There is no retail apocalypse. The myriad outlets reporting on the extinction of brick and mortar retail presence are basing their claims on untruths. That said, there are trends we can’t ignore, like the ubiquitous “store for rent” signs throughout SoHo and New York City. How can this paradox be explained? If retail isn’t dying, why is commercial real estate so prohibitively expensive, why are so many brands relying on their online presence, and why are stores closing left and right?! Let’s dive in to those deep, murky waters together…
Last week, I addressed head-on the shifting landscape of New York City’s creative enclaves, and how the creators being displaced from them are moving to other neighborhoods, cities, and states to find a new sense of community and freedom. In a recent Times article, downtown artist Kenny Scharf put his lament plainly: “I really feel for artists starting out today.” His nostalgia is not misplaced. The times are a’changin’.
When so many reports are proclaiming “retail is dead” (the Atlantic’s “Retail Apocalypse” article being one of the most dramatic), it’s easy to get lost in these waves of grief for the yesteryears of a thriving brick and mortar environment.
Save the drama for your mama, ‘cause this is hardly the full story. The truth, as many outlets have also reported on, is that brick and mortar is not dead. It is changing, no doubt, but headlines on the plunge in in-person retail interaction prompt a circulation of misconceptions on the base-level statistics of changing consumer and commercial/corporate behavior.
The truth, often obscured in dramatized reportage, is that Internet sales transactions (“e-commerce”) only account for 8.9% of the nation’s gross retail sales. ONLY 8.9%! The stat was 7.1% in 2015, and has steadily increased, despite consistently high-shooting forecasts, through this year. Because I’m frequently contested on this point – rightfully so, considering the barrage of misinformation reported upon – I want to assure you this is legit info: it’s straight from the US Census Bureau’s retail economy survey.
That less than 9 percent of buying is happening online can be kind of shocking, especially as we’re being fed over and over again that Amazon and its e-comm contemporaries are taking over the world. Even more shocking is that this statistic is in fact a high ball! Check out the official Census.gov dictionary and you’ll notice that “e-commerce” encompasses sales whose negotiations were conducted online, but whose purchases were actually made in person. Also, consider that there are tons of bigger stores, the likes of West Elm and Crate and Barrel, whose online sales account for over 50% of their gross sales, skewing and inflating the “8.9%” statistic even further.
These stats are often ignored. By eliding the facts, false truths are formed, which businesses in turn respond to in their real estate decisions, perpetuating the misconceptions that retail is dying and the way of e-commerce is the only route ahead.
To break it down one step further... commercial real estate agents, acting off of (and feeding into) the saga, are setting a Wizard of Oz-like stage. We’ll look to the easy example of SoHo now, where you see commercial agencies wrestling hold of formerly owner-controlled buildings; now, realtors or brokers (versus independents) are the only ones with access to landlords. They swoop in and focus on the more lucrative properties, exclusively showing perspective tenants the spaces with inflated market prices. The perspective tenants/businesses, then, are operating on a false assumption that other commercial tenants in the neighborhood are paying comparable rents, and are netting relative profits. This is not the reality, though, because the inflation of the “market price” for commercial rentals has skyrocketed, versus sloping gradually upward. Thus, brand spanking new tenants aside, other storefronts in SoHo were originally much more affordable to rent, and face much more realistic pressure to match sales to overhead. (The “market” rents currently being asked on Crosby Street are seven times higher than the rent per square foot that I paid when I opened on Crosby in 2001!)
It’s incredibly easy to latch on to the news that brick and mortar is “so yesterday.” We see storefronts closing and sitting empty for months on end, neighborhood staples replaced with glitzy white cube businesses, age-old chains closing down – what else could be happening, if not total retail extinction? But, again, it’s not that simple. What the statistics are supporting is the truth: that yes, the times are a’changin’, but not in the ways we think they are.
True, online platforms are a flourishing avenue for connecting with customers in ways new to us in the last couple decades. But the floodgates have opened for movement toward brick and mortar, with brands like Warby Parker, Bonobos, and even Amazon opening up storefronts in recognition that personal experience is essential to lasting customer loyalty. This movement doesn't negate that menacing trends are disabling the smaller, independent operations out there. But is does call for a shift in the conversation and national “perspective” on a “flailing” brick and mortar ecosystem. It also allows us to identify the strengths in offline retail, and challenges the thinking that we have to fulfill the precariously concocted destinies real estate brokers have crafted for us.
Wonderfully, understanding about retail and real estate is beginning to shift, as outlets as “casual” as ManRepeller and as “serious” as Forbes begin to question the rumors that e-commerce is squelching brick and mortar business. There’s still much transparency to aspire to, though. And for the sake of redeeming the reputation of our beloved storefronts and independent business owners – in SoHo and beyond – I’ll continue discussing and explaining these retail trends and conversations, hopefully elucidating some of the tougher details that can prove intimidating or inhibiting to those looking to enter into a confusing, challenging, but ever-vibrant marketplace.
In the meantime, I’d love to hear your thoughts on this all. It’s a sticky subject to deep-dive into: are there any specific questions you have about how real estate is affecting retail? Or about which rumors about what’s happening between Internet and brick and mortar are true or not? I’d love to address specifics that are of particular interest!
Next week, I’ll continue with more on the “dot com” boom and how Internet is affecting the retail paradigm.
Till then, sincerely,