Brick-and-Mortar Retail Incorporates More Services with Products as E-Commerce Proliferates

July 22, 2016

  • The rise of Internet shopping as a destination hub is reshaping the economy, steering spending toward new sellers and platforms as product selection, delivery times and convenience improve. The ascent of this trend is spawning the creation of Internet-based businesses and pressuring traditional retailers to adapt as mobile commerce and online portals claim a larger share of retail spending. While these changes have been underway for more than a decade, the impacts continue to reshape the role and function of shopping centers. This has resulted in a higher mix of service-oriented offerings with key product-selling anchors, pushing the retail vacancy rate to 10 year lows.
  • The shift of retail dollars to online destinations has been substantial, with sales reaching a record $46.9 billion for the month of June. The category now accounts for nearly 13 percent of core retail sales, up from 8.4 percent a decade ago. Over the 12 months ending in June, receipts at non-store retailers jumped 14.2 percent, a robust pace that eclipses other retail categories. Promotions such as Amazon’s recent Prime Day, which was countered by several other E-Commerce-Attracting-More-Consumer-Dollars-MMretailers including Wal-Mart, helped draw additional consumers to online portals.
  • As e-commerce makes deeper inroads, the composition of shopping center tenancy has evolved dramatically. Tenant mixes have begun to shift toward service-related businesses. Restaurants and bars now make up an extremely strong presence, as sales vaulted 4.9 percent over the past year. Grocery stores also remain stalwarts, with several chains such as Kroger, Wegman’s and Publix all announcing plans for additional locations to meet consumer demand over the coming years. The category has seen a steady growth in sales over the past several years, logging a 2.5 percent rise over the last four quarters.
  • Several areas of retail are performing well, particularly the healthcare and home improvement sectors, even as digital grabs a larger share of consumer spending. Due to the impracticality of purchasing building materials online, retailers in the category registered a 7.7 percent jump in receipts over the past year. Although online pharmacies are gaining business, the multitude of local drugstores, combined with a larger selection of offerings that includes convenient food and beverage options, contributed to an 8.4 percent surge in healthcare sales volume over the past year. The aging baby boomer population and the rise of urgent care facilities in shopping centers has also bolstered this trend.
  • The emergence of digital shopping continues to generate new demand for industrial assets in order to shorten delivery times to customers who shop online. As a result, the nationwide vacancy rate ended the first quarter at 6.3 percent, down 50 basis points over the past year. Demand for retail floorplates also remains robust, driving the national vacancy rate down 30 basis points to 6 percent during the same time period as builders focused primarily on net-leased quick-service restaurants and mixed-use projects.

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