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Is Brick and Mortar Retail Doomed?

There have been many headlines asking similar questions. People have been worrying about the increasing percentage of transactions taking place online. This worry only gets worse when they hear the news about store closings. The “Retail Apocalypse” as many have dubbed it, is not true. While there have been many store closures, in 2017 there will be more stores opening than closing.

News of many retailers such as, Radio Shack, Payless, HHGregg, Sears, Kmart, and JC Penney, struggling and stories about malls being on the brink of extinction paint a dreary picture. The store closings are more than offset by tenants such as Dollar General, 7-Eleven, Couche-Tard (Circle K), and O’Reilly Auto.

The division between the struggling and thriving groups can be seen in the types of locations and types of products they offer. The tenants succumbing to the retail apocalypse are typically located in malls. Big-box anchor tenants draw customers in, and all the tenants feed off the foot traffic. Amazon has grown into an online giant, offering all the same products as the big-box stores at a lower price. With fewer customers visiting the anchors, the smaller tenants nearby are left with fewer opportunities to get noticed.

The thriving group tends to be single tenant net lease (STNL) tenants offering non-Amazonable products or services. Many of the major sectors of net lease industry offer tenants who have Amazon resistant features. The automotive group with tenants like O’Reilly and AutoZone, opening up 195 and 155 new locations respectively during 2017, offer a chance for customers to get help from an expert with their auto care needs. The casual dining and quick service restaurant (QSR) both offer an experience or convenience that cannot be rivaled by an internet competitor. Convenience stores (c-stores), such as 7-Eleven or Couche-Tard (Circle K) fill an immediate need for customers, no waiting for a package to arrive a few days later. Dollar stores, with the largest expansion plans compete to be the cheapest. Shipping costs prevent any online retailer from taking away a large chunk of market share in the discount retailer space.

The net lease tenants that are experiencing some closures are mostly big-box and banks. As discussed earlier, the big-box tenants are struggling to find a way to fend off online retailers. Some big-box retailers have tried to join the online retailers, turning themselves into an omni-channel retailer, reaching their customers in person and online. Best Buy has done this by leveraging their physical locations as not just retail outlets but showrooms too. They have continued to offer the hands-on experience of big ticket electronics that only a brick and mortar store can, then Best Buy has matched any prices that can be found online.

Banks are closing branches but they are not losing out to a new challenger, rather they are evolving. Maintaining a large branch network is an expensive endeavor. The rise of online banking and using the bank’s mobile app has created a situation that banks feel they do not need a large physical footprint to handle all of their customer’s needs. The cost savings go beyond rent and staffing costs, depositing checks via a mobile app can be done at a much lower cost per transaction. JPMorgan Chase has stated it costs $0.65 to handle a deposit transaction in a branch, $0.08 at an ATM, and $0.03 by mobile app.

While headlines may still warn of the end of retail as we know it, they are not entirely correct. Many STNL tenants are expanding while banks and big-box tenants are evolving. Banks will not be disappearing any time soon and the big-box tenants will need to find ways to stay relevant in this changing world.

If you are unsure about any net lease investment opportunities, give us a call and we can guide you through the process and provide you with information to make the best investment decisions.  We have plenty of net lease opportunities with tenants “shielded” from this online “Retail Apocalypse.”  We have over $350 million in active inventory with even more opportunities off-market.  For more information, visit www.calkain.com/properties.

Traci BidingerIs Brick and Mortar Retail Doomed?