Is Amazon the Start of the Apocalypse?
In the media, over the last 6 months or so, we keep hearing about retail apocalypse. News articles talk about the collapse of the retail industry. How these events are causing the demise of the retail commercial property network. Although many retailers have been shuttering stores, including many legacy brands, is this a sign of the collapse of the retail market? Or could it be an indication of a shift in the consumer spending trends?
Let’s start off taking a closer look at what everyone says is the main cause of the impending apocalypse, Amazon and other E-Retailers. Analysts blame online retailers for taking business away from existing brick and mortar stores. On the surface this makes sense, but when you delve into it a little deeper, it doesn’t add up. Take for instance, Amazon, the largest E-Retailer out there. Amazon definitely has had an impact on how consumers shop. They account for up to a 50% share of the 28% retail growth this year, yet, they only make up 5% of total retail sales. One has to ask, “What is really happening?”
“If you build it they will come.” The Field of Dreams movie made this quote a part of the American vernacular many years ago. Developers of retail malls and buildings seem to have taken it to heart. Right now, the United States has more retail square footage per capita than any other country in the world. In some areas, there are major regional shopping malls right next to other malls, or within a few minute’s drive of one another. Do we really need that much retail space? It appears that we don’t.
A recent report showed there are 400 net department store closures this year, and 3,100 net closures of specialty soft goods. This isn’t really due to Americans not shopping, but rather how we shop. Maybe we should consider the overwhelming options available to us. Studies have shown, when humans are given less options on brands, they tend to buy more of the actual product.
For instance, when confronted with making a decision between 40 different brands of a product, some people decide to just not purchase. However, when these same people were given only one or two brands to choose from, a decision was quickly made to purchase. Could this be what is happening with retail centers?
News reports are not all doom and gloom either. There are several sectors which are seeing retail growth. Off Price/Discount Retailers/Department Stores (think TJ Max, Marshalls, etc…); Dollar Stores, Convenience Stores and Grocery Stores are all expected to have a net positive growth in retail space. 85% of retailers have reported either the same sales or higher sales per store than last year.
Moving forward, I believe it will be up to the developers and owners of retail real estate to look for ways to reposition some of their big box retail locations, especially in areas which have higher than normal percentages of retail locations. They should start looking at making shopping more of an experience. Perhaps creating, repositioning older malls into lifestyle centers. Think of embracing the dining moment with actual restaurants versus food courts.
Other ideas, could be working with local municipalities to offer consumption of alcohol (beer/wine) in common areas. Think of offering other experiences, such as concerts, at these centers as well. It is all about offering “other” events for clients to attend.
Lastly, look to add more experiential retail. Look to growing industries, such as escape rooms, gyms, restaurants and such, to create new traffic generators for the malls.
For now, the question on everyone’s mind, “Are we in for an apocalypse?” No, I don’t think so. Will there be a change in the landscape of retail, most definitely.