Sunday, March 24, 2019

The Amazon Phenomenon

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“Human behavior flows from three main sources; desire, emotion and knowledge.” ~ Plato

Several weeks ago we addressed growth trends for online shopping and the impact on consumer behavior. Today we’ll continue that conversation.

The online shopping experience is typically a more cost-efficient proposition for companies when compared to a traditional brick and mortar (B&M) retail space model. This led to an increase in empty storefronts, store closures and bankruptcies. The shift to online shopping isn’t the only reason for these outcomes. According to Cowen and Company’s research department, the number of malls built between 1970 and 2015 grew more than twice as fast as the population. As malls become a new social experience shoppers, often armed with credit cards and home equity lines of credit, hit the malls and shopped till they dropped.

Fast forward to the widespread smartphone and tablet usage and it’s evident that technology changes how and where we shop. With greater convenience, variety, and the instant gratification that E-tail retail provides it’s no wonder that consumers would rather surf the net on the couch in our jammies instead of going to the mall or big box stores.

Online retail sales have doubled in market share since 2005. Year-over-year retail sales, according to the U.S. Census Bureau, are up 4.00%. Online retailers contribute 10.9% to overall retail sales annually. In February of this year, 11.2% of total retail sales were from e-tail sources. The forecast is for steady sales growth into 2018 but at a slower pace. In 2017 retail sales were $5.7 trillion as compared to $4.06 trillion in 2009. Cowen and Company provided this data as well.

Consumer spending represents almost 70% of Gross Domestic Production (GDP). GDP measures the output of all goods and services. It’s not a surprise that as the economy improves retail sales will advance. The change is seen in how we shop. The Amazon phenomenon is a major disrupter to our traditional B&M commercial real estate market and property uses.

In North America, according to Statista, an online statistics and research company, Amazon’s sales along exploded from $6.92 billion in 2004 to $177.87 billion in 2017. Statista also states that half of all U.S. households subscribing to Amazon Prime. According to Business Insider, mobile commerce has grown from 2% of digital spending to over 20% meaning smart phones and tablets are the new go-to shopping tool.

Time to Retool

As a result, there is a considerable increase in empty retail space. Retail occupancy costs account for roughly 45% of total operating expenses. Therefor it’s logical and more efficient for companies to forego the costs of storefront space. Meanwhile, many B&M establishments are beginning to feel the pressure to increase wages while lowering prices to recover customers lost to the internet still in pursuit of increased profits.

Barbells

To remain viable and relevant, some B&M stores chose to reinvent themselves by improving and personalizing the shopping experience.

It’s likely that this will be easier and more realistic for companies at the lower and higher ends of the markets and is referred to as a “barbell” effect. The Walmarts of the world are retooling and improving the customer experience with apps to grocery shop and providing curbside pickup. On the other end of the spectrum, high-end stores like Neiman-Marcus introduced a mobile app to alert in-store sales staff of your arrival as your car is valet parked. Simultaneously, your latest social media information and other preferences are directly fed to sales associates who will customize your shopping experience.

In some sectors of society materialism has given way to minimalism. There is an increased focus on experiences and making memories. Travel, dining and entertainment industries will be the beneficiaries as consumers seek Instagram-worthy moments. This translates into changes in habits. In 2016, for the first time ever, Americans spent less money in grocery stores than they did in restaurants and bars. Sparsely occupied malls could benefit and increase foot traffic by offering dining venues designed to deliver adventures and photogenic backdrops.

This brings us to alternative uses for outdated retail space. By changing form and function owners can reconfigure, repurpose and refashion retail space for more interactive and creative purposes while maintaining some traditional retail space. There’s a need for senior care and day care; why not combine the two in some way to benefit both generations? There are other opportunities for refurbished spaces to coexist with shopping, dining, medical professionals and educational facilities. There will be an ongoing need for traditional retail space to cohabitate with more interactive space used for creative purposes. By redesigning their footprint malls and big box stores could evolve into multipurpose spaces with open areas for concerts, theatre, sports and relaxation.

Necessity is the mother of invention. As we evolve and transition to keep pace with technology there will be endless opportunities. It’s time to think outside the box for alternative uses for vacant retail space. Stay focused and plan accordingly.

All investments are subject to risk. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. There is no assurance that any investment strategy will be successful.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.

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