This morning I had the pleasure to attend a panel of retail and real estate experts organized by the Commercial Observer here in New York City on the future of retail. Panelists included Gene Spiegelman, Vice Chairman of Retail Services for Cushman and Wakefield, Isaac Chera, Principal of Crown Acquisitions, Susan Fine, Principal of Oases RE and Ryan Engel, Director of Business Development and Real Estate for Peloton. Below are our main takeaways:
How much is e-commerce affecting retail?
- E-commerce has continued to capture a growing share to total retail sales (it has expanded from less than 5% in 2009 to over 10% last year).
- The continuous growth of e-commerce has affected real demand for retail space. Thus, as retail rents were rising in past few years, demand for retail space was decreasing due in part to increasing online sales. Supply and demand for space are not following the typical curve due to new technological disruptions on how people shop.
- Retailers that are in trouble now were already in trouble before; e-commerce is just accelerating that process (e.g. Macys, Sears)
- In this context, an increasing number of retailers are seeing retail space (bricks and mortar) as a showroom and marketing platform where customers can try and interact with the products and brand and then order online. Strong concepts like Apple Store, Bonobos, Warby Parker and Peloton illustrate the trend.
- Also, in this current retail landscape we tend to see the number of service businesses go up (personal care, food and dining) and leases for retail businesses tend to get shorter
Will retail rents go down?
- There is a lot of space in the market now and since demand for space is not following the typical supply and demand curve, rents will likely go down in a few areas; in NYC this will happen in SoHo, the Meatpacking District and some sections of Madison Avenue. Overall, according to panelists, rents will remain flat for a few years.
- Despite higher vacancy rates panelists are “cautiously optimist”. According to them, the online trend is not sustainable: “there’s only so much UPS and delivery traffic the City can accommodate”… “Stores are still the best way to distribute to the customer”.
What’s next for retailers? What are the next trends?
- Despite growing of e-commerce, a number of existing retailers are quickly adapting and many interesting retail concepts emerging (as mentioned above, Apple, Bonobos, Warby Parker and Peloton).
- Panelists expect to see more online companies (large and small) opening bricks and mortar locations, especially in short term leases, pop-ups, etc.
- The stores that are (and will continue to) succeed have a strong focus on providing not only strong products, but an incredible service. For example, Starbucks has over 700 stores in Manhattan alone and their service accounts for a large portion of that success.
- Retail experience will be increasingly curated to each individual customer. For example, the new Amazon bookstores resemble a traditional bookstore, but uses online data to suggest additional books based on customers shopping and browsing histories.
- Big data is the next ‘thing’; increasingly retailers are using it to connect to consumers and personalize offerings. Panelists observed the retail industry is doing a better job at capturing and using big data than real estate: “there’s so much data out there and we haven’t figured out how to put it together yet”.