Shopping Center Business

MAY 2017

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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RETAIL RESEARCH 148 • SHOPPING CENTER BUSINESS • May 2017 T he retail industry needs a good publicist. Retail is getting a bad rap these days, and much of it isn't warranted. Granted, same-store sales have weakened for some retailers, depart- ment stores are pruning their ranks and e-commerce is just hitting its stride. But is physical retail really as doomed as the headlines and hecklers proclaim? No. A closer look at data and industry activ- ity reveals a reality that isn't quite as dark as the popular narrative suggests. E-com- merce can coexist with brick-and-mortar stores, and the mall industry is undergo- ing evolution rather than extinction. Let's examine three persistent myths about today's retail environment and the facts and figures that undermine them. MYTH 1: IT'S THE E-POCALYPSE! For several years, we've been gripped by the fear that e-commerce is overtak- ing, and ultimately destroying, physical retail. Its rapid growth, we say, will lead to a wasteland of vacant stores and aban- doned malls: the inevitable, eventual e-pocalypse. At first glance, the data does seem frightening. In just 10 years, U.S. inter- net sales more than tripled, rising from $113 billion and 2.9 percent of total retail trade in 2006 to nearly $394 billion and 8.2 percent in 2016. Even worse, in-store- sales growth has lagged. As internet sales climbed an average of 15 percent a year between 2010 and 2016, in-store sales av- eraged only 4 percent annual gains. However, additional context reveals a slightly different story. First, e-com- merce's marketshare of 8.2 percent means that the vast majority of retail sales still occur in-store. Second, growth rates can be mislead- ing, especially when they're derived from a smaller baseline number. Last year's $52 billion growth in e-commerce sales amounted to a heady 15 percent gain from the previous year. In contrast, growth in total retail sales registered only 2.2 per- cent, but that figure equates to a much heftier $108 billion gain due to the cate- gory's larger base. Another major assumption is that most e-commerce sales are going straight to pure-play e-tailers (retail brands that operate solely online) at the expense of traditional, brick-and-mortar brands. However, a 2016 ICSC study 1 found that about half of all e-commerce sales went to brick-and-mortar brands last year. This fig- ure, when compared to overall retail sales, means that pure play e-tailers accounted for less than 4 percent of total retail trade in 2016. In this context, the e-pocalypse seems a bit premature. MYTH 2: THE U.S. CONSUMER PREFERS TO SHOP ONLINE Consumers love the convenience of online shopping. With virtually unlimited product and price ranges — the "endless aisle" — why would anyone bother to shop in-store? Today, 88 percent of US. adults use the internet, 77 percent own a smartphone, and 51 percent own a tablet, according to a study by the Pew Research Center 2 . With the majority of adult consumers toting the internet in their hands at all times, it's no surprise that nearly eight in 10 Amer- ican adults shop online and 15 per- cent say they buy some- thing online at least once a week 3 . Yet there is one thing they like even more than shop- ping online: s h o p p i n g omnichannel. "Omnichannel shopping" refers to the shopping across multiple channels for a single purchase. If Johnny Spend-A-Lot wants to buy a pair of shoes, he might browse online to narrow down his op- tions, go to the store to try them on, then purchase them on his mobile phone from the parking lot. In that single transaction, he used three channels. Studies show that consumers are in- creasingly drawn to this type of shopping, which allows them to combine the selec- tion and convenience of e-commerce with the experience of in-store shopping. The trend toward omnichannel tells us that the physical store still plays a pivotal role in consumers' preferred shopping journey. What's more, it demonstrates that the physical store plays a key role in generating internet sales, too. In fact, sev- eral large retailers report that online sales in a market will decline when a store in that market closes. This has sparked more change, specifi- cally in how to measure a store's produc- tivity. For decades, we have based the per- formance of our physical retail on in-store Retail Myths Cloud Omnichannel Outlook Data and research outweigh common assumptions of E-pocalypse, mall industry oblivion. Melina Cordero Melina Cordero Head of Retail Research in the Americas CBRE Group, Inc. 1 "Deconstructing the Census Bureau's Retail Trade E-Commerce Figures," ICSC, 2016. 2 "The evolution of technology adoption and usage," Pew Research Center, 2016. 3 "Online Shopping and E-Commerce," Pew Research Center, 2016.

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