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  September 19, 2017  
     
  Has E-commerce Plateaued? An Economist and a Millennial in Conversation
By Blueprint, presented by CBRE
 
     
 
 
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Do millennials shop differently than older generations? Are brick and mortar shops fighting back against the rise of e-commerce? Must retailers move online to survive? Are consumers more likely to buy if they browse online? Does a brand need a physical presence to have a successful launch? Above all: Has e-commerce plateaued?

These and other questions are part of the wider debate about how technology is shaping how we shop.

In our latest conversation in an ongoing series with CBRE thought leaders, Richard Barkham, CBRE’s global chief economist, argues that technology and e-commerce have only just started to reshape how we shop, while Sahar Rezazadeh, a chartered surveyor on CBRE’s Central London retail team, argues that in certain sectors and countries, millennials’ shopping habits mean that there is plenty of life in brick and mortar yet.

Richard Barkham: Let’s start with the big picture. Clearly, technology is reshaping every sector it touches. In retail, for example, it is reshaping the key drivers of the modern logistics operation: supply chains, same-day fulfillment, and how we deal with returned goods. Most importantly, e-retail volumes continue to grow and grow.

We are also seeing e-commerce affecting large retail firms. For example, Michael Kors, a big U.S. retailer, recently recorded a decline in growth of sales, which they put down to the poor performance of U.S. malls. I’m sure that’s the result of technology and sales moving online. In short, e-commerce looks healthy. It’s having an impact.

So Sahar, why do you say that millennials are going to be responsible for the plateauing – or perhaps even decline – of e-commerce?

Sahar Rezazadeh: I think it’s not as straightforward as that, for three main reasons.

First, there’s a lot of variation going on under the surface of the macro picture, in different sectors. In the field of fashion and accessories, for example, people of my generation are just as keen to buy in person as they ever were. One recent CBRE report, Millennials: Myths and Realities found that apart from food, millennials do less than 10 percent of their non-food shopping online.

Second, if any brand wants to make its mark in retail, it has to have a physical presence. That’s always been the case, and it still is. Retailers, especially startups, are struggling to get the attention they need online because there’s so much information and consumers are so fickle. Retailers are increasingly finding that the way to make their brand stand out is to launch a store. It still gives you much more exposure than just having a website.

You mentioned Michael Kors, for example. They’re a U.S. retailer that have decided to enter the U.K. market. It’s notable that despite the opportunities online they’ve decided to roll out physical stores across the country. If they thought e-commerce was more profitable in the long run, why would they be opening stores in key locations like Regent Street in London, where they have upsized to a 16,000 sq.-ft. flagship store? We see a similar story in other key cities such as New York and Hong Kong. If you want to make your mark in retail, you need that physical presence. Certainly we’re seeing that online names are even starting to look to add physical stores to the mix.

Third, I think retailers are beginning to realize that moving online is a more expensive proposition than they thought it would be. It’s not just a question of building the site or the app. If they want to compete with the more established brands, new entrants have to invest to get the attention of the right consumers in the right way at the right time. That could mean SEO and other kinds of online promotion, it could mean publishing, it certainly means making sure that the app or site works seamlessly and stays up-to-date. The reality is that it’s a competitive market and smaller retailers or up-and-coming brands will struggle compared to the brands that have already made their mark.

THE RETAIL EXPERIENCE

RB: I take your points. And although I said that the decline of growth in mid-market malls might point to the health of e-commerce, there could be other reasons for it too, such as particularly poor wage growth. Since the financial crisis, lower and middle income wages have been relatively stagnant. That’s probably another reason why many mid-market malls are stagnating.

I was interested in your point that there’s something distinct about millennials’ shopping habits which is checking the rise of e-commerce. What were you referring to?

SR: Well, of course we have to be wary of generalizing too much. And of course there are some products which millennials would purchase from an online retailer because it’s cheaper or easier.

