The TEXPERS Blog

Brick-and-mortar stores are forming 'symbiotic relationship' with digital retail

By Veronica V. Soriano,

Guest Columnist

Stock photo: Canva

Technology such as smartphones are impacting traditional retailing,

impacting the ways that consumers shop.

Technology is surely impacting traditional retailing, especially evident in the ways that consumers shop and how retailers deliver those goods. While technology is disrupting the sector and challenging retailers, the good news is that e-commerce and physical “brick-and-mortar” stores have formed a symbiotic relationship, creating a phy-gital (physical + digital) retail world.

E-commerce has been effective as a medium to reach more customers and address merchandising strategies and to increase product availability in both established and new markets. To succeed, major retailers need to embrace an omni-channel approach to integrate the two business segments of real estate and e-commerce. In retail jargon, physical retailers with online/digital sales business are called omni-channelers. In the same way that technology precipitated omni-channeling, it has also given rise to omni-shoppers. Today’s consumer shops from various access points—desktops, mobile devices, smartphones, telephones and/or brick-and-mortar stores.

We do not have to look far to demonstrate the rise of the omni-shopper. In 2017, Mastercard SpendingPulse reported a 4.9 percent increase in retail sales during the year-end holidays, beating forecast estimates. Traffic activity was reportedly heavy both online and in stores. Moreover, a post-holiday survey commissioned by the International Council of Shopping Centers (ICSC) showed that shoppers take advantage of all available channels when purchasing goods, and this trend extends across all generations (Millennials, Generation X, Baby Boomers). Most interesting to real estate investors, despite headlines reporting the demise of malls and other shopping center types, was that the great majority of consumers still shop at physical stores. This is certainly good news to shopping center landlords, as evidence that brick-and-mortar store remains the cornerstone of sales.

Click chart to see a larger view. 

Rather than diminishing the role of the physical store, omni-channeling and omni-shopping have made it more important than ever. The “halo effect” of a physical store refers to the location’s impact on its trade area consumers and the brand awareness that is created by its mere presence, including the store’s influence in its local market on increasing online sales and promoting click-and-collect. Specifically, the physical establishment offers the following advantages:

• Showroom – retailers are able to showcase their products while allowing consumers to see, feel and touch the product. 
• “See Now, Buy Now, Wear Now” – with the merchandise already available in the stores, retailers answer consumers’ demand for immediacy and consumers get instant gratification. There are also reportedly fewer returns for purchases made in the store. Purchases made online are fulfilled in stores instead of being shipped to homes (Buy Online, Pick Up in Store or "BOPUS") and returned to or exchanged in stores instead of mailing back (Buy Online, Return in Store or "BORIS"). 
• There is higher conversion (i.e., browsing that result in a purchase) in stores than online. 
• Whether the consumer picks up or returns merchandise to the store, that visit usually translates to an upsell or consumers buying more at the store, therefore, higher sales. 
• Consumers recognize the convenience provided by the shopping center (as a compilation of stores) being a “one-stop shop.” Having many stores within the same location also encourages cross-shopping.

In this changing retail climate, there will be winners and losers. Ultimately, retail property owners who adapt quickly will be winners, in our view. Indeed, omni-channeling promotes and enhances the value of retail real estate as the physical store’s role in generating sales is more important than ever.

Note: Article includes excerpts from Barings’ August 2017 U.S. Research Special Report, “Decrypting E-commerce."

The views expressed do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Barings or TEXPERS.

Veronica Soriano

About the Author

Veronica Soriano is a member of Barings Alternative Investments, a global real estate, private equity and real assets platform. Soriano is a director of Real Estate Research and is responsible for analysis of the global retail sector.  Prior to joining the firm in 2014, she was portfolio research director at Cypress Equities in Dallas, Texas leading all research efforts, including macro level and regional economic analysis as well as forecasting real estate market trends. She also previously worked at the International Council of Shopping Centers in New York City where she was senior research analyst and helped build ICSC’s research platform which focused on fundamental consumer trends and market strategies of retailers and developers around the world. Soriano also worked at JC Penney, where she performed site selection, sales forecasting, and store location analytics. She also has international experience having started her research career with Ayala Land Inc., a property developer in the Philippines.