Seven Takeaways from RECon 2019, Day One

The RECon 2019 show in Las Vegas kicked off this week as industry leaders touched on major trends in retail real estate, as well as other property sectors and their growing overlap with retail uses. Despite negative headlines about recent store closures, the feeling inside the Las Vegas Convention Center was upbeat on Monday. Here are some takeaways about emerging trends discussed on the show floor.

1. E-commerce does not take away business from brick-and-mortar, but rather helps it. Critics of the bricks-and-mortar retail industry point out that e-commerce currently takes up around 10 percent of total retail sales and is forecasted to grow to 14 percent by 2021. Despite that, traditional retail channels still account for around $4 trillion in sales, while pureplay e-commerce accounts for $260 billion. Some 85 percent of core retail purchases are still made in the brick-and-mortar location, while online buying also leads to more in-store purchases, according to brokerage firm Marcus & Millichap. Opening a first physical location within a market translates to a 37 percent increase in website traffic within the area, the firm researchers say. On the other hand, the firm’s study of 72 recent mall closures noted that new, competing shopping centers—not e-commerce—were the most common cause of the malls’ demise. However, the industry must figure out how to properly account for online returns or sales made in the store after returning an online purchase. As of now, retailers are struggling to find the most efficient and accurate way to record in which department, online or bricks-and-mortar, they should record these sales.
2. Bricks-and-mortar stores are growing. Chains operating more than 50 locations opened around 3,800 more stores than they closed in 2018, according to IHL Research. At the same time, pure play e-commerce stores are planning to launch approximately 850 brick-and-mortar locations over the next five years, again displaying the importance of a physical footprint.
3. Store must adopt new formats. Pick-up and return areas are being moved to the front of the store in order to provide a seamless process for the consumer, as well as designated areas for ride sharing apps, according to Melina Cordero, head of global retail research with real estate services firm CBRE. At the same time, grocery stores are expanding their pick-up options, which should become more prevalent in suburban areas than dense urban cities, as urbanites prefer the last-mile delivery.
4. Investors still value retail assets—in markets with limited supply. Although the industrial, multifamily and office assets all rank ahead of retail in investors’ preferences, the outlook for retail remains positive, according to industry experts. The limited construction of new retail space in many secondary and tertiary markets has funneled demand into existing properties, Marcus & Millichap researchers found. Also, private investors consider smaller metros an opportunity to acquire assets, while increasing the spread between returns and the cost of capital, according to the firm’s executives.
5. Mall foot traffic is rising. Using beacons in malls to track consumers’ mobile devices, landlords discovered that foot traffic at U.S. malls is rising, notes Spencer Levy, chairman, Americas research, and senior economic advisor with CBRE.
6. Autonomous vehicles and rideshare services like Uber and Lyft will radically alter the footprint and purpose of mall parking lots. In the future, consumers will be dropped of at retail centers by driverless cars, which will then go park themselves at a remote location, Marcus & Millichap predicts. For this reason, parking spaces might be converted into green spaces, with operating events, performances, classes and group activities. Drug stores might transition into fulfillment centers with a parking lot full of self-driving vehicles that bring customers exactly what they’ve ordered on their smartphones in real time.
7. What are the five Fs of retail? For real estate owners and investors, it’s critical to understand which retail models are thriving amid industry disruption, according to Scott M. Holmes, senior vice president and national director of the retail group with Marcus & Millichap. The five categories currently flourishing in the retail space include food, fitness, fashion, furniture and fun.