Has e-commerce’s impact on brick-and-mortar stores peaked?
Publish Date: July 21, 2014
Spencer Levy has a new take on e-commerce: He thinks its influence on brick-and-mortar retail is waning. “The level of Internet encroachment on the retail space may be approaching peak,” said Levy, an executive managing director at CBRE Capital Markets. To begin with, he says, when catalogs first began coming out, the amount of encroachment on traditional retail rose to 8 percent and then leveled off; people realized there was only so much encroachment that would occur, he explains, because retail is more than just buying stuff, it is also the experience of buying stuff in real space and time. Then too, e-commerce hit some categories of consumer goods particularly hard, and others not so much. Electronics and books were the most affected, and then apparel; after that, Internet encroachment drops off significantly. The lowest categories were groceries and luxury goods. Further, malls have changed their mix, says Levy, bringing in restaurants and service-oriented tenants to help drive foot traffic. And last, the percentage of sales transactions on the Internet is rising, but the curve is also changing, he says.
Levy is hardly alone in his views, even though e-commerce sales do continue to grow at a double-digit pace. “That double-digit growth is going to continue,” said David B. Henry, vice chairman, president and CEO of Kimco Realty Corp. “But you have to put that in perspective: About 94 percent of all retail sales are still brick-and-mortar establishments, so double-digit growth on 6 percent still leaves you an awful big market for brick-and-mortar stores.”
The effect of the Internet on physical retail is “often overstated,” avers Greg Maloney, president and CEO of Jones Lang LaSalle’s Americas retail group. “Headlines are generated that say Internet sales are up 22 percent, and upon further research, you discover that 70 percent to 80 percent of those numbers are coming from the retailer’s bricks-and-mortar locations,” he said. “Was it a pure Internet sale, or did a salesperson find something out of stock, order it online and have it shipped to the customer’s house?”
E-commerce channels and physical stores are combined at most retailers, according to Henry. “Retailers have found a way to make both approaches work together effectively, so if you look at the top 20 e-commerce retailers, 16 of them are brick-and-mortar retailers,” he said. “Staples, for example, is No. 2.”