The continued rise of e-commerce has changed the way people shop for and buy almost every product, and the overall function of a storefront might be the next thing to change.
Fitch Ratings analyst Christopher Pappas, who covers commercial real estate and real estate investment trusts, sees a future where mall and shopping center retail spaces have converged with e-commerce distribution centers, especially as consumers continue to want goods at their convenience, and more quickly.
While this idea is already being used to an extent by some retailers — like Wal-Mart Stores Inc.’s new buy-online, pick-up-in-store campaign and other department store and off-price retailers using in-store inventory and staff to fulfill and ship online orders — Pappas said speed has become so much more important (thanks in large part to shipping speed offered by Amazon’s Prime membership) that the trend is set to expand.
“There’s a lot going on in retail, so we’re talking about yet another piece, but specialty retailers, malls, shopping centers, everybody will be affected by this convergence, to a different degree,” Pappas said.
He also noted the high number of bankruptcies and store closures over the last several months, many of which have affected mall-based retailers, and alluded to a related “panic” among retail investors. But there is still plenty of value to be found in shopping centers, and as the purpose of a storefront evolves, the evaluation of a retailer needs to evolve with it.
“Maybe what’s more important is the location and the demographic around [a shopping center],” Pappas said. “It makes sense that if you have a shopping center with a good consumer demographic, high density and high per-capita income, which have historically driven shopping center development, these are good sites to have pickup and quick delivery of goods.”
Pappas added that should this turnout to be the future of retailers in shopping centers, a strict income versus cost rationale for a physical retail space will have to go by the wayside.
If a storefront is serving as essentially a company outpost offering traditional retail shopping and returns, but also a flexible environment of online orders, fulfillment and pickups, “you can’t evaluate that site on revenues alone,” Pappas said.
“That evaluation method is probably going to have to go away and instead you’ll have to ask what is the demographic this site attracts and do a little more analysis,” Pappas said. “It’s different when you’re accommodating the need for speed.”
For More, See: