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Monday, September 25, 2017

The future of retail

By Nadine Melo (Atlanta)

For the past year and a half, we’ve been inundated with stories detailing the demise of retail.

But their accuracy is open to question.

Several published articles have painted a picture of large retailers going bankrupt and being unable to maintain sales as they scramble to compete with their digital peers. In fact, the latest acquisition of Whole Foods by Amazon – traditional retail’s proverbial grim reaper – has seemingly exacerbated this fear; yet, a myriad of data indicates that bricks-and-mortar retail stores are here to stay.

According to a July IHL report, there has been a total net increase of 4,080 stores in 2017, including traditional retail locations and restaurants. The report is based on a review of more than 1,800 retail chains with more than 50 U.S. stores in 10 retail vertical segments.

Even specialty apparel retailers, the most affected retail segment, will see 1.3 chains opening new stores for every chain closure – and the reason is quite simple.

Although people are choosing to forgo lines at the stores and shop online, the act of shopping is intrinsically a human experience. The idea that the Internet is going to supplant the physical need for space is erroneous, and that's because people want to gain the experience of touching an object before they make a purchase.

E-Commerce companies, for example, are looking for bricks-and-mortar space not to open a full-fledged department store, but to provide customers with a showroom experience. In other words, customers can come to a store, test preferred items, order said items at the retail location and then have them shipped to their homes. National bricks-and-mortar retailers like Nordstrom, Best Buy and Target have followed suit with similar strategies to remain competitive.

Most, if not all, retailers are using the Internet to diversify their marketing initiatives by opting to use omnichannel strategies. This diversification enables the savvy retailer to think beyond simple product placement and focus on consumer behavior. For example, Best Buy has taken a note out of Amazon’s book and has brought back the “traveling salesman,” in which a salesperson comes to your house and has you try out new products from the comfort of your home. The change in tactic helped Best Buy increase its domestic sales 4.9% in the second quarter of 2017 according to Chain Store Age.

Additionally, a large amount of industrial property absorption is occurring across the U.S. and globally as retailers look for industrial space where they can store products and fulfill online orders for delivery within 24 hours. In Atlanta alone, according to Biznow, about 13 million square feet (msf) of warehouse space has been leased by tenants like Tory Burch, Variety Wholesaler, and Duracell and another 10 msf of big-box warehouse space is currently under construction.

This is not the first time that the face of retail has changed. In the past, it was Sears who initially changed the game with the introduction of the catalogue, leading to the opening of the first department store. Then Walmart came along with its low and discounted prices, and today it's Amazon causing disruption. Amazon has impacted retailers by forcing them to abandon traditional modes of production, distribution and advertising to reach customers.

Therefore, what we are seeing is not the death of retail real estate – but, rather, its evolution.

(Nadine Melo is the marketing co-ordinator in Avison Young’s Atlanta office. She works closely with her Atlanta office’s capital markets group.)  

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