Some insulation from ecommerce growth
The other advantage these big-box discount players enjoy is relative insulation from e-commerce growth when compared to more mid-range retail brands. Though not widely reported in quarterly filings, the share of e-commerce sales by TJ Maxx Ross and Dollar General is estimated at less than 5% of total sales. Stein Mart’s 2016 e-commerce share was a reported 1.9% of total sales—far below the 8.2% e-commerce average share of all national retail sales. This is partly due to consumers enjoying the bargain-hunting aspect of retail shopping, which is often cited as a key driver of TJ Maxx’s growth. Frequent and new discounts often keep consumers returning to stores in search of the latest merchandise and values. Consumers have shown less demand for omnichannel across discount retailing than in other categories. The relatively low penetration of e-commerce across these brands keeps traffic flow strong, shopper frequency high and costs related to online delivery and fulfillment low. Overall, this suggests considerable insulation of these brands from the profit margin pressures of omnichannel and validates their long-term viability both as retail brands and tenants.
An anticipated rise and fall in availability
For the remainder of 2017, availabilities are expected to
rise in the mall and power center segments as the aforementioned big-box
closures take effect. However, many of these vacancies will be filled by the
expanding discount and off-price brands. Many of these brands, alongside other retailers
like Dick’s Sporting Goods, are likely to take advantage of the opportunities
for lower rent and higher bargaining power afforded by the relatively sudden
rise in availabilities. Many are indeed waiting for a rise in availability to
strike deals with more favorable rent structures. This will be one driver of
rising availability, but one that is likely to be temporary.
Negative headlines are likely to continue this year, fueling some pessimistic sentiment about retail real estate. However, such sentiment ignores the effective adaptation many retailers are making to meet shifts in consumer demand and overlooks the considerable growth and investment opportunities that persist in key retail segments. Amidst this ongoing disconnect between sentiment and reality, CBRE Research will continue to provide close data analysis of retailer activity to ensure balanced coverage of the challenges and opportunities present across the sector.