Written By Johnny Reimann, Mid-America Real Estate - Minnesota
Online retailing is profoundly changing the landscape of our business, forcing our industry to think of the future now more than ever. Despite these changes, I am optimistic that e-commerce will remain just a small piece of the overall shopping pie. My optimism lies in the following assumptions: in many cases, brick and mortar stores continue to be more convenient or cost effective; digitally native retailers are opening stores in order to expand their supply; and consumers often use the internet to purchase goods for in-store pickup.
On a recent hunt for a Cuisinart coffee filter, I found myself in an unexpected situation searching for the item needed for that perfect cup of Joe. My filter was in stock at the closest Bed Bath & Beyond, but, alas, the store didn’t open for several hours, and I wanted to check that item off my list ASAP. With convenience on my mind, I (admittedly) logged onto my Amazon Prime account, only to find the filter I sought was under the minimum ticket price and listed as an “add-on item” (a bogus policy, if you ask me). So, I cut bait and waited for the store to open. My experience seems like the opposite of “show rooming” – a major concern that overtook the industry several years ago – when customers would scout out a product at a store then buy it online for the lowest price. While I originally assumed that buying online would increase convenience and lower price, instead I found that shopping at the physical store could help me reach my goals more easily.
Also, successful retailers seem to understand how vital it is to create multiple supply options. For example, if a store is online-only, it best expand to the physical space. In his April 2017 article, “Clicks to Bricks – The New Retail”, Kenne Shepherd outlines how online retailers can be especially successful when developing a brick and mortar presence:
“Online retailers…are established brands who already have a strong presence with effective advertising campaigns. And they have a purchasing, warehousing and delivery infrastructure in place which can readily be expanded to support the growth of brick and mortar retail expansion. Online retailers also possess a tremendous amount of real data on their customers from their online sales, which allows them to be far more targeted in selecting retail locations that best serve their existing customers. They know their shopping patterns, their likes and dislikes, and can parley [sic] this information into well-considered merchandising decisions and store locations.” 
The reality is that online retailers are opening small numbers of stores, generally in small footprints, limited to select urban trade areas. This way, though, they keep their operating costs low, and these stores might be as much about brand exposure and exchange/return outlets for online sales more than profit generation.
In-store pickup is also becoming a method through which stores are increasing brick and mortar sales using online platforms. Late last year, there was a feeding frenzy in the media as story after story was written about the demise of brick and mortar retail. “The Retail Apocalypse” became a popular buzz phrase that snowballed, and even seasoned and successful brokers were saying that the industry was unlikely to recover. The press has detailed the struggle of enclosed malls (those struggles are real), and it’s true that our country over-developed this product type in the preceding decades. However, despite a high level of closures, 2017 brought a net positive growth of about 4,000 stores, as Ted Gonsior highlighted in last month’s MSCA leasing update. Product that is selected online but picked up in-store is still a brick and mortar sale, in my mind, because the store remains the most convenient end of the supply chain. If shoppers are still finding greater convenience to pick up their goods in store, is there a difference whether that person uses digital drop-downs to select goods versus physically browsing the aisles?
Those retailers limited to only one selling platform, be it in-store or online, are the ones that contributed to the 10,000 store closings this year to date. Omni-channel consumption seems to be the new standard for success, and therein lies my optimism for our industry. We will continue to shop at physical stores like Walmart, TJ Maxx, and PetSmart, and buy shoes online at Zappos, admiring them on our feet as tonight’s dinner is delivered to our door by Blue Apron.
Johnny Reimann | Vice President - Tenant Representation
Mid-America Real Estate - Minnesota
5353 Wayzata Boulevard, Suite 650 | Minneapolis, MN. 55416
Direct: 952.563.6679 | Fax: 952.563.6633
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