The retail real estate glut arrives as retailers transition to omnichannel operations

I’ve spent the last fortnight travelling around our region talking with business journalists, retail and manufacturer executives and mall operators. I can vouchsafe that we are experiencing an unprecedented inflexion point in the move from the old retail model to the new. And I promise not to use the term “digital disruption” once!

There is currently an awful lot of retail space available in Australia, New Zealand and Asia. There is brand new “never occupied” retail space built by major property developers, as well as new and refurnished retail space owned by major shopping mall operators. There is older retail space owned by smaller landlords and retail space that has become available due to retailers ending their business in key sectors.

Across Australia, New Zealand and Asia these include Dick Smith, Masters, Carrefour, Levi’s and Tesco.

But there are not an awful lot of new retailers, traditional or online, who are looking to pick up that space.

The new retailing model is one that continues to take the shopping decision, and delivery of the chosen items, directly to the shopper’s home or as close to it as possible in transit hubs and places of work.

I was fortunate enough to build a business with like-minded colleagues based on the concept of helping shoppers in “the last six feet of the sale”: the ability to help shoppers choose one brand or product over another within a retail store. Choose it and take it home. Now almost every mainstream traditional retailer has a minimum of 10% of their sales sold via online retail. These are products and brands that are chosen at home and delivered to home.

The continuum that used to have the traditional, physical store-owning retailer at one end of the line, and the pure online play at the other end of the line, has now bent to join up as a virtuous circle with both selling in physical locations and online. The competitive advantage of each model shrinks as their business models move closer together.

The physical experience and pleasure of shopping has now been recognised and embraced by Amazon. The convenience and wider range of online shopping has been recognised and embraced by Walmart. Notice I don’t mention price, as both models are now nearing similar “total cost of doing business” to buy, sell and deliver products to shoppers whether physical or online. The cost of delivering the last six feet to a home is huge versus delivering to a store and the shopper taking it home. However, in the world of commercial real estate we’re still not in the new age of retailing because construction has overtaken demand.

One of the most telling observations I heard from a major retailer executive was the difficulty she was having with her board of directors. The board’s view is “we have vast amounts of money invested in real estate, so my board wants me to invest even more in even better looking and better located stores. Our competitive advantage is our store estate, so we’re going to do more of it.”  Three days later I heard an almost verbatim statement from a major mall operator: an escalating commitment to more physical retail assets to compete with global, regional and national online competitors.

At the same time, but out of our traditional city and town centre shopping areas, developers are building for both physical and online retailers and populating our outer city suburbs with larger and larger warehouses. Warehousing to allow 40-foot containers of pallets to come in the front and small vans with individual addressed packages to leave the back. Some of these warehouses have 500,000 pick locations, which is 20 times more items than can be found in a major grocery supermarket.

The reality is we may find ourselves significantly overbuilt in pure retail space unless and until we find ways to repurpose more of our physical stores to have a dual role as a retailer and to be an integral part of the online delivery model. And this could mean overbuilt in pure warehousing space with out-of-town warehousing.

This is unless we repurpose that warehousing to have a dual role as both online warehousing and walk-in retailer to be closer to the big box retailing revolution of the 1990s that built much of the regional retailing and jobs growth that allowed US, Canadian, and Australian towns and regions to grow.

Kevin Moore is a retail expert and the chairman of Crossmark Asia Pacific Holdingsand Mirador Retail Technology. He is also the founder of TheRoadToRetail.