The Face of Business Is Changing

Big name retailers – Sears, Macy’s, J.C. Penney, for example – are struggling as the rise of e-commerce propels Amazon and even Wal-Mart to consume ever larger shares of the retail pie. But are traditional brick-and-mortar businesses en route to the graveyard?

The International Council of Shopping Centers (ICSC) says 1-in-11 jobs are related to shopping centers and retail is the largest employer in more than half the states in the U.S. “Retail is very healthy,” says Tom McGee, President and CEO of ICSC. Despite all of the upheaval, McGee notes that “more than 90% of sales still happen in a store.”

Some commercial real estate experts echo McGee’s optimistic outlook.

“E-commerce can’t paint your nails, cut your hair or serve you a burrito,” says Travis Carter. “Consumers still need to see, touch, and feel those tangible goods.” Carter says the biggest change in retail he’s seen in his Greensboro, NC, market is visible in the dynamic of the shopping center tenant mix, which continues to shift towards businesses that provide services.

“I can see the pendulum swinging back away from everything happening online,” says John Propp of Denver where the market is in the midst of a commercial real estate boom unlike anything he can remember. He feels the last real impediment is the issue of sales tax. Purchases made online don’t typically include a state sales tax, a decision stemming back to a 1992 Supreme Court decision. “Once this is settled there will be even less conflict between the two.”

Transwestern recently highlighted three commercial trends in its first quarter Insights report covering the retail, industrial and multifamily sectors.

1. Retail: The Rise of Mobile Data
Retailers are getting more sophisticated in how they’re collecting mobile data about their customers. Many businesses are using mobile apps coupled with monitoring devices in their stores to track and interact with customers. If a consumer has that business’s app on their phone, it allows the retailers to engage with them by offering coupons or product suggestions.

2. Industrial: New Demands for E-Commerce Distribution Centers
Demands for faster shipments in online sales and massive increases in e-commerce business are causing companies that have large fulfillment centers to rethink location. Previously, these online retailers chose industrial warehouses in lower cost areas outside of population centers. Today, there is a new demand for large commercial space closer to metro areas in order to more quickly and efficiently store and ship commodities to customers, according to Transwestern.

3. Multifamily: Micro-Unit Apartments in Urban Markets
As renters flock to urban centers for the live-work-play lifestyle, entry-level lease rates are becoming unaffordable for many recent college graduates, service workers and young professionals. One way of providing more affordable living space is through micro-unit apartments.

Reports on the death of traditional retail may be greatly exaggerated. Anchor stores continue to change, pivoting from big-box retailers to smaller service providers, medical facilities, restaurants and multi-unit residential. National chains are downsizing and refocusing on personalization, catering to more specific clientele rather than trying to be everything to everyone.

Huge Changes Lie Ahead

Brick-and-mortar stores will go tech – and warehouses will go back to the drawing board. As consumers increasingly shop on their computers and phones, brick-and-mortar retailers will need to adopt the attitude ‘If you can’t beat ’em, join ’em’ in order to survive. Innovation will be key, making use of technology that integrates omnichannel shopping into the physical experience of being in a store and matching the logistical advantages of online merchants.

ApplestoreApple is one retailer already using this forward-thinking approach in its stores. Its sales floors feature products that people can touch and try on their own, spending as much time as they’d like. They can buy and take home merchandise if they choose, or they can go home, do further research and buy online – with free overnight shipping. This may be a model other retailers will emulate.

Shipping might become quicker, much quicker than overnight delivery is, when drone delivery touted by Amazon comes to pass in the next several years.

Efficient distribution will be key, and the increasing importance of logistics and automation will impact warehouses across the country, many of which are obsolete even now, lacking up-to-date technology and adequate clearance height and often too remote to accommodate same-day delivery. That will add up to a lot of activity in the industrial sector in coming years, with old warehouses being retrofitted or new ones being built.