August 23, 2016
"Today's most effective retailers aren't focusing on brick and mortar or e-commerce exclusively; they're melding the two to best serve their rapidly evolving customer base. Modern shoppers want both the ease and selection of the online marketplace, as well as the in-person, tactile experience of a physical store, meaning that both formats have room to grow and coexist going forward."
-Anthony Buono, Executive Managing Director, CBRE Global Retail
- As temperatures rose across the U.S., so did online spending on a broad range of categories, as shoppers took to their keyboards and mobile apps to stock up on summer-related supplies such as gardening tools, lawn furniture and athletic apparel.
- E-commerce sales saw strong growth in Q2, up 4.5% over Q1 and now comprising 8.1% of all retail sales.
- Although overall retail sales were flat in July after solid second-quarter gains, non-store sales, which includes online merchants, rose 1.3% in July and 14.1% year-over-year.
- The impact of e-commerce on industrial and retail real estate has been mixed. Industrial vacancies across the U.S. have shrunk rapidly, as users look for additional facilities and locations to build out their e-commerce supply chains. Retail vacancies have risen in many secondary and tertiary markets, as many major brick-and-mortar retailers give back space in order to increase focus on the online sales channel.
- E-commerce sits at the intersection of the retail and industrial property markets, connected by their shared supply chain infrastructure. CBRE Research monitors and reports on the quarterly trends impacting owners and investors within the e-commerce distribution network.
Seasonally adjusted retail sales during the second quarter of 2016 were strong after a solid 1.2% advance in April, a 0.2% rise in May and an unexpected 0.8% bump in June, bringing total quarter-over-quarter growth to 1.5%. Total purchases in Q2 reached $1.4 trillion; excluding food sales and automobiles, purchases for the quarter totaled $926.4 billion. Although total sales in July were flat at $457.7 billion, they were up 2.3% year-over-year. Consumer spending during the second quarter was supported by strong job growth in both June and July, as well as an unemployment rate that has hovered around 5% for 10 consecutive months. Average hourly earnings rose 2.6% in July, compared with a year earlier, adding to the strongest year-over-year growth rate since 2009 in June.
Despite July’s flat retail sales figures, online spending rose 1.3% during the month and 14.1% on a yearly basis. Non-store retailers, which include catalog and online merchants, rose more than any other category in July, widening the gap between growth in online sales and in-store sales to its greatest point since 2000. Online shopping grew 4.5% in Q2 and receipts totaled $97.3 billion, representing 8.1% of all retail sales. As has been the case for the past several years, growth in online shopping has far outpaced brick-and-mortar sales. Compared to Q2 2015, e-commerce sales have grown 15.8% year-over-year, far outpacing the 2.9% growth in traditional store sales.
Despite the variance between online and traditional store growth, expanding e-commerce players like Warby Parker, Trunk Club, Birchbox and Rent the Runway are adopting a clicks-to-bricks strategy by opening brick-and-mortar stores to better promote their brands. Eyewear company Warby Parker opened its first Canadian store in Toronto this summer. While this is the retailer’s 35th brick-and-mortar store, it's the first opened outside of the U.S. The remaining 34 stores are concentrated in major U.S. markets like Los Angeles, New York, Philadelphia and Washington, D.C. Following a similar strategy, personal stylist service Trunk Club recently began offering services for women, expanding its footprint at its 30,000-sq.-ft. flagship store in Chicago.
E-commerce growth shows no sign of stopping, with forecasts for online purchases to reach 12.8% of all retail sales by 2019. E-commerce brands interested in building a tangible customer experience will continue to pursue clicks-to-bricks strategies that focus on providing world-class service in upscale urban retail locations. Pursuing an omnichannel retail approach also requires innovative logistics management that focuses on efficient online fulfillment and in-store distribution solutions, digital platforms that continue to disrupt traditional retailing, and increasing demand for industrial sites near major urban centers. Retailers, real estate owners and investors, as well as transportation and logistics leaders, who are quick to adopt new technologies and adapt to changing environments, will emerge as leaders in the logistics and retail industries.