Achieving success when investing in retail assets is challenging, especially when you are pursuing value-add…
Over the course of the last month, Amazon has taken further steps in the “War on Retail.” With the company’s purchase of Whole Foods Market on June 16th, the e-commerce super giant seems to be taking steps to render brick-and-mortar locations obsolete before the year 2020. Or, at least that is the absurd conclusion many publications are using to drive their marketing efforts.
The impact of Amazon’s recent movements have been grossly skewed to only one possible future. The fact is that over the course of the next five years commercial real estate investors who are willing to adapt their current retail assets may find themselves singing Amazon’s praises all the way to the bank.
The recent purchase of Whole Foods Market should not be seen as the final countdown for brick-and-mortar retail. You should think of it more as a gradual reset. Although Amazon is making leaps and bounds in the capabilities of their delivery services, they clearly have no delusions as to their need for brick-and-mortar locations.
Why only two percent? Amazon currently has a 43% hold on the retail market which is comprised of sale on everything from clothing, electronics, and books, to household items including toiletries, cleaning products, and non-perishable food items. But, the vast majority of Americans are still not comfortable allowing others to pick their perishable food items.
Weekly shopping trips to the grocery is so heavily embedded in our culture that 90% of households partake in this experience at least once a week if not more. Some grocery chains have taken additional steps to make this experience more enjoyable with live cooking demonstrations, designated happy hours with wine and beer tastings, full service restaurants, and large prepared food centers.
Whole Foods Market was a purveyor of this experience offering promotions including a set of beers on tap which was meant to make shopping at a Whole Foods Market feel like a social experience rather than a chore.
So why would an internet retailer like Amazon buy Whole Foods Market? There are actually a number of reasons that will benefit Amazon in the future.
In this deal, Amazon is acquiring over 400 retail locations plus a group of Whole Foods Market distribution centers. Essentially a “Data Gold Mine” through which Amazon can improve the brick-and-mortar retail experience.
By collecting information on products and the people who are buying them, Amazon will gain insight into new market trends which they can then apply to their new family of brands. Amazon already has launched Amazon Go, a medium sized brick-and-mortar grocery chain which will feature a digital check out which can be completed through the customers phone and curbside pickup options, and Amazon Fresh, a food delivery service currently serving major metropolitan markets.
The acquisition of Whole Foods Market also presents Amazon with a value-add opportunity. Being one of the key pioneers in the “locally sourced” revolution Whole Foods Market essentially created many of the distribution networks used for sourcing locally grown and organic food items. The expenses required to provide this type of product resulted in the “Whole Paycheck” brand stigma that isolated Whole Foods Market to only a higher tiered customer base.
Enter in Amazon, a company which seems to care very little about profit margins and you bring a solid competitor to the grocery retail market. Through the power of the Amazon distribution network prices on many of Whole Foods Market product line can be significantly reduced which will broaden the customer base.
All in all, Amazon’s recent portfolio expansions should not be seen as the “Death of Main Street,” but its rebirth. As the demands of the commercial real estate market evolve, institutional-quality retail properties, grocery-anchored centers, and neighborhood centers will begin to take focus back to Main Street U.S.A.
Amazon is not the only retail giant with this vision of a future with smaller format retail locations. Walmart, Target, and Macy’s are all adapting and producing hybrid store models which can combine the benefits of e-commerce and brick-and-mortar stores into the omni-channel retail experience.
As we look toward the future of real estate investing, remember that regardless of the label e-commerce or brick-and-mortar these companies are all retail, and will require real estate in order to survive.
For additional information on new and exciting trends within the retail market, please join us for one of our upcoming Commercial Property Academy Live events. During the course of these four days, we will be featuring information on which retail assets will present the most value add opportunity and how these new retail trends will begin to shape the future of other property types.