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Posted by Sucharita Mulpuru on May 12, 2014
If I had a dime for every time I heard the question “Isn’t eCommerce taking over retail?”, it wouldn’t make me wealthy, but I’d certainly have a few hundred dollars more than I do now. Nonetheless, it’s a question that is unfortunately misguided and has permeated our zeitgeist. The truth is that yes, eCommerce is growing - but physical retail is far from doomed. Let me take the two parts of that last sentence and address them each separately.
First, the fact that eCommerce is growing. Forrester just released the latest five-year online retail forecast and to no one’s surprise, the numbers are big. We’re projecting $294B in eCommerce sales across 30 retail categories in 2014, expected to grow to $414B by 2018. The web keeps doing what it has always done well: it provides huge assortments of products, at comparable, often lower, prices than physical stores, with 24/7 access and often free shipping. For many categories like media products or electronics, we’ve already observed a heavy shift to the web channel away from physical stores. Add to that the ubiquity of mobile devices and that drives even more shopping in more instances and places. In fact, we’re projecting that $87B of that $294B will happen on phones and tablets in 2014, and that doesn’t even include another $28B in additional mobile transactions on sites and apps like Uber and Domino’s Pizza that aren’t even in that aforementioned mobile commerce number.
But all this growth certainly doesn’t mean that stores are dying. Here’s why:
While we expect $150B more to be spent online between now and 2018, we expect $300B more to be spent offline in that same time. Add to that the money up for grabs that dying retailers like Sears, Office Max, Radio Shack and others will leave on the table and the opportunity for physical retail is actually quite large. The three biggest myths I want to dispel are the following:
- Retail real estate is dead. Landlords and real estate brokers working in burgeoning markets like Denver, Austin, Orlando, and Charlotte actually say there’s a dearth of great retail real estate. Occupancy rates at desirable shopping centers are nearly 100%. What that means is that in those cities, we can expect to see even more new shopping developments being built, and occupied by quality tenants. An excellent piece on Retailing 2.0 in a recent issue of Fortune magazine cited the CEO of Kimco Realty, an operator of strip malls, who highlighted exactly this growth opportunity in promising markets.
- Stores are dying. Nothing could be further from the truth. Yes, old store concepts located in B and C centers are absolutely in peril, but new fresh concepts in A properties are doing quite well. Who are those tenants? Our retail landscape today is full of fascinating new success stories whether it’s apparel merchants like Francesca’s Collection or Charming Charlie, or restaurants like Qdoba or Firehouse Subs, or services for everything from pet daycare to wellness spas.
- No one goes to malls anymore. While there are dying shopping centers that need to be razed and reconstructed as office parks or farmland or whatever, there are malls, even indoor malls, which are doing absolutely fine. I was at an indoor mall called Carolina Place in my hometown Charlotte this weekend, and the parking lot was packed and virtually every merchant including JCPenney had brisk traffic. And this was an average spring weekend. My point: not all malls are the same. There are two other important points to note about malls. First, the omnichannel efforts of companies like Macy’s and Nordstrom have been wisely made to improve productivity of mall anchors and to set practices in place that will drive online shoppers to stores with offerings like in-store pickup. Second, a sector of retail that is exploding is the branded manufacturer that sells direct to consumer. Hot brands like Beats (and if Apple does acquire them, I can only imagine what amazing outcome will come from Angela Ahrendts' magic retail wand) and Tory Burch will take more floor space in the years to come and they will never be online-only or primarily-online brands.
There are a number of other headwinds that eCommerce also has to face like rising shipping prices and higher taxes for web pureplays. But retail is a $3 trillion dollar market in the US and growing. eCommerce continues to grow, but you’d be missing a big part of the picture by underestimating the growth and changes happening in the physical store landscape as well.
To dive deeper on Forrester's latest forecast numbers, visit the new research: US Mobile Phone and Tablet Commerce Forecast, 2013 to 2018 and US eCommerce Forecast: 2013 to 2018.
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