The Challenge and Promise of E-commerce

The below is from a recent Capital Alert issued by Marcus & Millichap. I thought this was well-written on the topic of e-commerce and worthy of sharing.

As we head into the New Year, strong consumer confidence continues to drive the American economy. Retail sales rose 3.4 percent between November 1 and Christmas Eve compared to the previous year, according to Mastercard. E-commerce sales hit another record, up nearly 19 percent from the previous year, while brick-and-mortar stores eked out a 1.2 percent gain.

E-commerce made up just 15 percent of total holiday sales, but it is a trend that will no doubt continue to flourish. Let’s face it. Who doesn’t enjoy the benefits of Amazon Prime and one-day shipping right to your doorstep? But this shift is creating challenges for those firms that continue to rely exclusively on a physical model. In 2019, retailers announced plans to close a record 9,302 stores, up more than 60 percent from 2018, according to Coresight Research. The biggest chains included Payless shoe stores (2,100 closings) and Gymboree children’s apparel (741 closings), both weighed down by heavy debt loads from private-equity buyouts. Ascena Retail Group, which owns Ann Taylor and Lane Bryant, announced it would shutter its Dress Barn chain (781 closings). Even the legendary New York retailer Barney’s has closed its doors.

E-commerce made up just 15 percent of total holiday sales, but it is a trend that will no doubt continue to flourish.

But retail is constantly evolving, and there are many reasons for optimism. E-commerce offers savvy retailers the opportunity to converge physical and online networks to connect with customers wherever and whenever they are, on whatever device they prefer. Dozens of pure-play online retailers are moving from clicks to bricks to reinforce customer relationships. Well-located grocery stores and pharmacies continue to thrive, as do dollar stores: Dollar General, Dollar Tree and Family Dollar together opened 1,525 locations in 2019.

 Meanwhile, department stores are being replaced by experiential retail and services, including restaurants, fitness centers and innovative social concepts that combine food, drink and play. Medical occupiers are moving out of hospital campuses and into retail space, seeking to reach aging baby boomers in a convenient location with ample parking. Off-price retailers such as Ross, Burlington, T.J. Maxx and Marshalls continue to expand by offering a dynamic “treasure hunt” through their ever-changing assortments, an experience that is difficult to duplicate online.

Retail is undoubtedly undergoing a monumental shift, and e-commerce is here to stay. It requires a thoughtful strategy in the retail sector, including careful selection of tenants who are likely to remain competitive, whether they offer convenience, novel experiences or an omnichannel shopping strategy that embraces the promise of e-commerce to engage more deeply with consumers.