The bricks, clicks, economics and mortar of contemporary retail : the consequences that retailer storing strategies and retail performance across markets have on real estate investments

Abstract

The retail industry in the 21st century is undergoing a confluence of transformative changes. In this paper we discuss particularly noteworthy changes related to demography, retail economics and the Internet. We note how, in reaction to those transformations, brick-and-mortar retailers have developed innovative strategies to maintain growth and store performance, such as urban market penetration and multi-channel selling. We also have done a rigorous analysis of retail performance across major U.S. markets to determine the ex post and ex ante effects of trends and strategy changes. The hypothesis of this paper is that the conventional definition of "good" retail real estate has substantially changed in the last decade. The analytic approach of this paper is to: 1) observe broad retail industry trends, 2) conduct industry interviews to identify corresponding retailer strategy shifts, 3) perform cross-metro analysis of retail performance and 4) extrapolate meaningful effects on retail real estate. This provides owners, operators and developers of retail properties insight into the evolving characteristics and needs of tenants as they adapt to the new retail environment. Conclusions include description of the attributes of markets, properties, tenant mixes and amenities that best support contemporary retailing. Commentary and analysis is also provided on the impact of e-commerce and bricks-and-mortar retailers' adoption of multi-channel selling. Some results are that larger, denser markets have less consumption per capita, but those markets are generally underserved and have greater store gross revenues. Retailers are motivated to enter urban markets with flexible prototypes and online platforms. Population growth serves as a wealth proxy and corresponds strongly with sales growth. Housing prices are positively correlated to retail sales. Income growth has a much stronger relationship to sales performance than static income levels. Ethnicities and incomes are sorted and stratified in dense markets, making performance forecasting more nuanced. Relatively higher Internet usage in a metro corresponds to significantly higher brick-and-mortar retail sales.