Physical retail isn’t dying, just changing

Today’s news stories are full of doom and gloom for brick-and-mortar retail stores in the age of online shopping. However, according to a local commercial real estate lender, brick-and-mortar shops don’t have to die out, they have to evolve.

“We’re in this period of transition where we’re figuring out what happens online and what doesn’t. It’s going to be disruptive to the market, however, I think the market’s been responding well and adapting well to the change. I think ten years from now we’ll find that equilibrium,” said John Kinser, senior vice president and director of commercial real estate lending at Enterprise Bank & Trust.

Kinser believes as consumers switch to online shopping, brick-and-mortar retail needs to transform into more experience-based shopping.

The future of retail includes making e-commerce shipping faster, multi-channel brands, but mostly experiential retail.

Making e-commerce shipping faster

E-commerce is becoming the number one way consumers buy products. In September 2018, online purchasing expanded by 11.4 percent from the year before.  

Amazon, which arguably launched the online shopping trend, has started opening physical retail locations to give customers the ability to pick up their products.

“These e-commerce online retailers are opening actual brick-and-mortar stores,” Kinser said. “They’re going to backfill some of the [vacant] space.”

Last year Walmart announced it would be closing 63 of its Sam’s Club stores, three of which were in Arizona.

The retail giant turned roughly 10 of those stores into e-commerce distribution centers allowing Sam’s Club and Walmart to build out its online shipping capabilities by providing a wider fulfillment network.

Multi-channel Brands

Consumers still want to try on clothes, swimsuits and touch certain objects before purchasing, which is why brick-and-mortar stores will likely never die out. In fact, brick-and-mortar stores still play a key role in the sales process, according to Forbes magazine.

Now, brick-and-mortar stores need to get creative and have a multi-channel appeal to its customers. Walmart and Target are great examples.

“You can’t do business exclusively online, especially for retailers that sell things that we want to touch like clothes [and] mattresses. Casper, for example, is a big online mattress company [and] they’re opening 200 stores across the country because people want to use them,” Kinser said.

This multi-channel also includes selling on Facebook, Instagram and Snapchat.

According to BigCommerce’s 2018 Omni-Channel Retail report, 11.8 percent of Gen-Z and 25 percent of Baby Boomers shop on Facebook but Millennials prefer to buy products on Instagram and Snapchat.

Experiential Retail

The trend to give consumers experience is driven mostly by millennials and their “preference for experiences over things.”

Two long-time Phoenix shopping centers, Park Central and Arizona Center, have adapted by redesigning to be more experiential. Now the malls are full of restaurants and coffee shops and have turned the big anchor spaces into school spaces and medical offices.

“People want to have this live-work experience where you shop, live and work within a close proximity of each other,” Kinser said. “We’re seeing a lot of retail owners in these markets kind of tune up their space, redevelop their space to be more open and inviting to the type of tenant that people want to have near them.”

So instead of strip malls containing specialty shops that can easily be purchased online, these retailers are starting to open primarily restaurants, bars, nail salons, and other stores that give individuals an experience rather than a product.

“You’re finding your neighborhood retail centers, these strip retail centers, are tailoring more towards restaurants and retailers that don’t require that you go in and buy stuff that you’re [able] to buy online now,” Kinser added. “You go to a retail center in your neighborhood and you can get lunch, get your haircut and pick up your dry cleaning all in one space. Those properties do really well.”