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A transformation in brick and mortar stores

MarkSchlagPredictions of the demise of commercial real estate have existed since Ebay and Amazon pioneered e-commerce in the mid 1990s. To say that bricks and mortar stores are nearing obsolescence would be shortsighted and incorrect. Conversely, to state that today’s falling vacancy rates signify the industry’s immunity to the broad changes occurring in retailing would be equally incorrect. The reality today is a complicated and evolving story of the industry whereby competition, technology and market forces are combining to accelerate changing requirements in commercial retail real estate.

Omni Channel retailing

The average consumer may not notice the subtle changes that are occuring. However, the practices of e-commerce and traditional commerce are merging on the broad scope. David Wenig, president of EBay marketplace, recently wrote, “I just think we’ve hit an inflection point where technology is now so pervasive and so useful that we’re past the tipping point. And the world of e-commerce and commerce are now just seamlessly merged, and everything is omnichannel. It’s not about the phone or the desktop or the store—it’s about all of those. Today we don’t even know what e-commerce means. The on- and the offline have come together. Now every retailer needs to have some form of omnichannel strategy to prosper.”

Physical stores used to be driven purely for distribution. Advertising drove people to the store in hopes of a sale. Now the online media ads are often  the direct mode of purchase. The store is now a larger part of the branding experience. Apple Store is an example of a retailer strengthening its brand significantly through bricks and mortar. Amazon as well has opened physical stores in select locations. In essence both elements are working each other toward the middle for a more seamless and positive experience for the consumer.

Technology

Technologies in logistics, point of sale, and other innovations have also allowed retailers, specifically in food service, to reduce their counter time and increase sales. Online retailer apps that allow for ease of pre-ordering, and technologies such as the new Apple Pay, allow retailers to do more with less.

Effects on Real Estate

To be sure, not all trends affect all retailers equally and within all markets. However, retailers have become smarter in terms of market penetration and the size and footprints of their stores. A former 30,000-square-foot junior anchor may now optimize by carrying 80 percent of its former inventory in a 15,000 square-foot store with the other 20 percent of inventory held in a fulfillment center and made available for in-store pick-up, often on the same day. This lowers overhead and increases the use of physical space. In our market, a good recent example of this was the consolidation of Toys R Us and Babies R Us into a single smaller store at Eagle and Fairview in The Village.

As the physical store becomes even more of the important branding for a retailer, the amenities and sense of place of the development become even more important. Places like The Village, downtown, Bown Crossing and Hyde Park are all excellent examples of successful branding. These forces have also been a catalyst for the renovation of existing properties, with a resulting increase in occupancy of in-fill locations. Plantation Shopping Center, Five Mile Plaza, Westgate Shopping Center and others have increased their physical appeal to increase occupancies and meet the demands of tenants.

The retail industry has always evolved to keep pace with changing demographics, technologies and trends.  These changes may be accelerating, but time has shown that with thoughtful planning and research, retail real estate will continue to thrive in our modern marketplace.

Mark Schlag has been a retail and investment specialist at Thornton Oliver Keller since 1993.  Primary areas of expertise include retail landlord and tenant representation, retail investment sales and development services, including site assemblage.  Contact him at marks@tokcommercial.com

 

About Mark Schlag