Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/504576
12 May | June | 2015 Commercial Investment Real Estate Q & A C CIM t by Sara S. Patterson Retail Forecaster The dynamic intersection of online and in-store sales is changing many dimensions of the retail marketplace, according to Gary M. Ralston, CCIM, CRE, SIOR, a managing partner of Coldwell Banker Commercial Saunders Ralston Dantzler Realty LLC in Lakeland, Fla. He contends the high cost of the last mile in retail limits the expansion of online sales but also forces in-store retailers to discover new ways of conducting business that maximize effi ciency. Ralston shares his retail expertise with Commercial Investment Real Estate. Gary M. Ralston, CCIM, CRE, SIOR CIRE: How are showrooming (seeing products in brick-and-mortar stores and ordering them online), easy price comparisons, and informed consumers transforming the retail industry? Ralston: More than anything else, the Inter- net has created informed consumers in the retail sector. In ef ect, power has shif ed from the retailer to the consumer. Consum- ers can search for comparative pricing from their computers at their homes or of ces, as well as easily use their mobile devices while in the store to research products and search for the lowest price. T is activity forces the retailer to price match. As a result, the con- sumer gets the lowest available price, and the retailer immediately captures the sale. CIRE: How do these new retailing trends relate to how retailers lease space today? Ralston: Price matching puts pressure on the retailer's gross margin. CCIMs under- stand that financially feasible rent for a retailer is a function of sales at the subject location (demand at the point of local sup- ply), coupled with the retailer's gross mar- gin. T at translates into retailers seeking lower rent. Retailers are also of setting the pressure on gross margin by seeking to increase sales per square foot. Retailers are using technol- ogy tools to create more-ef cient invento- ries, eliminating products that account for lower sales and promoting in-store pickup of online purchases. T is translates into smaller stores, which generate higher sales psf to of set the f nancial impact of lower gross margins and maintain f nancially feasible occupancy costs. CIRE: How does a feasibility analysis fi gure into retail projects today? Ralston: CCIMs use the f nancially feasible rent model to target retailers with higher sales psf and/or higher gross margins. T ere is also a trend toward a higher percentage of shopping center space being occupied by non-retail businesses. Using geographic CIRE: Will online retail sales ever surpass those in brick-and-mortar stores? Ralston: Under current conditions, that outcome is unlikely. In 2013, e-commerce was slightly less than 6.5 percent of retail sales (retail and food services sales, exclud- ing automotive sales). It is important to recognize that retailing is the f nal step in distributing merchandise to consumers. In other words, retail is a logistics-based business. In the retail logistics model, the "last mile" from the store to the consumer's home is the most inef cient link. For example, about one-third of Amazon's sales are purchases that do not need to be delivered. Sales of Internet-delivered products and services will continue to favor e-commerce. Sales of physical products (merchandise also found on the shelves of stores), however, will prob- ably not reach very far into double digits due to constraints associated with the cost of the last mile. Store pick-up of online purchases, however, will grow exponentially.