Retail is Not Dying it is Thriving. Time to Change the Message.

Every week the newspapers paint a dire picture of the retail industry – one where the retail industry is driving off a cliff, much like the iconic scene in Thelma and Louise. There are countless articles about thousands of store closings, the number of brand name retailers calling it quits, no new shopping centers being developed, and NACREIF advising institutional investors to bet on boring industrial real estate instead of shopping centers. I find myself wondering aloud “what, should I sell warehouses instead of neighborhood centers?” And, what will happen to all the people that I have met during the past 23 years of transacting shopping centers? What will they do for a living? Then, I am awakened from my mid-day dream. I answer my doorbell to find a delivery guy dropping off a package of print cartridges my wife ordered a few hours ago on a Sunday afternoon.

Outlook Not so Bleak?

It is so easy to believe that the convenience of ordering online and having items delivered within days, and sometimes hours, is quickly killing the retail industry. It is easy to believe that online retailers are killing traditional department store retailers such as Sears, K-Mart, JC Penney, and other well-known retailers like Toy’s R Us (a childhood favorite) who recently announced bankruptcy.

However, what if I told you that in 2017, retailers will open 4,000 more stores than it closes, what if I told you that retail sales have increased over $100 Billion over same period the year before, what if I told you that shopping center operators are reporting some of the most historic performances from their tenants? These are all true statements that paint a rosier picture of the retail industry but this reality does not sell newspapers or inspire debate and dialogue. Join us as our team discusses three common and widely publicized misconceptions of today’s retail environment:

1. The Numbers Don’t Lie

There exists a perceived bias that online retailers are causing the downfall of brick-and-mortar stores. However, by taking a closer look at the numbers, the reality becomes more nuanced. Online sales only represent about 8.5% of total retail sales, as an example, only accounts for less than 5% of total U.S. market share. Therefore, there is still a lot of money left on the table.

One of the best examples comes from electronic goods. Once thought to be an example of the end to brick-and-mortar, Best Buy has dug itself out of the trenches and seen an increase in ROA reaching 9% in 2017, which is close to its higher ranges of 9.36-12.64% from 1998-2001.

These shifts in ROA are an indicator that for Best Buy, they were efficient in increasing earnings. Other companies, such as Sears, were unfortunately in the business of a consumer good that had declining sales before the influence of online competition.

2. It’s Customer Service, Not the Internet

With technology constantly arising and evolving, it is easy to blame the internet for the demise of retail. Despite what the media would have you believe, the neglect of the customer service aspect is really what is causing so many retail companies to close up shop. Instead of believing the myth that physical stores are becoming obsolete, brick-and-mortar stores can focus and shift strategies toward tangible realities that can bring more consumers through the door. In order to get customers off of their screens and into a store, that particular store is going to have to offer them something they can not receive online.

Certain types of tenants are surviving by making their expertise, guidance, and assistance indispensable. They cultivate a need to go physically into the store and perhaps even make shopping a desired experience. Keeping with a prior example, Best Buy has successfully executed this notion. Research shows that, despite a steady economic incline, less and less people are buying big ticket items. Instead of caving into defeat, these tenants have restructured their approach. The employees can be seen more as educators rather than salespeople. Executives take the time and money to train employees to better answer and support consumers’ inquiries. Technology can be confusing and expensive for a lot of users. Consumers want to compare and speak with staff who are knowledgeable about what exactly can satisfy their needs. Getting hands on experience and talking to someone who can thoroughly explain a product makes a huge difference in consumers’ eyes as this is something you simply cannot get online. And now, with majority of retailers matching online prices, the instant gratification of having a product becomes an even bigger appeal. This service coupled with the ability to physically try various products at once with no shipping wait or fees, make a very compelling argument as to why shoppers should still purchase in-store.

3. The Psychology of Spending More

The argument for online shopping vs. brick-and-mortar shopping comes down to one factor – convenience. Online shopping is most attractive to those who need something in a hurry or would rather not leave the comfort of home. However, the average buyer doesn’t usually just stick to one or the other. It’s a mix of both online and in-person shopping, and the need for an in-person shopping experience will never go away for two main reasons.

First, social media has practically taken over our society. Instagram, Snapchat, Facebook, and Twitter have all infiltrated everyday life. With the creation of shopping centers that feel more like you’re at a resort or on vacation, people are more inclined to spend more time and therefore more money. The buyer is then encouraged to post pictures on social media as part of the user-experience. One great example is The Village in the San Fernando Valley, where Westfield has strategically placed artwork with captions throughout the center to encourage social media interaction. Second, niche markets and stores are all the rage in today’s shopping world. When going to a shopping center, today’s buyer wants a mix of both large chain stores and smaller, mom-and-pop stores that may satisfy a niche interest. Buying your favorite type of matcha or that one vinyl that you’ve been looking for isn’t as fun online as it is in a small store where you are made to feel like a VIP. To read more about how the trends of today’s dominant group of buyers, click here.

A resort-type shopping experience in today’s world will never be hindered by online shopping. Want a quick getaway? Just hop in your car and indulge in a relaxing and stress-relieving trip to your nearest shopping center.

These are the facts. It is not to say that online retailers aren’t considered a competitor, just that there is so much fight left in the business of retail. As we round out the 3rd and 4th quarter of 2017 and prepare for the ICSC Western Conference and the Fall ULI meetings in Downtown Los Angeles, let’s keep in mind these realities. It is up to us to change the message and deliver the truth.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *