National Association of REALTORS takes a look at ten retail trends to watch in the upcoming year.
1. The Internet’s True Impact on Retail Sales
Without question, ecommerce retail sales are growing. However, they still remain a small portion of total retail sales. In 3Q13, ecommerce sales totaled $67 billion, which represents less than 6 percent of all retail sales, according to the U.S. Census retail trade report.
2. Online Media Sales
Books, music, video, and other items that can be digitized and downloaded comprise about 35 percent of Amazon’s sales. Applying this metric to the entirety of ecommerce means that Internet sale of items that cannot be digitized and downloaded is about 3.7 percent. If 3D printing of merchandise becomes possible, the world as we know it will change.
3. Retail’s Efficient Logistics Model
Efficiency in logistics has revolutionized retail. For example, Walmart’s execution of efficiency and their cross-docking model has helped them to emerge as the largest retailer in the world. The “last mile in the chain of distribution” is actually outsourced to the customer. A customer comes into the store, selects merchandise, carries the merchandise to the car, and then transports the merchandise the “last mile” from the store to home.
The cost of the final mile is not included in the retail price of the merchandise. On the contrary, delivering merchandise to the customer’s home is a costly and inefficient endeavor. One major Internet retailer spends more than double to deliver than the amount it collects for shipping. Hence, the practical application of the “last mile” principle means that ecommerce is likely to have 100 percent market share of items that can be digitized and may never even reach 10 percent market share of items that cannot be digitized.
4. The Internet’s Other Impact
Online sales are not only impacting the retail sector, but the Internet is creating more informed consumers. Well-educated shoppers are causing pressure on retail margins, which translates into pressure by tenants to lower rent.
5. More Sales, Less Space
The wide range of available technology offers retailers more efficient inventory control and space needs. Tey are applying the 80/20 rule – 20 percent of their SKUs generate most of their sales and gross margin. The result: Retailers can generate more sales per square foot in less space causing store formats to shrink.
6. Bigger Players Dominate
The supermarket sector is being consumed by dominant players with larger stores.
7. National Anchors
In large shopping centers, national credit-tenant anchors are winning out over same-category regional and local tenants.
8. Big-Box Woes
Large vacant boxes are becoming increasingly more difficult to re-tenant.
9. Exclusive Use
Second-generation retail space is being increasingly impacted by exclusive-use lease provisions.
10. Service Tenants Triumph
Landlords are making greater use of service tenants to maintain occupancy. A recent study revealed that service tenants comprised less than 15 percent of total occupancy 10 years ago versus more than 25 percent today.
By: Gary Ralston, CCIM, CPM, SIOR (National Association of REALTORS)
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