Evolving E-Commerce

Impact on real estate

By Suzann D. Silverman on May 17, 2013 in News

Today’s retail market is something of a “living” sector, seemingly in a state of constant change as manufacturers and retailers learn to harness ever-advancing technology to attract and retain customers. Over the years, advancements have led to a variety of concerns, some of them significant: The growing popularity of online shopping has at various times fanned real estate owners’ fears that demand for bricks and mortar would wane. Retailers have feared a loss of turf to e-tailers, in particular Amazon and other mega-players. Consumers have feared invasion of privacy as their preferences are recorded and targeted in minute detail. All are valid concerns. But like any advancement, over time technology has also brought brand awareness, better customer service, greater convenience—even a competitive edge. And the refinements keep coming.

As the speed of e-commerce increases, the types of technology needed to meet higher expectations grows ever more complex. Same-day delivery of consumer and business goods is one new wrinkle. Once limited to local delivery in big cities (Barnes & Noble has long offered the service in New York City, for instance), this trend promises to spread in the not-so-distant future. But with volume and distance come complications: Extending the reach and volume of same-day service demands new types of machinery and new sorting capabilities—and that presents a challenge not just for the machine manufacturers and logistics providers but for the property owners, as well.

In fact, the new machinery requires a variety of changes in space: more complex internal layouts and technical capabilities to accommodate the machinery; larger mezzanine areas with higher clearance for packaging and other back-office tasks; greater life-system components ranging from lighting to HVAC to parking to fire protection because of an increased employee presence. The warehouses, though necessarily more locally based than regional centers might be, are actually larger to accommodate greater variety of goods. All in all, such changes amount to an altogether new breed of distribution facility, one that could become a whole new sub-category, although it is still very early in the evolution to determine just how widespread demand will be.

Bricks-and-mortar retail, meanwhile, remains in demand, though growth continues to be slow in this post-recession era even while Internet shopping has picked up its pace. (Internet shopping, though, continues to represent a small percentage of the overall shopping picture—5.2 percent in 2012, according to the U.S. Census Bureau—so while it grew by 15.8 percent year-over-year, compared to a 5 percent growth rate for retail sales overall, it increased from a much smaller base.) Attracting shoppers to stores requires sophisticated analysis of trade-area demographics, store performance and brand credit quality. Not to be neglected is consumer appeal, which still depends largely on the basics, such as store mix, convenience, security, accessibility and property age. In the area of demographics, researchers like The Nielsen Co. are unearthing some interesting buying-power characteristics of markets around the country, and they are refining it down to Zip codes with significant buying potential. Community affluence is one measure that looks beyond simple household income to evaluate liquid assets overall. Combine that with a market’s ability to support new business creation and it becomes a more solid opportunity for retail expansion—made all the better because that combination is an indicator of longer-term economic recovery. (Specific age groups can also offer some new possibilities, as Nielsen research has revealed.)

But while affluence and new business development can create a stronger environment for new retail success, retailers and the properties that house them are still resorting to lifestyle-related means to attract consumers to their locations. Indeed, such lifestyle attractions are more important than ever. For that reason, the new Scheels sporting goods and outdoor equipment store in Sandy, Utah, features a 65-foot-tall Ferris wheel, while Brookfield Office Properties Inc. has put a lot of effort into developing an array of free performances and art exhibitions at the Winter Garden, the soaring, glass-clad space at Brookfield Place in Downtown Manhattan—including major events like the Lowdown Hudson Blues Festival, which attracted 5,000 people in its first year. These savvy players understand that entertainment draws customers to their venues and the mix of retailers keeps them there.

The rewards of such efforts suggest that while online shopping offers unprecedented speed and convenience, there remains a critical need for bricks-and-mortar stores that can provide such attractions as hands-on browsing, live entertainment and true social interaction. Retailers and their landlords will need to work together to make the most of these built-in advantages while continuing to devise innovations in customer experience and technology that help advance the ever-evolving new age of retail.

Suzann D. Silverman is editorial director of Commercial Property Executive. CPE featured retail real estate trends in its May 2013 issue, including “Instant Gratification,” Dees Stribling’s technology article about e-commerce distribution centers, and the CPE-Nielsen Special Report examining the links among affluence, new business creation and retail real estate investment. CPE partners with The Nielsen Co. every May for a special demographic report relating to retail real estate; these issues, including the 2012 report on older consumers as a target shopper segment, are available through the CPE archives.