The Amazon Effect on Commercial Real Estate

The Amazon Effect. This is a term that has been popping up more and more these days, with the explosive growth of online shopping. What exactly is the Amazon Effect? Simply put, it’s the ongoing evolution and disruption of the retail market, both online and in brick and mortar outlets, resulting from the continuing growth of e-commerce. Its major manifestation is an ongoing shift towards online shopping, catapulted with the rise of major e-commerce retailers like Amazon.

One may not realize it, but this emergence of e-commerce as a preferred channel for consumers is shifting the landscape of commercial real estate, particularly in the retail sector. Two primary areas of influence are the development of flexible work/living spaces, as well as the increased need for brick and mortar retailers to deliver a unique shopping experience for consumers in-store, as a way to compete with the online marketplace.

Brick and mortar is shifting to “Click and Mortar.” In the past, office business, warehouse manufacturing/distribution and retail sales had distinct, separate locations. Now, with lines blurring between digital and physical, flexible spaces are becoming more appealing, as they offer a more all-in-one opportunity. Warehouse, office, and living spaces are becoming one.

For example, in Jacksonville, developments are popping up that combine work and lifestyle amenities. Some of these projects include yoga studios, fitness centers, living spaces, corporate offices, distribution and light manufacturing that all become a part of a larger development. We will most likely be seeing a continued increase of these types of developments nationwide.

In addition to forcing a rise in these commingled spaces, the Amazon Effect has had a major impact on retail commercial property. Fewer people are going on shopping sprees in physical stores and are taking advantage of opportunities like Cyber Monday sales to make the majority of their purchases. This has hit the brick and mortar retailers hard. Recently JC Penney closed 140 stores, Macy’s 110 stores, and Sears has closed 150 stores. We have felt this effect in the Portland area with the closing of the downtown location of Macy’s and several Sears outlets in the metro area.

This shift in the way consumers shop does seem to have a negative impact on brick and mortar retailers, but it doesn’t have to be a doomsday scenario, and retail is certainly not dead. It does, however, necessitate a different perspective for how brick and mortar stores attract and retain customers.

Common complaints from consumers about in-store experiences range from lack of a changing product line to a bland shopping experience. As such, retailers have to shift their approach, providing more benefits in-store and a more entertaining experience, as shoppers often complain about stores being bland and uninspiring.

So, retailers are beginning to focus on the new consumer by regularly changing product lines and offering individual services such as beauty treatments or complimentary food or drink services. Essentially, businesses are having to step up their game to pull shoppers off the couch and into their stores for an exceptional shopping experience.

On the part of commercial property investors, they are shifting their strategies away from the “big box” stores that require the hassle of driving and parking, and more towards smaller, unique buildings in urban areas that are easily accessible by public transit or walking.

These specific retail areas provide profitable opportunities for investors. One such industry that GlobalData projects will experience continued growth is the beauty industry.

“Forecasts from GlobalData predict that beauty will top the list in terms of growth over the next five years, with a projected spending increase of almost 32%. This rise will be driven by several factors, including an aging population determined to stay youthful, an increase in the number of men buying personal care products and continued product and format innovation by both manufacturers and retailers.” – Colliers

Another positive influence on the commercial retail market is the robust housing market. Consumers will continue to visit furniture and houseware stores and take on home improvement projects, which will fuel expansion in this area.

Another notable shift is with the growth of the Millennial and Gen-Z population, who have grown up in the e-commerce age. Brick and mortar retailers are shifting to provide a more holistic shopping experience to these consumers, drawing in shoppers to small retail spaces that serve as a place of inspiration.

The Amazon Effect puts the pressure on commercial investors to brainstorm new ways to create an environment where the consumer will feel relaxed, catered-to, and inspired.

Thus, we can view the Amazon Effect in two ways. First, it could be crippling to the commercial retail sector, should investors choose to avoid shifting their strategies. Or, investors could embrace the opportunity to take advantage of multi-use developments and a new way of appealing to an audience that requires more out of their brick and mortar shopping experience.

Are you interested in learning more about the commercial retail sector? If so, contact me and we can start a conversation!