Is the Retail Sector Really Struggling?

It may appear at first glance that the retail industry is experiencing growing pains during this seismic shift in favor of e-commerce, but, not all retail real estate is struggling. A respected International Real Estate Company reports that nationwide retail rents grew to rates not experienced since 2008 in the first quarter, marking the 13th consecutive quarter of positive year-over-year rent growth, as reported in its Q1 market view snapshot. Net asking rents averaged $16.97/SF nationally in Q1, a 6% increase from the year-ago quarter. Retail growth increased across all segments, including the lifestyle and mall segment that has been facing major headwinds. Certain factors have led pundits to conclude “There is this misconception that online is countering brick-and-mortar, when actually what’s happening is online is going to brick-and-mortar.” National retail rents reached a nine-year high in Q1.
Given these numbers, it certainly provides a level of unfortunate speculation concerning the retail industry. There are still many segments of retailers growing their footprints. Accordingly, Dollar General has plans to expand by 1,000 locations this year, including 150 to 160 small-format stores. TJ Maxx announced plans to open almost 200 new stores in 2017, and German discount grocer, Lidl has raised its U.S. expansion plans with a $5B investment to open an additional 900 locations in the next five years. Other companies with 2017 expansion plans include: Ulta (100 stores), Ross (90), Dick’s Sporting Goods (60), Burlington (25), Costco (15), Nordstrom (16) and Target (14), according to research. Though the global retail industry’s international expansion slowed 3.1% in 2016 compared to the previous year, the U.S. based retailers led the way in international expansion last year.
In a survey it is noted that 166 cities in 51 countries found that U.S. retailers remain the most active when it comes to international expansion, generally due to the strength of the dollar compared abroad. Lastly, the head of research at a notable commercial real estate company suggests that brick-and-mortar is taking over e-commerce, not vice versa, concluding that the perception that e-commerce is killing brick-and-mortar through online sales is misguided. She said most e-commerce sales are going back into brick-and-mortar brands’ pockets. “What’s actually happening is that a big majority, over 50%, of online sales are actually going to brick-and-mortar brands. When you shop online at a brick-and-mortar store that’s technically an online purchase going to a brick-and-mortar brand.”
ABG Commercial Advisors