E-Commerce Is Shaking Up Retail And Industrial, But Not How You Might Think
E-commerce is having a profound effect on retail, but not in the way that was once predicted. The demand for industrial real estate continues to grow as companies need more warehouse space, but retail demands haven't declined, only shifted, as speakers pointed out at Cushman & Wakefield's The State of Real Estate event in San Francisco last week.
“Reports of the death of physical, traditional retail have been greatly exaggerated; however, the online effects can scarcely be over-exaggerated,” says Ben Conwell, e-commerce and electronic fulfillment group leader for Cushman & Wakefield. We snapped Ben, left, while he was talking on stage with Janice Stanton, executive managing director; Kevin Thorpe, global chief economist; and Robert Sammons, northwest research leader.
Industrial real estate has had to adapt as traditional retailers have shifted increasingly online to compete with companies such as Amazon, he says. For example, e-commerce takes more square footage from start to finish to deliver a product than traditional retail. That's good news for industrial.
Retail changes include the growing popularity of curbside pickup for online orders. Just as people want the ease of buying online, they also want the convenience (and instant gratification) of picking something up at the store, Ben says.
Then there's the desire to get something delivered quickly. Amazon is working on its drone technology for speedy delivery and startups such as Instacart are popping up as ways to get what you want delivered fast. Ben expects more going forward.
It can be a scary time for retail in the current economy as stores are shuttered following the slow holiday season, Garrick says. A lot of the store closures going on now (such as Macy's) are related to companies right-sizing for e-commerce, he says. And that's a good thing.
There's still a lot of room to grow – and a space for brick-and-mortar even as the interest in e-commerce grows. Garrick says online grocery sales make up less than 4% of all grocery use, calling it a “blip.”
While everyone believes Millennials are driving interest in e-commerce, statistics show online grocery purchases are pretty evenly split between Millennials and Baby Boomers. The real interest tends to be centered around cities. “It's density, not demographics, that is going to drive this,” he says.
Garrick's advice? If online grocery shopping does grow to take over a larger chunk of sales, high-quality cold storage is going to be at a premium in urban areas. And who has that space? Existing grocery stores. Their existing real estate is their best asset.