But there are other categories which I wouldn’t dream of purchasing online. To buy a pair of shoes, for example, you need to go into the store, try them on, and walk around in them. If you need to refund them, it’s much easier to do in person. All of these things are possible to do online – some shops send you items to try on and you can send them back, for example – but we are not seeing consumer habits changing rapidly. Seventy percent of millennials’ shopping still takes place in-store; over half say they like to see the products before they buy them. Shopping online, it turns out, is just not as convenient for most millennials.

Brick and mortar also benefits the retailer. When I go into a store, my visit is more likely to be converted into a purchase, whereas online I might click on a few items, save them in my basket, leave the site, and perhaps come back to it later.

THE INTERNATIONAL PERSPECTIVE

RB: I take your points about experience, but the best e-retailers give a fantastic experience. Great choice, rapid delivery and returns service – sometimes better than shops. Although e-retail is better for ‘classic’ items like business shirts – more so than, say, new designs, colors and brands.

Another factor, of course, is the big picture in terms of economic growth. Today, we are seeing an increasingly powerful recovery in many developed countries. Consumer balance sheets are in good shape around the world and confidence is high, so you would expect overall volumes to be going up. Overall growth and increased market share will keep e-retail booming. I did think that maybe market share had plateaued in the U.K., but I am not sure that is true. Moreover, in most other countries, including the U.S., market share is low and heading up quickly.

SR: The sector-by-sector analysis is important here, too. If we look at the luxury market, very few people will spend thousands of pounds online at the push of a button. We want to go into the store, feel and experience the product. And research shows that we are increasingly interested in buying into the experience as opposed to merely the product.

Topshop, for example, is getting better at giving its customers an experience. They never used to have too much going on in store, but now some of their stores have hairdressers, treatments, a nail bar, style consultants, and more. It’s no longer just about going in, picking something up, and leaving.

Primark is an interesting example, because they have decided not to have e-commerce at all. You might think that an essentials brand which is cheap would want to go the e-commerce route. I suspect they know, though, that by keeping their commerce in store they’ll increase their dwell-time, which will lead to more sales and impulse purchases.

Any retailer which can develop a robust multichannel retail strategy that combines ‘clicks with bricks’ will succeed. Needless to say, the occupancy costs for a physical store need to stack up, and retailers will be mindful of the size and number of stores they will commit to. In the U.K. for example, we are yet to feel the impact of the business rates (property tax) increases in key retail destinations.

SPEED OF ADAPTATION

RB: The question of what determines the speed of adaptation to e-commerce is an interesting one. As an economist, I think prices, incomes, and the availability of technology are the main factors. In the U.S., for example, there is some evidence that online commerce correlates to the gas price: When petrol prices go up, people are more likely to buy online; when it goes down, they’re more likely to go back into physical stores.

And when I think about my own adaptation to e-commerce, I’ve come to the conclusion that I have similar shopping habits to millennials myself. I prefer to shop in shops, particularly when it comes to luxury items. I will go a long way to see new cool stuff. Perhaps, I’m a closet millennial … despite the trivial matter of age.

In any case, the battle of consumer engagement is super-fierce right now. ‘Bricks and clicks’ need to be right ‘on their game’ to succeed.

Sahar Rezazadeh is a chartered surveyor on the CBRE Central London retail team, offering advisory and transactions services to clients. She advises retailers on their store portfolios including new entrants to the U.K. and London market and specializes in fashion and lifestyle brands. She’s a former finalist of the Network of Aspiring Women Young Entrepreneurs, and in 2014/15 won the RICS Young Surveyor of the Year Award.

Richard Barkham is the global chief economist at CBRE. He is a former director of research for the Grosvenor Group, and a visiting professor in the Department of Construction and Project Management at University College London. He taught at the University of Reading between 1987 and 1998. He is the author of Real Estate and Globalisation, which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil, as well as numerous academic and industry papers.

Article originally published on February 23, 2017 -  https://blueprint.cbre.com/has-e-commerce-plateaued-an-economist-and-a-millennial-in-conversation/ 

“Blueprint, presented by CBRE, is an online magazine dedicated to telling timely and insightful stories about the transformational role real estate plays in the world."

 

 
     
     
     
 

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