Retailer roulette in the digital age

I’m a retailer’s demographic nightmare.

My wife has to practically drag me to any kind of shopping experience, the majority of my annual retail activities involve purchasing weekly sustenance at the grocery store, I still wear clothes I bought more than five years ago, the biggest consumer purchase I made in the last two years was a laptop computer (which I hope lasts another two years), and the thought of an “impulse buy” literally makes my blood pressure rise.

Strictly speaking, I just don’t really like buying stuff.

But there have been millions of ‘me’ out there; 30ish men who would rather spend the weekend afternoon on the couch watching a big game than head out to the palaces of consumerism known as the suburban mall. That’s not new. The retail industry has still thrived with this demographic.

It’s a new element that is causing retail executives to scratch their heads and real estate executives to bite their fingernails.

I guess I shouldn’t call it “new.” On-line shopping has been a part of our culture for more than a decade now, but what was once somewhat of a novelty–and a passive threat to certain retailers–has now become a retail force. Members of a young, technology-savvy generation are now spending their hard-earned paychecks and possibly redefining what the future of retail may be.

We only have to look at the recent story of Borders, which filed for bankruptcy in February and announced that it would close 200 of its 642 stores nationwide, as a prime example of how the digital shopping age is changing our environment and the landscape of hundreds of retail centers across the country.

A few months ago, I attended the Chicago Association of Realtors annual forecast event. Joseph Cosenza, vice chairman and a director of The Inland Real Estate Group, Inc., and president, Inland Real Estate Acquisitions, Inc., was candid (as usual) with the audience of real estate professionals.

“How many of you own Kindles?” he asked the crowd. Quite a few hands shot up, not afraid to express their techno-savvy ways.

“I hate Kindles!” he emphatically shot back. “They are killing my book stores.”

A few weeks later, Borders filed for bankruptcy.

I found Mr. Cosenza’s candor somewhat refreshing. In the past, I always thought that real estate executives would acknowledge Internet shopping, but then brush it aside, claiming that the “actual shopping experience” would never leave our culture. They reasoned that we want to visit stores, try things on, and engage all of our sensory capabilities throughout the process. I don’t want to say that they are wrong.

Yes, retail stores will never go away entirely. But to act like the on-line market will not have a major impact on the industry would be borderline arrogant.

The numbers behind Border’s current plight would suggest a changing environment.

According to the Association of American Publishers (AAP), in 2009, U.S. book sales were $23.9 billion. That illustrates a 1.8 percent decline from the $24.3 billion book sales in 2008. Obviously, the recession was bad for most businesses and books were no exception…unless of course were in the business of e-books.

Amazon.com has reported that it is now selling more Kindle books than paperback books –115 ebooks for every 100 paperbacks, in the U.S. market.

The report from the AAP also reveals that E-book sales hit $313 million in 2009, an increase of 176.6 percent over 2008. That number surged again in 2010 as Forrester Research reports that Americans spent an estimated $1 billion on e-book downloads for the year.

It pales in comparison to overall amounts, but this is still a very young industry. I personally didn’t know anyone with a Kindle or any e-reader in 2008. Now, I see multiple e-readers on the train every day and we had two given as gifts at our family Christmas celebration last year. My 95-year-old Grandfather now has a Kindle. Things are changing.

Just look at the growth of the on-line music industry.

Traditional album sales have tanked in recent years, but single song downloads have skyrocketed.

Now, a recent report from Ovum, an independent telecom analyst, predicts that digital music revenues could hit $20 billion by 2015 as new subscription-based sites begin to take hold and more streams of revenue are realized.

When was the last time you saw a free standing record store (to steal a line from the Social Network)?

Video stores suffered the same fate as Netflix and Redbox made free standing video store titans Blockbuster and Hollywood Video endangered species.

I think it is fair to say that consumerism is hardly dead, but how we consume may be going through an evolution. Retailers are finding new ways to engage potential shoppers and many are cognizant that it may not be in be in the traditional sticks and bricks environment.

Should retail executives be worried? Not if they are smart and embrace new delivery methods.

Should real estate executives be worried? That could be another story…

–Mark Thomton

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