April 27, 2018

Tight Labor Market, Enhanced Spending to Continue; Tenants Adapt by Combining Physical and Online Retail

Strengthening economy invigorating consumption.

Retail sales will continue to grow this year as discretionary income ascends. Bolstered spending can be linked to advancing wages from a competitive employment market, along with increased take home pay from the revised tax plan. In 2017, retail sales posted a 4.3 percent increase, with home furnishings playing a primary role in the jump. The category’s strong showing can be attributed to the first hike in homeownership since 2009 for those under age 35. Roughly two-thirds of this cohort are first-time homebuyers, leading to more purchases required to fill residences. Electronics and appliances also reported a robust gain as the subset supported the largest increase in holiday retail sales since 2011. This year, retail spending is forecast to post a 4.5 percent advance, buoyed by the continued acceleration of e-commerce growth. Although online stores consistently expand their footprint, the e-commerce sector is just a small part of a much larger retail setting.

Brick-and-mortar personal service keeps online retail at bay.

As e-commerce becomes an increasingly popular component of retail sales, brick-and-mortar stores have acclimated to the evolving environment. Physical locations still obtain high levels of personal service and in-store expertise, crucial advantages that Internet vendors simply cannot offer. Auto parts stores have effectively used these assets to their benefit and have proved to be relatively successful amid e-commerce’s rising popularity. Even with the Internet’s growing use within retail, overall sales among brick-and-mortar stores will continue to improve as consumers value personal service.

Growing competition from online stores tamed by modernized retail concepts.

Despite the convenience factor brick-and-mortar stores offer, the digitally driven landscape prompts many retailers to transform business models to combine benefits of both in-store and non-store retail. The showroom atmosphere, which integrates technology into the traditional shopping experience, provides customers the option to test the merchandise and have it delivered directly to their home. Many brick-and-mortar retailers have shifted to this reduced inventory strategy in an effort to adapt and improve sales. Best Buy has effectively adopted this strategy and exhibited an exemplary performance in combating the progressively widespread practice of purchasing goods on the Internet. In the coming months, more retailers are anticipated to couple these advantages, as well as create omni-channel business models to seamlessly connect sales platforms.

Promising retail metrics support renewed investor interest.

Although news media often focus on the downfall of well-established retail brands, 2017 witnessed far more store openings than closures with a net figure of roughly 4,000 stores. Dollar stores continue to perform well due to their inexpensive convenience items crafted to serve low-income households. Grocery stores remain a highly sought-after asset as well, which can be largely attributed to the continued improvement of the overall experience. Dine-in options, wine and cheese bars, and more quality products keep foot traffic high and occupancy strong for owners of these assets. Necessity-based stores, like grocers, have proved to be relatively resistant to the rise of e-commerce.