Op-ed 2017-10-17T14:17:04+00:00

Retail Isn’t Dead –  It’s Just Getting a Makeover

David Gorelick and John Morris discuss Cushman & Wakefield’s approach to helping clients navigate the changing world of retail.

By David Gorelick and John Morris

Thanks to eCommerce, retail has changed dramatically in the last few years, but bricks-and-mortar stores remain relevant.  Simply stated, these stores have become only one aspect of the overall consumer experience. On one hand, brands that started as bricks-and-mortar destinations have now successfully grown and expanded their online businesses, such as Target and Sephora. Meanwhile, we see companies that started online and are now setting up physical stores, from Amazon to Warby Parker. There is a balance that retailers must strike between their physical and online presence. All channels are integrated, and these new omni-channel companies erode the barriers between physical stores and digital platforms—an approach we call newCommerce.

The newCommerce game comes with new rules, and retailers who ignore them do so at their own risk. Brands must adapt quickly and be nimble to succeed in this evolving retail landscape.

So what are the new rules?

First, it’s not about the store of the future; it’s about the customer of the future. Who is the customer of the future? Clues lie in the present scene. Retail is now driven by instant gratification and experiential satisfaction rather than brand loyalty. Despite the rash of store closures in certain sectors – apparel comes to mind – these physical stores remain important to many online consumers.  59% of millennial shoppers, for example, say a nearby physical store is important to them when they buy products online. Consumers crave new retail experiences that meld an engaging bricks-and-mortar store – where they can pick up a product and gauge its quality, while experiencing the brand in a unique way – with the convenience of online shopping. For retailers looking to reduce their physical footprint while boosting online sales, those remaining stores will prove to be more vital than ever. In an effort for brands to position themselves better, and to succeed in this environment, they must employ technologies such as artificial intelligence, deep learning, facial recognition, and personalization to help them better understand and respond to customer behavior. Harnessing big data can be an expensive proposition but it’s essential – particularly as retailers court coveted millennial consumers who seek experiential physical spaces and personally-tailored digital media experiences.

Second, it doesn’t matter where a sale is made, as long as it is made. It can be made at-home, in-store, or on a mobile device.  Today the “store” is always open. 

In order to compete in the evolving retail sector, companies must make cost-effective, innovative decisions that exploit the unique synergies between retail and the industrial, logistics, and e-commerce sectors. According to recent Cushman & Wakefield research, 22-25% of U.S. industrial leasing is tied to e-commerce, with overall vacancy rates at their lowest point in three decades. The Q3 2017 industrial overall vacancy rate is 5.2%, compared the 10-year historical average of 8.3%. The most agile retailers must re-evaluate traditional brick-and-mortar footprints and consider greater investment in industrial property, logistical systems, and supply chain improvements.

We’ve definitely seen some successes with brands following the new rules of the retail game. Big box retailers, like Home Depot, Wal-Mart, and Target, have aggressively revamped their real estate strategies to favor greater investment in online fulfillment, distribution centers, and the technology necessary to facilitate same-day and next-day shipping. We expect these trends to continue, as retailers push to keep pace with pure play eCommerce-only contenders. Underperforming stores, for example, may better serve retailers as eCommerce online pickup-and-return facilities as opposed to being closed outright.

Growth opportunities exist, and if retailers can chart a clear path, investing in a newCommerce real estate strategy can improve short-term operating income and protect a brand’s long-term viability.  Retail and logistics strategies are inextricably linked, and as today’s companies come to understand the nuances of both, they will meet the demands of customers and boost their bottom line.

David Gorelick is Executive Managing Director and Head of Retail for the Americas at Cushman & Wakefield. John Morris is Executive Managing Director and Head of Logistics & Industrial at Cushman & Wakefield.

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