Advisory Topic: Corporate RE Vol. 17 No. 18
05.03.2017
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Retail’s Radical Transformation – Seven Mega-Trends Colliding

Author: Jim Young, Co-Founder & CEO, Realcomm

In 1988, I was in the process of leaving my technology career and moving into the commercial real estate industry. Before making the transition, I took a month-long sabbatical, visiting Europe with the hope of a refresh. While on a train in Switzerland I was thinking about how my old (technology) would intersect with my new (real estate) industry. All at once the ideas started flowing and I wrote furiously. Four years later I published, “The Information Age and the Potential Impacts on Commercial Real Estate.”

In this article, I speculated that Amazon would replace bookstores, digital photography would make Kodak obsolete, Netflix would destroy Blockbuster, software would be downloaded and that RETAIL, because of technology, would change forever. It took longer than I thought, but today’s headlines are a reminder that this transformation is taking place and the momentum is increasing every day.

The premise of the article was that as technology got stronger, more and more services would be delivered online – and that would invalidate or change the way we used physical real estate.

Fast-forward to 2017 and news about the radical changes that are negatively impacting the retail industry continue to mount. According to some sources, the struggles of retail stalwarts such as Sears, Macy’s and J.C. Penney are just the tip of the iceberg. Some reports speculate that 2017 will see the highest number of retail bankruptcies since 2007. While there have been many articles written recently on this topic, each report seems to address only one or two of the issues. We believe that you need to perceive all the forces to get a better understanding of the current retail transformation. The following represent our comprehensive perspective on the topic:

      (1) OVERBUILT – Recent reports indicate that the United States has significantly overbuilt retail in the last decade. Some estimate we have as much as seven times retail per square foot as the next closest country.
      (2) OBSOLETE – Some feel that the size, format and experience of department stores are outdated and that more unique and custom shopping experiences are the new norm.
      (3) SOCIAL INTERACTION – In the old days, teens went to the mall to socialize and hopefully, shop. Today’s new technology and social media platforms such as Facebook, Instagram and Snapchat are the new ‘places’ where youths interact.
      (4) BAD CUSTOMER SERVICE – Retailers are struggling to find and train employees who have the right attitude and skills to deliver a positive customer experience at scale.
      (5) OMNI CHANNEL CHALLENGE – Most, if not all, retailers are struggling to deliver a seamless and engaging omni channel experience. The cost of delivering a strong bricks and mortar enterprise while cultivating an online channel is costly.
      (6) INVENTORY MISMANAGEMENT – Despite the tremendous infrastructure investment required to deliver a mall or retail experience, you still can’t easily find particular products in an efficient manner; for example, all the stores that have ‘brown shoes in a size 8’.
      (7) THE ONLINE MOVEMENT – It is not just Amazon, but online in general, that is delivering a more efficient and engaging shopping experience. With little legacy required by the online community, traditional retailers are struggling to keep up. Just last week, Amazon introduced a 'Fashion-Bot' that uses a smart camera to snap photos of wardrobe choices and apply artificial intelligence to assist in the selection process.
    While traditional retail is undoubtedly struggling to find its place in this new world, we should not write them off just yet. The malls that are transforming offers a mix of retail, enhanced experience, lifestyle, residential and even work activities—and they are morphing before our eyes. Additionally, some are speculating that with all this online digital activity, humans will return to places where they can meet and interact in person. Finally, as bricks and mortar giants such as Walmart figure out how to leverage their existing locations and inventories in combination with innovations such as autonomous deliveries by cars and drones, Amazon and other online options may see some increased competition.

    Watching the retail – and therefore industrial – supply chain change before our very eyes is fascinating. This transformation is filled with major risk as well as unforeseen opportunities.

    We will be attacking this issue head-on at the upcoming Realcomm | IBcon 2017 on June 14-15 in San Diego. Leaders from both the retail and industrial real estate industry will offer their insights into the future of malls, power centers and industrial distribution facilities.


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    For more information about the event, course and its design: Realcomm | IBcon Golf Outing

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