matthews are already leveraging this data to orchestrate tenant mix and onsite experience—which together drive value. "For landlords, that technology is vital, and that data is going to have a more prominent place in the years to come for the tenant," says LoPiccolo. "That is going to be very powerful in understanding the synergy between online and in-store and focusing on complementary uses that will attract the target consumer."
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Kelsi Maree Borland
