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The holiday shopping season is now over, and the results of Black Friday and Cyber Monday, its online-only counterpart, show the continued migration from the physical store to the remote tech device. Research firm, First Data, reported that online sales accounted for 25 percent of all transactions over Thanksgiving weekend, up from 18 percent the prior year. It also said that online sales increased 10.8 percent from 2015, while physical shopping rose 8.6 percent.
This year’s Black Friday was touted as the largest U.S. online shopping day ever, with sales hitting $3.45 billion. Then a few days later, Cyber Monday broke the short record by about $110 million and posted a 12-percent hike from the prior year. Meanwhile, sales on mobile devices hit $1.07 billion, a 34-percent hike from 2015.
This obviously doesn’t bode all that well for the retail sector of commercial real estate. After all, consumers only have so much money to spend. If they increasingly choose to make more transactions online that means less trips to stores.
Brick-and-mortar retailers are trying to fight back. The emergence of experiential retail has caught on at shopping centers around the country. This is an attempt by retailers to get consumers in their doors by garnering their interest beyond a simple transaction. It can take the form of in-store events, such as musical performances, celebrity appearances, product demonstrations, giveaways and other attractions. After all, Apple Stores reportedly have the highest sales per square foot of any large retail chain in the country, even though one can purchase every item sold in its locations online.
The problem is that a retail chain that has hundreds of stores will have trouble incorporating this in all of its locations. After all, experiential retail comes at an operational price.
Retailers are already paring back stores. Many of these closures can be blamed on over-expansion, coupled with a major increase in online sales. That said, many chains are likely cannibalizing themselves with their own e-commerce business. Observers blame Amazon for the decline of physical stores, but many retailers with several locations have a formidable online presence. For example, found in the top-10 largest online retailers are Walmart (second), Staples (fourth), Macy’s (fifth), The Home Depot (sixth), Best Buy (seventh), Costco Wholesale (ninth) and Nordstrom (tenth). Amazon’s sales might be just under half of those combined, but those traditional retailers obviously attract the interest of online consumers.
Online retail sales are not going to slow down, and as a result, we are going to see more store closures. However, many wrote the mall’s obituary nearly 20 years ago, but there are still plenty of very vibrant retail venues across the country. Retail real estate executives and their tenants have always adapted to changing economic environments with creativity as well as access to the right commercial real estate research. One never knows what new physical shopping formats and concepts the future will bring.
One new format is the move towards to mixed-use buildings, combining retail with other property classes.
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