By David Zoba, Chairman of JLL's Global Retail Leasing Board
The retail industry is moving through an expensive period of disruption. Retailers looking for growth are moving into the segmented and crowded digital space, rather than working to add brick-and-mortar stores or update existing facilities. The move isn’t cheap, and in many cases it comes in stark contrast to the retailer’s traditional setup as they attempt to catch up to customers’ desires for an omnichannel shopping experience.
It’s still true that just a fraction of retail revenues are made through ecommerce—just 7.5% according to a 2Q report by the US Department of Commerce—and while more SKUs can be made available online, capital expenditure on investment in technology and distribution channels has become disproportionate for near-term growth. Brick-and-mortar has come to be seen as a space for contraction, consolidation and closure, with decisions driven by financial professionals. However, better retailers (even e-tailers) understand that properly located and sized brick-and-mortar stores are still critically important for brand building and creating an emotional connection with customers.
Much of the expense in ecommerce comes from cheap and fast shipping options for consumers. Last-mile delivery is a struggle for even the largest e-tailers, and market differentiation can no longer be made by offering shipments free of charge. Retail ecommerce giants are lowering these costs by employing self-own logistics operations, though such a move is near impossible for smaller retailers.
The overbearing truth is that in many cases, a digital footprint in retail is needed. The caveat is whether the costs outweigh the future benefits. When looking at retail acquisitions, PE firms should take this into consideration, with a special emphasis on how far along the journey to an omnichannel offering a retailer is. A company too far from omnichannel on either side could be a challenge not worth the risk for near-term gains.
For more analysis of brick-and-mortar's place in the omnichannel retail experience, contact: