EMERGING NEWS 

Store Landlords Face a Battle For a Cut of Online Sales

Once again, Amazon.com and the other “Big Four” retailers are on the move.

IBM says Amazon grabbed 19 percent of online retail sales in the fourth quarter of last year, while Walmart’s growth was 14 percent and Target was just 2 percent ahead of last year’s sales figure.

Store-based retail has been suffering steadily for years as more and more people shop online. Another survey found that only 33 percent of Americans say they intend to buy clothing, shoes or jewelry in stores this year, with a record 69 percent willing to buy from Amazon. Nearly half of Americans tell Gallup that they shop online almost every day.

Millennials in particular have been abandoning physical stores for the convenience of Internet shopping. And that’s great news for online firms. But the trend represents a problem for those landlords who need the brick-and-mortar retailers to continue to exist to repay loans and stay in business.

First, the good news. Americans are still a huge market — most of them would rather shop online than go to the mall. And they are being persuaded to buy more stuff online — particularly the kinds of merchandise that are difficult to carry in expensive department stores. Sales of apparel and other perishable goods are increasing and are being consumed largely online.

But as companies like Amazon have moved into different arenas — food and home furnishings — they’ve put pressure on the one part of the retail industry that has grown the fastest in recent years: department stores. Amazon and the other online firms have been stepping on the toes of the companies that for centuries have been the major customers of department stores — the third-party sellers who were paying the landlords tens of millions of dollars a year.

Between 2012 and 2017, the share of online sales that went to third-party sellers — which don’t have to pay real estate taxes or construction fees — shot up from just over 14 percent to 18 percent.

Department stores have made it easier for Amazon to siphon off these shoppers because they offer a much better assortment of goods than the online behemoth. “In addition to faster checkout times, department stores had access to a huge inventory supply, which makes them more suitable for massive, nationwide retail operations,” the retail analyst Walter Loeb wrote in The Wall Street Journal.

As the Journal noted, many department stores charge only pennies per item to stock their inventory with smaller boutiques than Amazon does, so that they can sell much more. This gives them an edge when Amazon is beginning to expand its hardware sales, for example, by selling machines that mix drinks.

“Many consumers see physical stores as a necessity rather than a luxury, and they actually like to find out about the products on store shelves, test out the quality, try on the clothing or grab a cup of coffee,” the industry consultant Mary Beth Sheridan wrote for the Journal. “Online companies don’t take that into account.”

All this is good news for online firms like Amazon, which have the infrastructure to serve the more eager and accessible online-only buyers.

But what’s worrying is that the brick-and-mortar retailers are under attack by the online firms’ landlords. The landlords are looking to extend those online retailers’ market share at all costs — by cutting their rent payments.

Vornado Realty Trust, the leading commercial landlord in New York, owns 1.9 million square feet of stores that Amazon is closing or rebranding as Amazon Books. Amazon leases that space.

“Amazon will likely seize on these opportunities to further consolidate its business at the expense of a significant part of the retail real estate industry,” the investment bank Cowen & Co. warned. “The availability of sites will only be available for those with deep pockets and clear branding.”

Commercial real estate may be the most deregulated part of the economy — federal agencies don’t bother policing it and local governments have declared themselves unconcerned that some of the most lucrative tenants don’t pay their share. But it’s a problem for everyone.

Related posts

Leave a Comment