E-Commerce Bolsters Warehouses but Decimates Store Fronts
A competitive consequence of online shopping is fast-fast (usually free) delivery – thus the need for even quicker, accessible inventory. While most online retailers have maintained warehouses in suburban locations, such ambitious shipping guarantees necessitate warehouse space even closer to major metropolitan populations.
Ever increasing e-commerce has resulted not only in a higher demand for industrial sites, but less desirability for traditional retail storefronts:
The U.S. Department of Commerce recently announced that U.S. retail e-commerce sales for the second quarter of 2017 was $111.5 billion, an increase of 4.8% from the first quarter of 2017. Total retail sales for the second quarter of 2017 were estimated at $1,256.2 billion, an increase of 0.5% from the first quarter of 2017. The second quarter 2017 e-commerce estimate increased 16.2% from the second quarter of 2016 while total retail sales increased 4.1% in the same period. E-commerce sales in the second quarter of 2017 accounted for 8.9% of total sales.
Expanding online shopping has resulted in a staggering decrease in traditional storefronts, with open air strip malls taking the hardest hit. Shopping malls are seeing a similar, if not worse, decline, particularly “non-super” malls anchored by “non-luxury” department stores like Sears and K-Mart.
Of the roughly 1,000 malls in the United States, approximately 400 cater to “upper-income” shoppers – seemingly only these are withstanding competition from online retailers. Luxury shoppers are more likely to visit a physical store, as they’re paying for not just the fur coat, sapphire ring or designer luggage, but the emotional experience (“rush”) accompanying the purchase. While many consumers still visit physical stores, online shopping has influenced their behavior during these on-site shopping trips. Many are now “showrooming,” a process whereby customers visit retail locations, look and try on products, and then go home and purchase them from an online retailer. This practice, bolstered by a steadily growing number of online retailers, is driving up demand for industrial property sites able to facilitate rapid delivery guarantees.
Unlike the shopping centers, which have seen a significant drop in new construction, the heightened demand for industrial space has caused greater development of industrial sites. Indeed, the specialized needs of online retailers (customized stacking, advanced HVAC and power systems) will further push the need for more industrial spaces.