Online Retail Shopping is Changing the Face of Real Estate

Picture1.png

In an era long since gone, our nation’s once ubiquitous shopping centers, strip malls, and brick-and-mortar stores dotted the landscape in a fashion that was both pervasive and predictable. It was said that you could travel to almost any destination within the continental United States and see the same collection of well-known large department stores distributed about with an ordered regularity.

This produced, in, most places a homogenized familiarity, though the distinct features of the landscape might differ – a backdrop of clear blue skies and crisp snow-capped mountain ranges might exist behind a retail chain in one location, and a desert moon and cactus flowers might be found in another.

Today, as online shopping continues to increase, the ways in which we acquire new things is becoming more like the days of the Sears & Roebuck catalogues of the late Victorian age. People in far-flung reaches of the country can pick things out, make their payment, and after a set period of time, a package will arrive in the mail.

This runs counter to the conveniences our culture was accustomed to in the 1970s, 80s, and 90s when you could drive a short distance to the mall and walk out with an armful of shopping bags. Instead, purchases are made via the internet with an air of expectation, and once again, the post office is a source of great excitement.

The shift back to ordering things from centralized warehouses has caused a dramatic change in our spending habits, and this has created a domino effect that has impacted big box department stores, allowing online merchants to become big players in a variety of industries. This, in turn, has led many mainstay retailers to struggle, causing the phenomenon of dead or dying malls, and this has changed the face of commercial real estate.

In the year 2001, online sales only comprised just .6% of all sales, but in 2017, this has increased to 8.9%. Consumers can now purchase food, clothing, electronics, tools, furniture, movies, books, and more with a few taps on their smartphones. Amazon upped the ante in 2010 by building large warehouses that can ship to 90% of the continental U.S. within a day, catapulting their position to number one.

And while it is true that many longstanding stores have closed and are closing, such as Value City, Deb, the Bon Ton, Circuit City, Radio Shack, and Ames, online shops, such as Modcloth and Warby Parker’s are looking to open storefronts to give their customers the experience of walking into their shops. That said, the commercial real estate market, in this regard, is in a state of transition.

Changing Values

It has long been the adage of the real estate market that ‘location, location, location’ is a central factor in a property’s desirability. And while this is certainly still the case, retailers are desirous of fighting back against the onslaught of online shops by offering what is called ‘experiential retail’.

With the gaps in shopping centers caused by the bankruptcies of larger vendors becoming a thing of the past, these vacancies are slowly being filled with a new type of seller. Research has found that 78% of millennials value doing things over buying items, and shops are attempting to cash in on these findings.

This means that real estate developers can no longer conduct business as usual but must prioritize approaches that provide storytelling as a means to create a customer experience similar to that found in the restaurants and rides found inside a theme park.

Features, such as lighting, artwork, and architecture combine to intrigue and amaze shoppers, and developers are catching the vision of this new frontier of marketing. A flair for the artistic and the entertaining is necessary to offer what merchants believe customers now want.  

Shopkeepers wish to establish an emotional connection with their patrons, and this needs to be reflected in the retail space. The result is that developers who can think out of the box in helping sellers achieve their goals will be much more likely to land tenants and filled shopping centers.

AI Capital Advisors have faithfully served clients in the areas of real estate and venture and look forward to working with you. We can provide you with insights to help your real estate projects run more smoothly, and you can contact us for more information.