Retail Traffic

Will Electronic Commerce Kill Brick-and-Mortar Retail?

With a larger share of retail sales migrating to online channels, what fate awaits traditional physical retail centers? Supply and vacancy patterns for retail properties across the nation hint at a rocky future for retail landlords.

Data from the U.S. Census Bureau over the last decade quantifies what shoppers have known for some time — a growing number of consumers are shopping on the Internet. Close to $165 billion of transactions occurred on the Internet in 2010, a 14.9% jump from 2009. Total retail sales grew by just 7% during the same period.

On average, total retail sales have grown by 2.9% year-over-year from 2001 to 2010. E-commerce sales eclipsed that by several orders of magnitude, clocking in at an average year-over-year growth rate of 20.2% during the same time period.

The share of e-commerce relative to total retail sales has grown from 0.6% at the end of 1999 to 4.3% at the end of 2010. Since the denominator for total retail sales includes figures from categories like motor vehicle and parts and gasoline stations, the overall percentages vastly understate the impact of e-commerce on specific lines of business.

The demise of Virgin megastores in the United States and United Kingdom, and the bankruptcies of Circuit City, Blockbuster and Borders are examples of retail chains that have been upended by the Internet.

Calm before the storm

How did shopping centers fare from 2001 to 2010? From 2001 to 2008, the growth in e-commerce failed to dampen the enthusiasm of developers. An average of 25.5 million sq. ft. of neighborhood and community center space was completed annually across the nation during that period, about the same average annual rate of construction from 1991 to 2000. Vacancies also were relatively tight, hovering at around 6.9%.

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