I spent several days last week with others from my office at the International Council of Shopping Centers’ (ICSC) annual Retail Real Estate Convention (RECon) in Las Vegas. We spent much of the three days talking with retailers and colleagues about the state of the retail sector and what changes it might bring to commercial real estate. Just like the changes occurring in the office market, much of what is happening in the retail sector boils down to changes in technology.
One idea that was talked about throughout the convention and that I have been thinking about since coming back to Winston is what is dubbed as the “Amazon Effect.” Amazon has become a large part of many people’s everyday lives, including mine. I love the luxury of being able to order paper towels with just the click of a button from my couch! As much as I love and try to support local retailers, the convenience of Amazon Prime often continues to suck me in.
For years, Wal-Mart has been the leader when it comes to retail value and accessibility, and when it comes to “brick and mortar” retail this is still the case. However, with Amazon’s stock almost tripling in value over the past two years to $996 per share, Amazon has overtaken the retail giant. According to an article by Forbes, Amazon is not only worth more than Wal-Mart, but also they are worth more than the value of Wal-Mart, Costco, and Target combined! The article also mentions online sales in the 2016 holiday season totaled over 11% of all sales and Amazon accounted for 40% of those sales. My prediction is we will see another huge boost in online sales this holiday season with Amazon holding strong with 40%+ of those sales.
These facts illustrate a trend that is perhaps not new to most people, but one that is still staggering. The degree to which Amazon has overtaken the Wal-Mart’s of the world indicates the continual growth of ecommerce in contrast to the continual shrinking of brick and mortar retail.
There are other ways one can see this trend playing out. According to an article from Forbes in February of 2017, “JCPenney is closing 140 stores (14%,) Macy's is closing 100 stores (15%,) Sears is closing 150 stores (15%,) HHGregg is closing 88 (40%)1 as it prepares for bankruptcy and CVS is closing 70 stores. Kohl's is planning to shrink the size of almost all its stores to reflect lower sales.” On top of these closings, we see traditional malls continuing to suffer: “The rapid descent of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years”, according to Bloomberg and CoStar Group.
The big question on my mind is, who is going to fill all of the empty spaces? I don’t think people will clearly understand the repercussions of the Amazon effect until the massive amount of empty retail space comes available in the near future. Retailers (old and new alike) are refocusing their efforts in order to combat these changes by refocusing on the customer’s experience. This new focus is being dubbed by some as “retailtainment,” and, I believe, is adding great value for the customers.
One example of this shift in our market is the grocer Lowes Foods. In 2014, they began rebranding and adding modern features and interactive experiences to their stores to bring shoppers back into the brick and mortar stores. Shoppers can now go to the “Beer Den” to taste local craft beers and purchase a pint to sip on as they shop, or take home a growler. The “Sausage Works” section includes a “Sausage Professor” who rolls out new flavors of sausages each day, creating something that you could not find online or even packaged at any other grocery store. Their new focus adds community events to each store including cooking demonstrations at the community tables at the center of the new stores and spice experts from the “Spice Bazaar” to help customers learn how to mix and cook with different spices. These in-store features are combined with an online integration to help customers filter through and order products online, with an interactive coupon redemption program, to then pick up to-go at their closest location.
The in-store experiences combined with the ease of an integrated online experience hope to steer customers back towards shopping at the brick and mortar supermarket. I hope and believe that other retailers will be able to similarly refocus their efforts on the customer experience and reenergize consumers to shop inside of their stores rather than clicking a button while in their boxers on the couch.
1In just the few months since the Forbes article was published, HHGregg has announced their closing of all 220 (100%) of their stores.