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E-commerce: Weighing the Impact on Bricks and Mortar


How Changing Retail-Space Demand Will Lead to the


Multi-Functional Business Center HERMANN J. KIRCHER*


Abstract: The rapid growth and broadening product range of e-commerce will have a direct effect on the continuing operation of many shopping centers. It will also reduce net demand for future additional retail space. More intense use of existing services, as well as new ones, can absorb much of the expected increase in vacant shopping-center space. This will lead to an evolution of some centers from being pure retail destinations to multi-functional business centers.


Introduction Nonstore retail has been a business feature for many


years. Catalogues and flyers still generate retail sales as do TV programs such as The Home Shopping Network. The elephant in the room, however, is business-to- consumer e-commerce, which has rapidly overtaken all other forms of nonstore retailing.


The Demand for Retail Space The demand for retail space is directly related to the


amount of money consumers have for retail expenditures, as well as the productivity of retail space. Furthermore, retail space demand can be influenced by purchases on credit, but North American consumers’ debt loads are already at an all-time high.1 Future net increases in total retail space demand will largely depend on population growth and real increases in income. With the latter increases now moderate to nonexistent, this means that the primary driver for additional retail space will be population growth. Once an item is bought through e-commerce, and


delivered from such sources as the manufacturer, wholesaler or Amazon to the home, the consumer has no need to go to the store. If the physical store loses relevancy, it needs less space, or in the worst-case scenario, no space. Many retailers employ e-commerce to improve services to customers by using Internet kiosk


access within the store, matching prices, offering better services and immediate delivery, and many other advantages, including entering new international markets. “Multichannel” and “omnichannel” retailing are the current buzz words. Yet an increasing amount of purchases are made on the Internet, without store involvement. Initially, Internet sales were limited to a few items


such as books, video, travel, banking, and software, but by now there are few items or services that one cannot buy online. While some exceptions continue to exist (e.g., haircuts, drycleaning services, gourmet restaurant meals), their numbers are shrinking. The consumer can use the Internet to learn about


product availability and reliability, research producer reputation, and compare prices. One aspect of comparison shopping, “showrooming”—the practice in which customers examine a product in the store but order it online—is forcing many retailers to match prices, which has a direct effect on survivability. Some retailers have ceased operations; others are


reducing their store numbers or store size. Examples of store-closings announcements in the United States in 2013, partially due to the growth of e-commerce, include Barnes & Noble, closing up to 240 stores out of 689; Best Buy (up to 250 stores out of 1,056 units); Office Depot (up to 150 stores out of 1,114 units); Sears Holdings (up to 125 Sears and 225 Kmart units, out of a total of


* President, Kircher Research Associates Ltd. 1 Greg Quinn, “Canadians Turn Deaf Ear to Carney’s Warning as Household Debt Hits Fresh Record at 165%,” Bloomberg News, reprinted in Financial


Post, March 15, 2013; Meg Handley, “Consumers Still Buried in Credit Card Debt,” U.S. News and World Report, March 12, 2012, both retrieved June 3, 2013.


INTERNATIONAL COUNCIL OF SHOPPING CENTERS 11 1 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 2, 2013


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