Commercial Real Estate: What increased e-commerce means for brick-and-mortar stores

Retail Real EstateNo topic has been the subject of greater debate in commercial real estate in recent years than how increasing e-commerce is adversely impacting brick-and-mortar retail. The trends are undeniable. A long-term change in consumer behavior has dramatically reduced store traffic, as consumers are electing to shop and browse merchandise from home or their mobile devices rather than entering the retail store. As evidence, the average number of stores visited per shopping trip to the mall has dropped from 5 stores in 2007 to 3 stores today, according to Shoppertrak.

The result of decreasing traffic at shopping malls and other retail outlets has been a dramatic increase in store closings by some of America’s most storied retail brands, including Sears and J.C. Penney. Sbarro is the most recent casualty, filing for bankruptcy protection and announcing that it will close 155 of its remaining 400 locations nationwide.
There are also rumors that American Eagle and Aeropostle are contemplating store closings. I expect this trend to continue and potentially accelerate, as some smaller tenants who rely on foot traffic generated by anchor tenants start to see the effect of the closings. One issue that has been under-reported is the very common practice by national tenants, like Gap, to demand co-tenancy requirements in retail leases. These lease provisions may provide for reduced rent or even lease termination rights if anchor stores “go dark.”
It’s not all doom and gloom. Some retailers are actually thriving in the new reality. Those retailers are evolving by focusing on enhancing the in-store experience and embracing the demands of today’s consumer.

Successful retailers are investing in their brands and focusing on offering value that can’t be replicated outside the store. They’re displaying art and improving music playlists and lighting at stores. They’re offering product demonstrations and other in-store training options that consumers cannot experience at home.

Another trend is the integration of technology at the store to assist consumers in identifying and locating store merchandise (which they may have already researched and identified at home). Some stores have even added mobile apps to engage shoppers in-store, offer contextual deals and promotions and help consumers find products. The key is personalizing the experience.

The result of recent trends will be less overall retail space and smaller malls. The stores that remain will be higher end stores focused on adding value that can’t be replicated online.

This post was first published by the Nashville Business Journal on April 1, 2014.  To read more commercial real estate articles by Walt Burton at the Nashville Business Journal, click here>