We talk a lot about the effect of e-commerce on retail real estate, and with good reason, as selling goods online has the potential to completely upend the traditional distribution channel of retail stores. The 2016 U.S. Retail Investment Forecast from Marcus & Millichap notes:
“Consumers Increasingly Turning to Online Shopping: Led by the highly digital millennials, online and mobile shopping has emerged as the leader in retail sales growth. Electronic shopping rose 10.2 percent in 2015, easily outpacing the 3.3 percent bump in core retail sales. While e-commerce represents just 11 percent of total retail spending, numerous retailer categories remain susceptible to inroads from Web-based competitors. Traditional retailers have bolstered their online and mobile retail presence to challenge pure-play Internet stores, and the coming year may bring additional emphasis to omnichannel strategies that blend the strengths of brick-and-mortar with e-commerce.”
Over time, as online sales have become a larger portion of total retail sales, the definition of “what people will buy online” has expanded considerably. For example, there was a time when Amazon.com was almost exclusively a bookseller. Back then, the conventional wisdom was, “well, online only works for things that you don’t need to try out in person.”
But the increasing provision of hassle-free returns has made the new normal the practice of ordering a large number of clothing and shoes on the Internet, trying them on at home, then returning the ones that you didn’t like. (Have you ever wondered why, for example, people seem to be buying several pairs of almost identical items, at least based on the “frequently bought together” algorithm? Because if you want to purchase a new pair of black loafers, you will likely buy two or more pairs by different brands, but only keep the one you liked best.)
The final frontier in online shopping is necessity goods and grocery. Many owners and operators of grocery-anchored retail have touted their Internet-proof business strategy. But, according to Brick Meets Click, online grocery shopping is no longer a niche, with 21 percent of surveyed shoppers purchasing groceries online within the previous month, up from 11 percent in 2013:
“The number of households shopping online is increasing rapidly, and active users of online grocery services are spending a significant percentage of their weekly grocery dollars online – 16% on average. And, when shoppers buy groceries online, they divide their shopping in different ways as they search for better ways to satisfy their grocery shopping needs.
These changes signal that brick and mortar retailers will need to develop strategies that minimize their vulnerability to losing business to online competitors and include ways to retain and even win new business by taking advantage of the competition’s vulnerability.”
There’s that omnichannel strategy again.
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Loretta Clodfelter is editor of Institutional Real Estate Americas.
