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Retail Disruptors

June 20, 2017 | John Salustri

The word “disruption” is gaining popularity these days, certainly in the real estate industry and typically in association with technology. Nowhere was that more in evidence than at last month’s RECon Conference in Las Vegas, the celebration of all things retail, with a particularly heavy emphasis on brick-and-mortar.

On assignment for GlobeSt.com, I conducted nearly 20 video interviews with a full range of practitioners, from brokers and developers to capital people, and returned with some intriguing insights (and aching feet) on the state of disruption in the market.

Taking a synthesis of all the various types we interviewed, market conditions are overall a net positive, despite a current softening in investment activity. This isn’t due as much to inherent problems in the retail market as much as to a general wait-and-see cloud overhanging investors as they watch what will happen with taxes, interest rates and the regulatory environment.

Marcus & Millichap said as much in their annual Retail Investment Forecast, released at the show. In it, first VPs Bill Rose and John Chang write that, “Investor caution amid a rising interest rate environment and many as-yet unanswered questions regarding tax reform and fiscal policy may affect transactional velocity.” Indeed, as CEO Hessam Nadji pointed out, there’s been a 15% decline this year in investment activity.

But, keep in mind that this is a decline from record highs, not seen since before the Great Recession. And, despite all you hear in the consumer press of closings and rumors of closings, “Retail assets will mark their eighth year of performance gains as space demand exceeds development,” the report concludes. Equity is flush in the market, and if you know what you’re doing, deals can still get done.

So what about the e-threat? It’s only a disruption if you don’t see it as progress. There was a time at RECon when real estate practitioners held a clear us-versus-them mentality, pitting brick-and-mortar against internet sellers.

In fact, statistics I’ve read put pure-play e-commerce at below 10% of all retail transactions, and online sales connected in one way or another to brick-and-mortar (e.g.: the Home Depot’s Buy-Online-Pickup-In-Store promotion) still don’t approach 15% of the total. Now clearly that will grow, and the potential is still hard to measure, but we can assume that ultimately it will be great.

But consider this: According to Marcus & Millichap, eight of the top 10 online retailers are traditional names, including Walmart, Nordstrom and Target. Further, as any broker you tap on the shoulder will readily offer, Amazon, the 800-pound e-gorilla, is opening physical stores around the country.

The point is that there is no us-versus-them. Not when you look at it from the perspective of consumers, who frankly don’t care what the woes or worries of the retail real estate market are. They just want their stuff.

Yes, there have been bankruptcies. But it’s not because people buy that stuff online. It’s because traditional retailers who fail to embrace that seachange, develop new formats and create buzz around them relegate themselves to the trash bin. As one interview told me, those stuck-in-the-past retailers “had their day in the sun.” The other problem could be one that’s far older than the Internet--plain old bad management.

Deals are still getting done. But it has to be the right deal. The tenant mix has to be the right tenant mix, with brands that are both tailored to the local market and understand the nuanced interplay of web and physical location.

It’s a new day for retail, a day of robots, magic mirrors, interactive kiosks and yes, online sales. Those retailers who don’t get that are sure to be disrupted.

About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, Inc., a consultancy focused on enhancing the web and print content of clients around the nation. He is a regular contributor to JPM Magazine and a frequent blogger for IREM’s website. Prior to launching SCS, John was founding editor of GlobeSt.com, the industry’s premier real estate news website, where he managed the daily output of 25 international reporters, and prior to that, he was editor of Real Estate Forum Magazine. John is a four-time winner of the National Association of Real Estate Editors’ Award for Excellence in Journalism.

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