- July 08, 2011
Many products that were hard to find, where you had to travel to specialty stores, are now just a click away. Yet the number of retail storefronts needs to decline, and probably will, for the foreseeable future. The key shift in the market is a significant number of people order a portion of their purchases online, and there is less need for physical retail outlets in the distribution of goods.
On both ends of the spectrum online purchases make sense. If the exact product is known, it is more convenient to order and re-order online because it saves travel time and money. Conversely, if it’s a hard to find item, it is easier to order from some obscure online retailer that carries that particular brand or product than to drive all over town.
For all the purchases in the middle, either impulse or time sensitive (like food), there is still a significant physical presence. This shows in the number of restaurants, grocery stores, and entertainment venues. The movement for these types of retail outlets is a movement towards the best locations as vacancies come up in premium properties.
What Happened to Retail Therapy?
People still like to shop for no particular reason, other than to reward themselves and feel better. The difference is that they can window shop online, put all the things they want in the virtual shopping cart, and then turn off the computer without hurting their credit card.
What Does the New Retail Landscape Look Like?
It looks like a lot of retailers that primarily sell their own brands, offer convenience, or have an entertaining shopping experience. All the former stores that carried national brands, the unique boutiques, and the mom-and-pops are disappearing and probably will not come back for quite some time.
Amazon.com is becoming the new Walmart. Besides the obvious savings of not charging sales tax and lower rents, their Prime shipping encourages customers to order as much as possible during the year and receive free two day shipping. Walmart killed the local stores within driving distance every time they opened a new superstore. Amazon.com is slowly doing the same thing by having small stores sell their goods via amazon.com. Once a product sells well enough, Amazon starts carrying it direct and undercuts their retail partners on price and shipping costs.
Who Loses the Most In the New Retail Landscape?
Private landlords who own all these strip malls and commercial real estate are actually the biggest losers. It’s hard to feel sorry for these people, as most either inherited the properties or bought them as a long term investment because they were already wealthy.
The consumers that used to shop at all these malls, strip malls, and main streets face a reduced choice. They can shop the remaining storefronts, or they can find what they are looking for online. Either way, they still shop, but using a different method of distribution.
Result: All these commercial retail spaces, which carried the highest rent per square foot, are going to have to be repurposed either into office space, residential, or warehouse. Just like all the people who were unemployed in the recession, there will be a long term solution to use the assets again. Unfortunately, it will be very expensive in the transition.