In The Wake Of Amazon, Trophy Retail Properties Fall Short
The retail world is in a state of transition. Over the last few years, several retail giants, including Sears, Kmart, JC Penney, Macy’s, Payless Shoe Source, Radio Shack and The Limited, announced multiple store closures or filed for bankruptcy protection. Overall, the number of retailers with debt rated at Moody’s most distressed level has tripled since 2009 – and Moody’s predicts this list will grow longer over the next five years.
Meanwhile, online retail giant Amazon generated $80 billion in sales in North America alone.
The idea that consumers might one day move away from traditional brick and mortar shops and conduct business primarily online is not new. But online shopping grew more slowly than projected for several years. Now, experts predict we’ve reached the point where the wave of people that have resisted e-commerce thus far may finally be ready to take the leap. Statistics seem to support the fact that we’re reaching critical mass when it comes to online commerce. According to TechCrunch, 79% of U.S. consumers now shop online, up from just 22% in 2000. And Statistasays 217.1 million people in the U.S. are online shoppers, with those figures projected to reach 224 million in 2019.
What will critical mass mean in terms of changes to the market and the retail landscape?
Pros and Cons
E-commerce offers numerous conveniences to consumers – imagine no more getting stuck in traffic jams or standing in long lines at retail establishments, for example. But online shopping is not a panacea. One challenge is all the cardboard required to ship products. CBS News recently reported cardboard recyclers were overwhelmed after 2017 holiday shopping. All that cardboard is a huge recycling challenge. Adding to the challenge is the fact that cardboard recycling is a surprisingly complex undertaking. Much of the recycling process takes place in China. And China is growing less interested in handling U.S. recycling, even at a profit, given the pollution and environmental damage the country’s leaders report they are seeing as a result. China officially banned the import of certain types of plastic waste for recycling purposes on January 1 this year. Cardboard could be next.
There’s also the issue of what to do with all the empty store space as brick and mortar retailers shutter their doors. Iconic brick and mortar retailer Macy’s has closed hundreds of stores over the last several years, leaving some premium retail spaces empty across the country. For example, Macy’s sold its 280,000-square-foot store at Stonestown Galleria in downtown San Francisco in January 2017. Last November, the company sold its 263,000-square-foot men’s store near San Francisco’s Union Square. Five floors had been occupied by the store, with the top three floors used for office space. But when Macy’s West Coast headquarters shut its doors in 2012, the office space was abandoned, and it sat vacant ever since.
Fortunately, there are several groups looking to repurpose those spaces – reimagining them as everything from hotels to workout centers to amusement parks and even affordable housing. But what if there’s too much space to fill too fast? Credit Suisse recently predicted 8,600 brick and mortar store closures in 2017, with more to follow this year. The company also predicted that that about one-fourth of the nation’s 1,100 shopping malls will close by 2022. If there are too many empty buildings to fill the market for those properties – even premium properties – could take a huge hit.
Lower property tax revenues, with no obvious way to replace them, and job losses are additional concerns. Traditional retail employs about 16.5 million Americans, which is almost 10% of the entire workforce. Estimates are that 6.2 million of those jobs are in areas targeted by e-commerce.
Online shopping is also changing how people invest. If you’re like many investors, the e-commerce buzz has not gone unnoticed. Investors are now far more interested in companies like Amazon than in retail behemoths like Sears. Fewer investors makes it even more difficult for those more traditional companies to stay afloat.
Finally, Amazon seems to wield a kind of power that has potential to run unchecked. If the company continues its push into new areas like fashion, medicine, grocery and just about anywhere else it wants to, and if it can do so profitably, dozens more industries could be affected. Unless brick and mortar retailers can adapt, and do so quickly, we could soon see more store closures and even less interest from investors.
Source: Forbes, February 2018
Author: Ryan Wibberly
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