Will holiday season's hot sales online hurt the retail real estate market just as it's showing signs of recovery?
The Internet again showed it is a formidable retailing force over the recently completed holiday season, with merchants racking up record figures for online sales. And while some see this as a threat to the recovery of the bricks-and-mortar world of retail real estate, local experts say they don't believe that's the case.
Consumers turned to online retailers like never before in the November-December period of 2010. Figures compiled by comScore, which tracks e-commerce, showed online sales rose 12 percent over the holidays to $32.6 billion -- a record.
Thanksgiving Day e-commerce sales were up 28 percent compared with the 2009 holiday; sales on the following "Cyber Monday" rose 16 percent to $1 billion -- the first-ever billion-dollar spending day online. Even on "Black Friday," considered the top shopping day for bricks-and-mortar retailers, e-commerce sales were up 9 percent to $648 million.
It was the first time Cyber Monday had ranked as the heaviest online spending day of the year. Online retailers are also increasingly offering free shipping, which was used in more than half of all e-commerce transactions this season, up significantly from last year, comScore said.
One survey conducted in December on the subject of "clicks vs. bricks" showed the advantages to both. Strategy One's Annual Holiday Shopping Index, which conducted 1,072 online interviews among a representative sampling of Americans between Nov. 29 and Dec. 1, found that 74 percent believed that online shopping was the easiest way to do their shopping. A smaller majority -- 52 percent -- said they found the best deals online, as well.
On the other hand, a big majority of respondents -- 87 percent -- said that when it comes to experiencing the holiday spirit, bricks-and-mortar stores can't be beaten, showing that for those who derive a feel-good experience from holiday shopping, there will always be a need for retail real estate.
Nonetheless, the latest e-commerce figures are sure to reinforce sentiments that big retailers are "overstored" and will serve to accelerate pressures to them to close or reduce the sizes of their facilities at a time when retail real estate brokers are counting on increased shopper activity to add fuel to early signals of a turnaround in the sector.
Jim McComb, president of Minneapolis-based retail consulting firm McComb Group, said e-commerce's potential negative impact on retail real estate could be mitigated because most of the largest e-commerce sites are operated by traditional brick-and-mortar retailers.
"Last year it was pointed out that on the list of the 10 largest Internet retailers there were six brick-and-mortar stores, and this year the rankings were unchanged," he said. "Brick-and-mortar retailers find that to a large extent they are enabled by their Web stores. They work together and are partners in a sense."
What that indicates, McComb says, is that the Internet "isn't particularly a threat" to retailers who have a big online presence. He said that pressures on retailers to reduce store sizes aren't coming from the rise in online retailing.
"That's more a function of merchandising," he said, adding that one big exception is likely to be bookstores, where the rise in popularity in e-books is likely to continue extracting a toll on the physical space required by booksellers.
The Twin Cities market is indeed showing signs of a nascent comeback in the retail sector and while the continuing growth of e-commerce may cause some retailers to scale back their physical needs, it likely won't derail the rebound, said Tricia Pitchford, vice president of retail brokerage services at Northmarq Real Estate Services.
"Just in the last few weeks, I've been talking to a lot of brokers, and they're very busy," she said. "There's a whole different vibe, and there's been a lot more interest in retailers looking for space. How many of these turn into actual deals, we'll have to wait and see because there's a long lead time, but there's a lot of optimism right now."
Northmarq found that the local retail sector turned a corner in the second half of 2010, marking a strong showing of 370,000 square feet of positive absorption, meaning the amount of space leased over the amount that came vacant, as opposed to negative absorption of nearly 200,000 square feet in the second half of 2009.
Retail vacancies, meanwhile, dipped from 10.1 percent to 9.8 percent.
Pitchford predicted there could be more than 800,000 square feet of positive absorption in 2011 in the Twin Cities market, despite moves by some types of retailers -- such as fashion apparel merchants and booksellers -- who may choose to scale back due to online competition.
"But we already know who they are, and I don't think there will be any surprises," she said. "I don't think it's going to prompt any retailers to make decisions to pull out of the market entirely. Online retailing is becoming part of an evolution in where they decide to locate."
Both Pitchford and McComb reiterated that while online retailing is taking a bite of out of some segments, there will always be a need for the bricks-and-mortar store, even in bookselling.
"Not everyone is going to want to put an e-book reader like the Kindle out on the coffee table," McComb said.
Don Jacobson is a St. Paul-based freelance writer.