After a lackluster holiday season, most department stores and specialty chains announced sales slid during November and December. Despite early predictions the holiday shopping season would come in better than expected, Sears and Macy’s just announced more than 200 combined closings. While Wall Street has its own reasons to fear this, and those of us with friends and family employed by Macy’s or Sears will certainly worry, the greater concern for most of is: Where will we shop? Now and in the future, locally and nationally, what is the future of retail? Will online shopping mean the demise of brick and mortar retail stores?
Probably not. Like all things, the only constant will be change. In this country, two saving graces of retail will emerge:
Food: Americans will always go out to eat. It’s a largely social exercise, but there’s no foreseeable end to our desire to eat out. A lot. Our preferences may change over time (Starbucks is about to overtake McDonald’s as the largest chain with ultimately 50,000 locations), but we will not stop eating out.
Friends: While many of us have changed our retail habits — we buy online much more now than anyone initially predicted — for most Americans, shopping is a largely social activity. At least for now, there’s no replacement. We shop together and we won’t stop, but we don’t shop enough to support the current amount of brick and mortar retail.
Here’s some news that won’t shock you: Amazon.com grabbed more than one-third of online shopping this holiday season. When mobile and desktop shopping is calculated, the online retail industry increased 16 to 19 percent this year, while sales in physical stores dropped. The reality is more of us choose the easy button and shop online with increased frequency. Why should I traipse all over Northern Nevada looking for a Teenage Mutant Ninja Turtle T-shirt for my kid when I can type it into the Google machine and get 15 results in less than a second? As online shopping gets easier, faster, and sexier with doorstep delivery coming via drone this year, actual stores find they have to actually increase costs due to rising overhead, and can’t remain competitive.
Within 10 years, consumers will see the online shopping experience get even easier, with apps to assist us in making purchases of all kinds from our handheld devices. These technologies make tracking us, and our retail preferences, even easier for retailers, and helps them maximize sales. The actual size of stores is already shrinking, and that will continue. Watch for same-day delivery coming soon, too.
From our perspective as commercial real estate practitioners, we need to help our clients fill their vacant commercial buildings and keep them filled. So what advice can we offer them?
Focus on mixed use projects to integrate neighborhood commercial, without the massive retail footprint, which can be unrealistic to fill.
Focus on small retail services that cannot be replaced (yet) by online services, like dry-cleaners, car washes, pet grooming stores.
Focus on food. As our desire for more immediate results increases, our desire to grab coffee, sandwiches, and pizza isn’t going to end.
Face reality. A local gift shop can’t compete against Amazon. People often shop in small stores and then price online to see if they can get a product cheaper. There will always, thankfully, be exceptions to this rule, like Carson City’s Purple Avocado gift shop, which seems to be always busy, in large part thanks to the local owners, who are well-known, connected, and engaged with the community. Just as a retailer must face reality or face extinction, so must a real estate owner or developer. Know and build for today’s market. Don’t build for the market of 1970 ... or even the 90s. Those days are gone and aren’t coming back.
Know your demographics. Right now, Carson City needs housing. A downtown housing project with a small footprint of available retail or office will likely be successful and help make downtown bustle (like the current Citibank project rebuild, which includes housing, office, and retail components). Nordstrom is never going to come to Carson City. We don’t have the population nor the median household incomes here to support that type of retail.
Footprints for office and retail stores are getting smaller, and that trend will continue, like it or not. Meanwhile, demand for housing is increasing, as is demand for mixed-use projects, due to changing demographics and a better understanding of the benefits of mixed-use projects by the public.
Brad Bonkowski, CCIM and Andie Wilson, CCIM are owner/brokers of NAI Alliance Carson City, a commercial real estate brokerage. They can be reached at 775-721-2980.