E-commerce's growth and increasing share of the retail market does not spell disaster for retail real estate, and should be viewed as a boon to landlords' business, according to a prominent venture capitalist in the space.
The mounting bankruptcies and store closures among legacy brick-and-mortar retailers have clouded what is happening at the fringes, and at the vanguard, of the retail business, Brendan Wallace, co-founder and managing partner of Fifth Wall Ventures, said this week at RECon, the International Council of Shopping Center's annual convention in Las Vegas.
Digitally native retail brands — specialty brands that set out to sell products exclusively online — are multiplying, and many of them are doing exactly what they claimed they would not, or did not, need to do at their conception: Open a storefront.
"Everyone talks about how fast Amazon is growing. The individual [online] retailers are growing faster," Wallace said. "That is something that is not often talked about, when people talk about the secular growth of e-commerce."
Wallace identified a virtual horde of online retail brands, some of them with only about $10 million of revenue, that are looking to open a first store, and he said their ranks are growing "very, very quickly." Citing Fifth Wall's own data, Wallace said roughly 40% of new online-only brands expect as much as a quarter of their revenue to come from store sales over the next five years. Another roughly 40% said they expect store sales to represent as much as half of their revenues.
Wallace said the rise of omnichannel retail strategies — retailers' business development on multiple, mutually beneficial platforms — has in fact been happening for "decades," and select brands have already fully realized the ideal of the "virtuous omnichannel cycle," where online experiences inform offline purchases, and offline experiences inform online purchases.
The men's fashion retailer Bonobos Inc. started out online, with no intention of opening a storefront, and now has roughly 70 physical locations nationwide, Wallace said. Warby Parker, the glasses retailer, has opened more than 60 stores to-date.
People are not buying fewer things, they are just buying them in new ways, via myriad new platforms, Wallace said. Shopify, an online checkout portal for digitally native brands, serves hundreds of thousands of merchants. And the number of Kickstarter campaigns for new products, Wallace said, have grown "parabolically."
Landlords may need to develop new strategies or new store models to meet new, and potentially very particular, needs, but it is their business to win or lose.
"It's a small [store] base, but when you look at the number of these brands ... it can be quite impactful to the offline retail industry," Wallace said.
