Internet Retailing Impacts Commercial Real Estate
The biggest impact I see from Internet retailing is showrooming and price comparison and becomes the top issue facing the retail industry today.
Analysts often do not recognize issues associated with conventional goods and services. Products take up space and distribution channels require management and capacity. For example, Walmart moves more cubic feet of merchandise than all of the home delivery services combined.
I predict that e-tailing, currently about 6 percent of non-automotive retail sales, will likely never double its current share of retail sales (excluding digitized products) in the U.S.
The biggest impact on the retail industry is showrooming (seeing the product in the store and then ordering online) and price comparison. Using your mobile device to check the price of a product while standing in the store will force retailers to price match, resulting in meaningful margin pressure. With lower sales volume, many retailers will likely seek lower occupancy costs.
Technology is also helping retailers to better manage inventory and maximize sales productivity. I expect this to translate into higher sales per square foot, which may help to offset some of the margin pressure on rents.
There is a somewhat negative implication for landlords: many retailers will do more business in less space, seeking to downsize and even to reduce the footprint of their current stores.
Gary Ralston was featured in an article in the CCIM CONNECTIONS publication in the May/June 2012 issue “Retail Wizard.”