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The E-Commerce Effect: How Online Shopping is Impacting Warehouses and Retail

THE E-COMMERCE EFFECT: HOW ONLINE SHOPPING IS IMPACTING WAREHOUSES AND RETAIL
 June 28, 2023 |  Commercial Real Estate News, Property Investment |  real estate trends, retail space, warehouse, commercial real estate tenants

Technology has a habit of drastically altering our lives. Do you recall the way you spent your idle time five years ago? A decade ago? Twenty years? Between the rise of streaming, the prevalence of social media, electric vehicles, and the era of artificial intelligence, some technologies are so commonplace that it is hard to imagine life without them, while other innovations make projecting industry trends a tall order.

Making smart moves in any industry means staying on top of these innovative technologies and tracking trends. For the commercial real estate industry, one form of doing business that’s undoubtedly been sending ripple effects throughout the industry is E-commerce.

What is E-Commerce, and How Has it Changed?
E-commerce is an abbreviated term meaning “electronic commerce,” and refers to the rising industry of online shopping, where consumers can purchase from their favorite brands, select a delivery location of their choice, and even offer direct feedback on their experience all without leaving their desktop. Today, businesses are practically required to use an online store in order to see success, and some businesses have been able to operate entirely as an online entity - without any physical presence whatsoever.

Due to the incredible ease of use that online shopping allows, the advanced ability of businesses to target their customer-base through social media (finding their consumers where they spend their time), and the rapid growth of businesses like Amazon, e-commerce is quickly becoming the preferred option for many Americans. In fact, according to market analysts at Forbes, 20.8% of all retail purchases in 2023 will be made online, and this figure is projected to grow to nearly 25% in 2026.

Although this growth in e-commerce may have been escalated by events in 2020, many saw this rise coming back in 2019 (such as Fru Kerick over at Medium). An infrastructure for e-commerce is being rapidly built, and commercial real estate is adapting to meet this new demand in many ways. Starting with retail, this is one area where e-commerce’s impact may be most apparent.

How Has E-Commerce Impacted the Retail Sector?
Retail commercial real estate still has a larger market share than online real estate purchasing, but e-commerce’s slice of the pie has definitely been felt as malls are taking on a very different look. Major anchor tenants and “big box” brands have been struggling and pulling back from their in-person presence, while malls and former retail spaces have needed to get creative to fill these empty spaces.

This shift doesn’t mean that brick and mortar retail will be eventually phased out altogether, however! For example, “experiential retail” is a term used to describe a new strategy that’s growing in popularity among businesses. Many businesses are designing their stores to be more eye-catching, reducing their number of locations, but investing more to make their in-person experience more social media-worthy.

Some stores and properties have found great value with celebrities-backed brands to grab attention as well, like with Kim Kardashian’s Skims in Rockefeller Center, and Rihanna’s Fenty Beauty making appearances in multiple retailers. Stores are learning to be more strategic about how they draw people into their locations while making their online presence more robust to keep up with consumer expectations.

What About Warehousing?
As square footage for retail spaces have steadily declined in recent years, demands for warehouse space have experienced a radically different trend. Online shoppers have a preference for next-day shipping, and as a result, warehouse managers and owners are learning to adapt to high customer expectations.

Larger and more efficient distribution centers are opening throughout the nation, prioritizing locations near urban areas and residential centers. Additionally, warehouse managers are learning to handle “reverse logistics” or an increased rate of returns from customers. While retail locations might have been hit due to recent market changes, all signs point towards massive growth in the warehousing sector - making this an area investors should consider looking towards to diversify their overall profile.

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