Week of July 23, 2018
By Garrick Brown
Prime Day and the Amenitization of Retail
In 2017, Amazon’s Prime Day event racked up a whopping $2.4 billion in sales in a 30-hour period. This year, Prime Day was longer (a total of 36 hours) and in the run-up to the annual online frenzy, analysts predicted anywhere from 40% to 60% growth or more. Of course, even with the event itself having been expanded by 20%, these growth numbers are the sort bricks-and-mortar retailers can only dream of.
Of course, Amazon doesn’t officially release Prime Day statistics, but a number of analytics firms take a stab. Internet Retailer, generally considered to be one of the most reliable sources for this kind of data, estimated that Amazon not only crossed $3 billion in sales, but may have actually hit $4 billion – despite the fact that this year’s Prime Day was marred by a technical glitch that took most of the East and West Coasts offline for the first seven hours. Early estimates put the damage at as much as $70 million per minute, but appear to have been overblown; Internet Retailer is estimating the total damage at $70 million, while a Fox Business News report estimates lost sales at $99 million. That said, it’s impossible to tell what the true impact of this technical glitch was – not just because Amazon doesn’t release those numbers officially, but because with an extra six hours added to Prime Day this year, consumers originally shut out from placing orders had a good 29 hours (or more—as some markets came back online earlier than others) to circle back and make their purchases. Assuming Amazon did $4 billion in sales during a 36-hour period, this equates to a whopping $111,000,000 per hour, or more than $1.8 million per second. It also accounts for an insane 66% year-over-year increase.
Last week, as all of this transpired, I was in Boston speaking at Harvard to an alumni group and to a number of our institutional clients on the state of American retail real estate. With concerns over escalating trade wars, retailers with leveraged buyout debt, strategic closures, bankruptcies, and eCommerce encroachment already on their minds, Prime Day cast quite a shadow.
I was peppered with questions on the future of shopping centers, and most of those queries understandably came from a place of serious concern. For many, Amazon’s numbers are frightening: with online transactions accounting for as much of their sales, Amazon is still outpacing the field when it comes to growth.
Against this backdrop, it would be easy to buy into the old “Retail Apocalypse” storyline. But I’ll sound like a broken record here again for all of you longtime subscribers: this is simply not true.
The important question here isn’t whether retail inventories need to shrink, but by how much and, critically, in what shopping center types. One-third of the retail real estate marketplace consists of local grocery or drugstore-anchored neighborhood/community centers – and vacancy for this shopping center type has been on a consistent flat or downward trend now for seven consecutive years. It also continues to post occupancy growth, even in today’s challenging climate. Strong growth plans from discount grocers like Aldi will likely offset further disruption in the drugstore space, and that doesn’t even account for growth we anticipate will materialize from Whole Foods as Amazon increasingly faces off with Walmart, Kroger and Albertson’s/Safeway.
Unanchored strip centers also saw a decline; vacancy for this product type fell from 6.5% to 6.3% in Q2.
Of course, we did see slight upticks in power center vacancy (4.9%, up from 4.8%) and those numbers will most likely swell in Q3 as more Toys R Us boxes are reported vacant. Meanwhile, we also saw vacancy increases for lifestyle centers, and anecdotal evidence suggests mall vacancy is also climbing.
The reality? We will need fewer shopping centers, but it will be the lower quality (Class C and D) malls and weaker power centers who feel the bite. And those numbers will not be in the thousands, but instead likely the hundreds. And what’s more, smart moves by landlords today will help stem the tide and stabilize bricks-and-mortar retail in the newCommerce Era.
A few months ago, AT Kearney released a great report in conjunction with the International Council of Shopping Centers: The Future of Shopping Centers. One of the central themes of this excellent piece was that by 2030, shopping centers would fall into four basic categories: Destination Centers, Value Centers, Innovation Centers, and what they call Retaildential Space. I agree with most everything in this report, but I would simplify even further.
We will always have standalone, destination retail centers. But increasingly, the strongest demand will be for retail as an amenity, driven by personal needs retail, health clubs, restaurants, food halls, services and other e-commerce resistant categories. Meanwhile, the way out for struggling shopping centers will increasingly be mixed-use redevelopment – especially once you get away from Class A product, which will remain mostly unchanged as pure retail destinations. Class B and Class C malls in particular will need to add people, not retailers, into the mix, whether in the form of multifamily, office buildings, medical centers or campuses, educational facilities, hospitality/hotels, event and even cultural space (museums). This strategy will not only provide landlords with paying tenants, but will also bolster the remaining retail.
It’s no doubt true that we will need fewer “pure” retail-only destinations in the future . But the number of shopping centers that need to go away or become something else is nowhere near as high as some gloom-and-doom reports would suggest. Retail may increasingly become an amenity – a piece of a larger puzzle – but it remains the most sought-after amenity, and that isn’t necessarily a bad thing…
Garrick H. Brown
This post is commentary from the latest edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick Brown serves as Vice President, Retail Intelligence for Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.