Probably nothing in commercial real estate is changing faster than the retail sector. From the rise of Amazon and their ilk, to massive consolidations and acquistions, the retail landscape will never be the same again.
Bagged or Boxed? JLL Predicts the Future of 13 Retail Categories
CHICAGO, Aug 22, 2017 – Online retail sales will grow by an average of 15 percent annually through 2020 according to eMarketer. But, the rate at which online versus in-store sales occur will vary drastically by category. JLL’s latest report explores the tie between how shoppers value goods and the way 13 retail categories will be sold.
A member of the Fortune 500, Jones Lang LaSalle (JLL) knows a thing or two about commercial real estate, with nearly $60B under management in 2017. With retail set to grow at 15% annually through 2020 according to eMarketer, the latest JLL report stresses that “the rate at which online versus in-store sales occur will vary drastically by category”.
Explaining further, Naveen Jaggi, President of Retail Brokerage, JLL says:
Shoppers each have a unique value system for determining how they buy and where they shop. We found that shoppers are motivated to go either in-store or hop online based on how much time they have, if they need to touch the goods and how much money are they willing to spend. The varying degrees of these values against different product types will determine how resistant they are to consolidation and migration online.
The report notes that “time constraints and time savings, like the ability to purchase 24/7 and avoid crowds and lines, were the strongest proponents for online shopping”. But on the other hand, other shoppers’:
touch and the ability to see and try on items remains a key driver for in-store purchases. All things equal, most shoppers will choose the cheapest option. But, all things are rarely equal and shoppers must decide what’s most important to them.
Buying At A Traditional “Brick and Mortar” Establishment
The JLL report is clear that there are businesses lucky enough to be somewhat immune from the shift to on-line commerce. Restaurants lead this list, with the report noting that they “are fairly protected against e-commerce penetration. The social sharing and food experience diners crave will out-weigh the convenience”.
They feel nearly the same about discount stores, claiming that they:
…offer a treasure hunt to consumers who want heavily slashed prices, which is not easily replicated online. E-commerce penetration is less than one percent, while same-store sales growth was more than three percent.
These stores, they say, “have universal attraction and are all about saving money across all income levels. E-commerce penetration is relatively non-existent, with only a few new online entrants like Brandless and Hollar, which offer flat-rate pricing. Dollar store same-store sales growth reached nearly two percent”.
Furniture stores, it’s pointed out, are the ultimate hands-on experience, they:
let shoppers test out and visualize their merchandise before buying. While e-commerce penetration is nearly 20 percent, this category will straddle the line of online and in-store but remain heavily focused on brick-and-mortar showrooms.
‘Mixed’ Businesses
Several retail categories will maintain a physical presence, while scaling the e-commerce up. These include grocery (see our post on the Amazon acquisition of Whole Foods here), department stores, apparel, toys, and sporting goods.
For many of these categories, consumers have expressed a preference to actually touch what they’re buying. More than 90% want to pick out their own produce, ¾ want to buy their apparel in person, and even half of sporting goods buyers feel this way.
That said, sporting goods wasn’t a pretty place last year with five top retailers filing for backruptcy—along with the closure of more than 200 locations.
Buying From An On-Line Retailer
According to JLL, there are three categories solidly moving to “etailing”: office supplies, electronics, and books. JLL notes that office supply stores are “expected to continue moving sales online as physical stores offer minimal experience, time and savings”.
All three categories have significant ecommerce penetration, with books the highest of any category reviewed at nearly 25%.
Times Are A Changin’, You Need Expert Help
While retail properties are popular with commercial real estate investors, you want to be careful. As JLL’s report stresses: not all retail has the same prospects for the future. Make the right decision and get expert advice. The professionals at Pacwest Commercial Real Estate are your local experts and they’re only a call away.
René and the entire team at Pacwest are commercial real estate experts. Give them a call at 541-912-6583 to get started!
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