Many commercial retail property managers today warn of a coming “epocalypse,” a time when online retail will completely overrun the world of brick and mortar retail. However, new research from CBRE suggests that not only is the epocalypse not as imminent as it appears, it might not even be coming at all.
On a recent episode of “Building Success: A Real Estate Podcast,” Melina Cordero, Global Head of Retail Research at CBRE, sat down with MRI Software to discuss the current state of affairs between brick and mortal retail and ecommerce.
Epocalypse: Inevitable or imagined?
Despite consumer trends leaning towards ecommerce, existing data indicates that brick and mortar retail isn’t going anywhere. A recent report from CBRE provides deeper insight into the questions surrounding ecommerce and omnichannel real estate.
The report illustrates that online-only transactions currently account for a mere 10 percent of the retail market. Sales from physical stores, however, still make up around 50 percent of the retail market. So why the panic? The fear of online shopping wiping out in-store shopping comes mostly from the speed with which online sales have grown over the past few years. These fears are also stoked by big headlines in the news regarding the declining sales of several big brands that for decades have dominated their fields.
No, the “epocalypse” is not something that’s in the process of happening – there is a future for brick and mortar retail. But what, exactly, might that future look like? And is online shopping affecting the retail industry in any tangible way? Absolutely.
The real challenge for commercial retail property managers
According the CBRE’s report, category and price are two major factors that commercial retail properties should be aware of when it comes to the impacts of ecommerce. Consumers today are turning away from physical stores for items that they typically see as safe investments, both in price and category. Items such as apparel, electronics, and footwear are all seeing increases in ecommerce interaction because these purchases are usually viewed as safe purchases. These products also typically fall into a mid-range price point, which consumers feel comfortable paying for online.
There are retailers that fall into certain categories and higher price ranges, however, that ecommerce has not yet found a way to deeply impact. High-end products at luxury price points are typically not bought online because consumers do not feel as comfortable spending large amounts of money online for products they see as an investment. They’d still rather walk into a store to see how products work, and in some cases, to get the purchasing experience that comes with buying a luxury item. Low-priced and discount products are also fairly resistant to online shopping. The price point is the major factor in discounted purchases, and making these kinds of products available online would push the shipping and stocking costs up to a level where consumers would no longer see it as a discount item.
With these shifts in consumer attitudes brought on by ecommerce, the key to facing these challenges is not to resist the change or fight it outright. Rather, businesses that are impacted by ecommerce need to find ways to integrate the digital and the physical, and commercial retail property managers will need to think strategically about who they take on as tenants and what kinds of customers these tenants can attract.
Thriving from ecommerce
Whether you operate in the commercial or multifamily sector, ecommerce will affect property managers everywhere. Property managers and owners will need to think about tenant mix — ecommerce impacts different categories in different ways, and landlords will need to understand how to optimize their tenant mix. For example, regional malls typically have 75% of space taken up by department stores and other sellers of apparel. Will regional malls and other similar shopping outlets survive the increase in ecommerce? They can indeed, but only by adjusting to the challenges that ecommerce brings. For brick and mortar retailers, a renewed emphasis on experience and convenience can help them face the rise in ecommerce, and by providing a unique, convenient experience to customers, physical stores won’t have to worry about being wiped away by any imaginary epocalypse.