By James A. Schnur, CCIM
President and Designated Managing Broker
Integrated Real Estate Solutions
It’s no secret that online shopping has transformed the retail landscape. As consumers demand more convenience, retailers are struggling to deliver—literally and figuratively. While express shipping used to be a bonus, shoppers now seek even faster delivery, whether that’s same-day delivery or shopping online and picking up in the store (click-and-collect). As so many online and offline businesses are sprinting for the last mile in retail transactions, we should be looking at how e-commerce creates opportunities for commercial real estate.
We hear so much about the demise of the brick-and-mortar store, but it’s actually a myth. According to K.C. Conway, MAI, CRE, chief economist for CCIM Institute, “There is retail disruption, but it is not the end of the world for retail.”
In fact, according to an article in Commercial Investment Real Estate, “Rapid Evolution: Bridging the last mile is reshaping strategies for retailers and e-commerce firms”, retail store openings are still ahead of store closings. Those that want to expand struggle to find commercial real estate to fit their needs.
If we look closely at the opportunity rather than the shift toward online shopping, we see that the consumer’s desire for expediency is the fundamental driver of change.
Shoppers want instant gratification once they order.
Waiting for a package to be delivered is fine for some things, but shoppers have grown increasingly impatient with shipping times of more than a few days. Amazon recently revealed that the company has reached 100 million paid memberships worldwide in its Amazon Prime program—an estimated 90 million are in the U.S. Users, who pay a monthly or annual fee, receive free, two-day shipping on a wide range of products—from household items to major appliances. Even so, Amazon is opening brick-and-mortar stores in select locations around the United States and expanding its distribution network to get closer to major markets and offer same-day pickup.
Target is taking another big step, offering same-day delivery service in major markets. The major retailer bought Shipt, a network of shoppers who fulfill and deliver orders the same day. Target has already rolled out the service in a few test markets, with plans to be up and running in most major markets by the 2018 holiday season.
Click-and-collect brings shoppers to the store
Retailers are looking for ways to utilize their physical space to provide a fast way for shoppers to get their purchases. Click-and-collect has become a viable solution for stores with a strong brand presence and e-commerce site, like WalMart, Target, Staples, JC Penney, Lowe’s, and Home Depot. Consumers place their order online and pick it up the same day at the local store. For those shoppers who know what they want and simply don’t want to wander through a store, this option is acceptable, particularly if: (1) delivery is not an option; (2) the pick-up location is convenient, and (3) they can combine other errands with the trip. It’s all about saving time!
The high rate of return
Shipping costs represent a significant cost with e-commerce. Whether or not the retailer pays for the outgoing shipment, they have to handle the cost for taking back unwanted items. Shoppers expect free shipping for returns. Recent research shows that as much as 46% of online orders are returned. One solution is a drop-off facility. Contracting with a third-party firm to accept returns at convenient locations, like in or near malls, can cut the cost of footing the bill for individual return shipments. It also creates an opportunity to build foot traffic by establishing a return center amidst a retail center.
Increased demand for warehouse space
In order for these businesses to provide rapid delivery, the stores need a warehouse. Massive operations like Target and Walmart can use their big box stores as a warehouse, but smaller businesses need a central distribution point to enable same-day pick-up or delivery. That means finding functional warehouse space, which continues to be in high demand.
Shoppers are becoming accustomed to the omnichannel approach to shopping. Order online for delivery or in-store pickup. Order in the store and have it delivered. Browse a product online and go to a brick-and-mortar store to personally check it out.
Retailers must keep up with this shift. At the same time, commercial real estate professionals should look toward the opportunities created by the movement back and forth between online and offline shopping, particularly along the last mile that is so critical to retail success.
Integrated Real Estate Solutions is looking at ways to provide retailers and distributors around the country with intelligent solutions for managing their commercial space needs. Talk to us about finding the right balance.
Integrated Real Estate Solutions, Inc. provides clients with the in-depth knowledge and experience that is critical to determine the right path to your next move, lease renewal, or strategic repositioning of your real estate portfolio. Contact us or call 847.550.0160 today about your needs and put our success to work for you.
- Mattson-Teig, Beth, “Rapid Evolution: Bridging the last mile is reshaping strategies for retailers and e-commerce firms”, Commercial Investment Real Estate, May-June 2018.
- Kelly, Heather, “Is Amazon a monopoly?”, CNNtech.com, April 19, 2018.
- Columbus, Louis, “10 Growth Charts That Will Change Your Perspective of Amazon Prime’s Growth”, Forbes.com, March 4, 2018.