Private commercial real estate investor and operator Rainier Companies principal Danny Lovell says brick and mortal retail is here to stay, despite rapid growth in sales on e-commerce platforms.
“It is easy to get caught up in the ‘retail Armageddon’ story and it clearly has created . . . uncertainty in the retail real estate market.
“However, behind the headlines is where the real story is taking place – the retail market is proving to be extremely resilient and continues to transform to compete in an ever-changing environment,” he laments.
Analysis by the company of US online sales compared with total retail sales found that, between 2005 and 2018, online sales grew from about 2.5% to 10%, meaning that 90% of sales still happen inside brick and mortar stores.
The US Census Bureau reported that the US had a total $5.2-trillion in retail sales in the 12 months ended September 2018, of which $589-billion were online retail sales.
In terms of top online sales generators, the majority are brick and mortar retailers who have adopted effective online strategies that give customers a blended experience.
The top online sales generator is Amazon, followed by Walmart, Apple, HomeDepot, BestBuy, Macy’s, Target, Costco, Kohl’s and QVC.
“Retailers are changing the way they interact with customers,” notes Lovell. For example, stores often scale down on the number of aisles and the amount of stock in stores, but then offer customers digital ways to browse for other products or service options, with the option of the store delivering the goods directly to the customer in a few hours or days’ time.
Lovell points out another example where services and goods are often combined at a brick and mortar store, such as a pet hypermarket that offers dog grooming services while the customer continues their shopping, which offers an in-depth experience that online platforms cannot offer and gives the brick and mortar store a competitive edge.
Amazon is also diversifying into brick and mortar stores, with AmazonGo stores being rolled out in the US. These stores use “walkout technology”, enabling a customer to walk in, pick up what they need and walk out, while smart camera technology fitted in the store identifies the customer and charges their purchases to their Amazon account.
There are six of these stores in the US, including three in Seattle, and one each in San Francisco, Chicago and New York. Amazon plans to expand the number of AmazonGo stories to 3 000 by 2021.
Lovell says big US retailers understand the concept of having a good mix of platforms through which they offer and market their goods, and that online sales are far from dominating the total retail sales market, even in a developed, first-world economy such as the US.
He highlights that, in 2017, 14 000 brick and mortar stores opened across the US, while 10 000 closed, including all the Toys R Us franchises that suffered from a company-wide closedown, making it around 4 000 net store openings, which does not indicate brick and mortar dying out.
“Brick and mortar is taking over e-commerce, not the other way around. More than 60% of online sales go to brick and mortar brands, since the online platforms source their products from these brands.”
Rainier is JSE-listed real estate investment trust Emira Property Fund’s US property development partner. Emira has 49% ownership of four of Rainier’s premier retail assets in the US, namely Belden Park Crossings, 32 East, Moore Plaza and Stony Creek Market Place.
These properties, classified as “power centres”, house many of the big brick and mortar brands that are also considered top online sales generators.
Emira CEO Geoff Jennet says there are five projects in the pipeline in the US, in which the companies will jointly invest and develop. Currently, 4% of Emira’s assets are based in the US.
Jennet points out that the company aims to have 8% of its assets in the US by June 2019, and 12% by June 2020.
He says Emira will continue to invest in the US, owing to favourable micro- and macroeconomic conditions.
The US has the largest economy in the world, worth $20.4-trillion, according to the International Monetary Fund. The US has an anticipated 4% gross domestic product growth rate for 2018, with artificially low interest rates (1.9% for 2018, and 2% predicted for 2019), lower taxes on small business and a reduced regulatory agenda.
The US also has a national unemployment rate of 3.9%, indicating a strong, growing economy.
The country also has about 20-billion square feet of retail space nationally, compared with South Africa that has about 251-million square feet of retail space nationally.