Trend Report: The Future of Retail in 2017 – A Changing Environment

As a commercial real estate broker I am constantly asked: what is driving the future of retail and retail shopping centers? What changes, if any, can we expect to see in the coming years?  And how are property owners dealing with the effects of e-commerce on brick and mortar retail?

So today we are going to take a few moments to try and answer a few of those questions, take a look at the changing landscape of retail shopping and the effect it is having on commercial real estate right here in Huntsville, Alabama.

Let’s start by looking at e-commerce, its effect on physical retail, and the opportunities it is providing to those that are willing to adapt to a changing marketplace:

It is no secret that online shopping is influencing the traditional brick and mortar retailers. Black Friday and Cyber Monday 2016 were the largest online shopping days in history and that trend will likely continue. However, does this mean that we are seeing the beginning of the end for brick and mortar retail? Absolutely not. What we are seeing instead is a shift in the traditional shopping center layout and tenant mix. The typical retail store is getting smaller and retailers are focusing more and more on the experience of shopping.

Labeled “Experiential Retail”, retailers are shifting their focus to providing shoppers with a fun and exciting experience. Shoppers not only want to touch and feel the product they are buying, but want to be entertained in the process. This is something that e-commerce can never provide. And not only are the younger generations demanding that experience, they are also willing to pay more to get it.

So how does Experiential Retail and the changing layout of brick and mortar retail affect the commercial real estate market?

Well, this desire for a better experience doesn’t just start once a shopper walks through the door. Consumers want the entire experience to be better, which includes the physical layout of the shopping center and the overall destination. Urbanization and the revitalization of downtowns across the country are a perfect example of this. Even right here in Huntsville we are seeing consumers demand a different experience. The success of projects like Campus 805, Lowe Mill, and The Garage at Clinton Row are great examples of the adaptive reuse of properties to provide a better experience.

What does all this mean for existing shopping centers and landlords?

The term adaptive reuse that I mentioned previously is going to be critical for Landlords of traditional shopping centers. As retailers continue to shrink their footprints, Landlords are going to have to get creative in how to back fill the big box spaces left by shrinking retailers. We are already seeing examples of this across the country and even right here in Huntsville. Large box spaces left vacant are being backfilled by entertainment type uses such as indoor go-cart tracks and trampoline arenas. Medical and dental concepts are even starting to open up locations within retail environments, backfilling former retail stores. There are opportunities out there for Landlords that are willing to think outside the box and be creative.

Despite the ever-growing presence of e-commerce, we are far from the end of brick and mortar retail. Consumers are willing to pay for a better experience and the ability to touch and feel what they are buying. This is evidenced in the fact that online giant Amazon is getting into the brick and mortar game with physical retail stores and even a grocery store. There will always be a place for the traditional retail store, it just might look different and be located in different areas than what we have grown accustom. Retailers and Landlords that are willing to change their mindset and adapt to the new environment will have a competitive advantage going forward.

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Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.

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Zac Buckley
VP of leasing
CRUNKLETON Commercial real estate group
ZAC@CRUNKLETONASSOCIATES.COM
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Trend Report: Brick-and-Mortar Retail Is Not Dead

Over the past couple decades e-commerce has been taking over retail…. or has it?

One of the largest online retailers in the world, Amazon, shocked the world when they opened a bookstore in Seattle’s University Village last November. This single act has brought national attention to a sway back toward brick-and-mortar stores, as well as an “omni-channel” approach to retail (the seamless integration of online stores to physical stores).

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Many other companies like Warby Parker and ThinkGeek have also decided to make the move to adding concrete locations, allowing customers to closely interact with the brand and their products.

But what is causing this trend?

I did a little research and have compiled this list of the top 5 reasons that brick-and-mortar retail is not only alive and well, but superior to e-commerce:

People Prefer to Shop in Person

The simple fact is that the majority of customers still prefer to shop in-store. They want the “experience” of shopping and the ability to touch or try on products.

Customers Spend More Time In-Store

Research shows that customers spend almost one and a half times longer in a physical location browsing products than they do when perusing an online website.

Increased Sales

Browsing in a brick-and-mortar location results in one in five customers actually making a purchase. Whereas according to “Instore vs. Online” by icsc.org, online shopping is closer to 1 in 20 customers making a purchase after browsing a website’s products! Not only does shopping in an actual store result in more completed purchases, on average people also tended to spend a lot more in person than they do online.

More Cost Effective for Brand Awareness

It’s true that e-commerce has grown exponentially, but with it, its competition has grown exponentially as well. That’s because every company is trying to reach customers through the same Google search results. This has caused online advertising and keyword purchase prices to skyrocket. According to the Guardian, “Macy’s and Nordstrom’s spent an estimated $6.4 million and $4 million respectively, in paid search listings for the top 1,000 apparel-related keywords in the first quarter of 2015.” This has led many online-based companies to start using brick-and-mortar locations to expand their customer base and awareness. These companies have shown that physical stores can increase sales, brand awareness, and online traffic all at a fraction of the cost of Google keyword purchases.

In-Store Growth Rates Equal $144 Billion

In this handy infographic published by icsc.org,  they explain some of the confusion around e-commerce’s seemingly huge growth. E-commerce’s current growth rate of 17%  is calculated from only a tiny portion of total retail purchases, about 6%. And this 17% comes to about $38 billion in growth for e-commerce. In contrast, in-store retail only has a 3.5% growth rate, however they account for 94% of total retail purchases yielding about $144 billion in growth! This explains why people may think e-commerce is growing more quickly than in-store retail, but in fact, brick-and-mortar retail is still the king.

© ICSC In-Store Vs. Online

© ICSC In-Store Vs. Online

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LINDSEY POPPE
MARKETING ASSISTANT
CRUNKLETON & ASSOCIATES
INFO@CRUNKLETONASSOCIATES.COM