Written by Patrick D. Rooney, AREA Member/UCLA Anderson School of Management Class of 2013
It’s no surprise that retail sales growth is moving/has moved online, particularly for “low touch” consumer goods. This trend first manifested itself in highly standardized goods such as music, electronics, books, and DVDs, evidenced by bankruptcy filings of retailers such as Circuit City, Borders, and Blockbuster. Does Gap’s recent announcement of nearly 200 store closings (~20% of total locations) indicate online sales trend is being transferred to “high touch” goods, such as clothing? Or, as the article suggests, is Gap’s shrinking footprint a function of oversaturation and failure to timely recognize high-growth merchandise trends?
If malls and other “high touch” focused retail locations continue losing sales to online channels, retailers will shift more resources to their online sales platforms, reducing brick and mortar square footage and physical inventory. Although high unemployment and poor consumer confidence is also to blame, I believe we are already seeing evidence of this trend through the 9.4% regional mall vacancy rate, an all-time high.
For retail real estate owners hurting from this occupancy squeeze, attracting “lifestyle” tenants such as bar/restaurants, cafes, health clubs, and childcare facilities must be a top priority. Lifestyle tenants will absorb vacancies, albeit at lower rents, and “pull customers in” to brick and mortar locations, encouraging traditional retailers to use their existing spaces as showrooms and sales venues for last minute, low volume sales. Although merchants square footage needs will likely shrink over time, the physical act of shopping is too ingrained in our culture to shift entirely to the web.
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