Targeting Stores That Stay Put
Experience-Based Retail Holds Steady for Investors
by Dan Waszak
The clout of some online retailers (think Amazon) feeds the perception that brick-and-mortar locations are losing their luster. The Internet can now sell many of the same products retail stores can. Consumers are using convenient mobile ordering and pick-and-click shopping for most things they want delivered straight to their doors. All this leaves us wondering if retail stores are still needed, right?
In actuality, the web cannot replace service-oriented and daily needs retail locations. It also can’t supplant human interaction, including consulting from a store professional, engaging and creative store environments, and hands-on experiences with products of interest.
Data supports this, indicating, retailers with brick-and-mortar locations secure more than 90% of all retail sales. Many consumers still perceive the risk of buying items online as high, which limits online retailers’ direct-to-consumer shares and long-term growth potential. According to the U.S. Census Bureau’s 4Q 2016 statistics report, e-commerce retail represented only 8.1% of total retail sales for the year.
Retailers also have noted that if customers want to return a product purchased online, they will often prefer to bring it to the retailer’s store instead of being hassled with the drop-off or pick-up involved with a delivery service. As Allan Haims of Marketing Land points out in his article “Brick-and-mortar revitalizing ominchannel success,” if customers don’t have a store to return the item to, they may become less likely to buy online from that business again.
Quantum Real Estate Advisors, Inc.: Safe Retail Real Estate Investments
Eighty percent of Quantum’s current investment activity focuses on shopping centers with tenants that have businesses with service- and necessity-based revenue streams. That focus will remain steady and even has the potential to increase.
When assessing a deal, astute investors are asking themselves what impact the Internet will have on their retail investment. Retailers that sell commodities such as books, office supplies, electronics and health supplements are quickly being replaced by retail options online. The consumer demand for this product is shrinking, and investors are moving away.
The properties quickest to move on the market have tenants like beauty salons, dry cleaners, medical providers, auto-service centers, restaurants, coffee shops and grocery stores.
These web-proof retailers also are commanding the lowest cap rates, one of the leading indicators of commercial real estate value.
One of many examples is the increased demand for neighborhood centers anchored by a Starbucks coffee shop and restaurant tenants. These daily needs attract customers to the retail center and will continue to do so. It also helps maintain the real estate’s value. A retail center including dine-in restaurants or a medical/retail facility often achieve the same results.
Another example worth noting is the recent sale of Freedom Commons Shopping Center in Naperville, IL. This multi-parcel property spans over 82,000 square feet with the majority of it leased to restaurant and professional uses. The heavy focus on food/entertainment and professional uses drove an incredible number of consumers to the property. This benefitted the tenants as sales trends maintained a steadily increasing pace. For the property owner, there were two main benefits. First, the tenant’s strong sales increased the likelihood of lease renewals. Second, the strong consumer traffic enhanced ownership’s ability to re-tenant a space, should a vacancy occur.
Deals like Freedom Commons, Starbucks anchored centers and other ‘internet-proof’ uses continue to be highly coveted. While the internet has hurt some retailers, the bottom line is that brick-and-mortar retail is here to stay.
Brick-and-mortar retail locations result in profitable commercial real estate transactions when a strategic plan and approach are in place.
Quantum Real Estate Advisors, Inc. ensures you focus on the right retail investment. Put the Quantum Edge to work for you – contact us at (312) 269-9494 today to discuss your objectives.