By Chris Harden, Director
Over the past couple of years, investors have become skittish of retailers and retail shopping centers susceptible to online retailing. In some instances, for good reason. The fear of the “Retail Apocalypse” is in full swing these days, and I can’t seem to read one major news report that doesn’t talk about the catastrophic destruction of retail shopping centers, the demise of brick-and-mortar retailers, and how Amazon is going to take over the retail world.
From everyday household items to prepared foods, groceries, clothes, homes, cars, bikes, and even dogs and cats, it’s true; nearly every product imaginable can now be purchased online. This fact alone is enough to deter many would-be retail shopping center investors into other commercial real estate product types; however, I’d like to offer a different take on the current situation and reframe the retail investment environment from “Retail Apocalypse” to “The Modernization of Retail for the Information Age.”
Retail continues to evolve in new and exciting ways, but its primary purpose hasn’t changed: to provide goods and services to consumers. The internet has become an incredible resource for today’s consumers, who can now shop among hundreds of thousands of retailers, worldwide, from the comfort of their homes. Today’s consumers are much more informed than previous generations and can now evaluate several retailers offering the same goods and services and “shop” for the best price, read customer reviews, order and pay online, and then determine the pick up or delivery method of their choice. The convenience factor of this phenomenon is truly a game-changer for the consumer. However, news reports are steering the conversation in the wrong direction, from my perspective.
I’d like to begin with the precept that consumers want to buy goods and services (i.e., demand). I think we can all agree on that, right? The second precept is that retailers want to sell goods and services to consumers to meet this demand. We can probably agree on that as well. These first two concepts are straight-forward and obviously not earth-shattering revelations. (We can chalk one up for Captain Obvious.) However, as we begin to think about these two precepts in the context of e-commerce versus bricks-and-mortar (or as we at Cushman & Wakefield like to say, clicks vs. bricks), we must ask the question, are the two mutually exclusive and battling each other for survival?
I would suggest that instead of looking at clicks vs. bricks, we consider that clicks need bricks and vice versa. The two precepts stated above we know to be true; however, each needs to be expanded to establish that there’s a symbiotic relationship between them. Let me explain.
Symbiotic relationships (symbiosis) are close, long-term interactions between two different species. Sometimes beneficial, sometimes harmful, these relationships are essential to many organisms. There are several types of symbiosis:
- Commensalism, where one organism benefits from the other without affecting it.
- Parasitism, where one species, the parasite, benefits at the expense of the other.
- Amensalism, where one species is inhibited or completely obliterated and one is unaffected.
The news media today would have us believe that the symbiotic relationship between all clicks and bricks is Amensalism, and that clicks will completely obliterate bricks while remaining unaffected. This simply is not true, as established by precepts one and two: Consumers want to buy goods and services, and retailers want to sell them goods and services. The question becomes, “How?” It’s true that internet shopping has taken sales from brick-and-mortar retailers—although some argue that consumer shopping preferences have changed from material goods (apparel) to experiential goods (entertainment/food), while demand for commoditized necessities remains somewhat inelastic (personal/home/office supplies/groceries).
There is a symbiotic relationship between clicks and bricks, but it’s mutualism that should define it. I believe that what we are now seeing is simply a transition, from Commercialism, which started during the Industrial Revolution, to a new paradigm of Thoughtful Living, driven by the Information Age.
Four Elements for Success
Consumers still want to buy goods and services from retailers, and retailers still want to provide them. What we are seeing is a transition in how that demand is met. Retailers today, whether bricks or clicks, need four key elements to be successful in today’s retail environment:
Visibility is one of the retailer’s most desired criteria. Without it, the consumer is unaware of the retailer and its offerings, and it will soon fade away. Online visibility is incredibly difficult and increasingly expensive to achieve. Most people I talk to receive an enormous amount of email every day, with retailer offerings vying for their attention. Web searches for products will often pull up the largest and most sophisticated retailers, like Amazon and Walmart, who have paid to optimize their website in key search results. Visibility to the consumer is incredibly difficult yet incredibly crucial for retailers, an online-only presence won’t do it for most. A physical location along a high-traffic major thoroughfare or within a densely populated walkable urban neighborhood is far superior.
Second, as I’ve mentioned in the past, many retailers, and retail shopping centers, have become experientially obsolete. Some retailers simply are not relevant to today’s consumer, online or not. Going into their physical store or visiting their website is a boring chore, not a pleasant experience. These retailers have not kept up with consumer behavior or demographic shifts. (See the latest retailer bankruptcy reports for a list.) Today’s consumer wants value and convenience, yes, but they also want a super cool experience. Have you been to an IKEA store or a Cabela’s lately? That’s an Experience!
Third is Engagement. Increasingly, brands want to engage with their core customers. If you haven’t been in a while, go into a Williams-Sonoma and experience brand engagement. From cooking classes to trying out their latest cookware to knowledgeable sales associates that understand your questions, this retailer gets it. It has balanced its online and retail store sales and engages with their customer in-store, in-person. It’s very difficult, if not impossible, to achieve this level of engagement with an online-only presence. Another standout is Central Market. My family and I recently shopped there. To my kids’ (and wife’s) delight, it was National Ice Cream Day, and the store was set up with stations of ice cream to try along with various complementary products like cookies, coffees, wines, syrups, and fruit. Needless to say, we were delighted to engage with the products and bought more than we planned. We also left feeling a subtle endearing connection to the H-E-B-branded store.
Lastly, on one level, Authenticity may simply mean that customers have confidence that the product they’re purchasing is “the real deal.” Stores such as Apple and Disney provide not only an engaging experience, but customers know they aren’t walking out of their stores with counterfeit merchandise. Not so with online shopping. In fact, I would argue this is one of the biggest knocks against clicks; counterfeit products run rampant through even the largest of online retailers.
On a deeper level, authenticity is the element that connects straight to the heart of the consumer, their lifestyle or ethos. This is the highest level of connection the shopping center owner and retailer strive for with the consumer. What this means for the consumer is that the shopping experience is a part of “who they are” or “what they stand for.” Local artisans, celebrity chefs, gourmet grocers all provide an authentic experience. Walkable urban or suburban districts are fertile breeding grounds for authentic retailers to engage with their customers and for customers to experience the retailer and its offerings. The online experience cannot replicate the sense of purpose a place can provide by activating all our senses: touch, taste, smell, sight, and sound. The online experience can only provide two of the five, sight and sound, yet the most memorable authentic experiences in life touch all five senses.
A Transition Toward Mutualism
It’s true, for some retailers, the shift to the Information Age revealed their weakness, and the struggle is real. These retailers continue to close stores and lose market share and are seeing foot traffic dwindle every day. Upon closer look, these retailers struggle with the elements described above. In most cases, they simply provide commodity products in uninspiring stores at uncompetitive prices, and somehow, we’re surprised when they fail.
While I do agree there are far too many of these retailers remaining and that many will disappear, leaving behind large amounts of retail space, I don’t agree that we’re in the midst of a Retail Apocalypse. Much of this space has been or will be absorbed by experientially relevant and thoughtful retailers that know how to engage authentically, provide their customer an amazing experience, endear themselves to their customer and build a balanced retail business model that leverages technology. What we are seeing today is simply the modernization of retail for the Information Age, a transition toward mutualism between bricks and clicks—a mutually beneficial, symbiotic relationship between two very different species that both desperately need each other.
Chris Harden is a director within Cushman & Wakefield’s Capital Markets Group who specializes in urban retail and mixed-use properties.