I live in suburbia. My town just outside of New Orleans looks like every other suburb in America, replete with good schools, a vibrant restaurant scene, and plenty of traffic at rush hour and during school times. My wife and I moved here 32 years ago, escaping the challenges of urban living—crime and potholes—for the comfort and security of life in our suburban community, where you can leave your keys on the console no matter where you are parked.
But an interesting thing has happened since we moved here all those years ago. The Internet was just beginning to become a thing in the early 1990s, so trips to the local Blockbuster to rent VHS tapes, and later DVDs, became a Saturday afternoon ritual. But slowly, dial-up access to the Internet gave way to DSL, which in turn ushered in broadband, and streaming, fast browsing, and the convenience of Amazon revolutionized our lifestyle. Along the way, we saw telltale signs of the impact of the Internet, with vacancies in retail brick-and-mortar throughout strip centers and malls all over our suburb. It seemed that real, touch-and-feel retail was on a slow and painful death bed.
Now, all of a sudden in the post-pandemic era, I drive around and sure enough, the centers have filled up and are all busy, and parking lots are packed with the suburban uniform car, the ubiquitous SUV. How could this be? I thought brick-and-mortar was dead.
It turns out that store owners once viewed e-commerce as a mounting threat to their survival. Now, more brick-and-mortar stores are thriving after retailers, large and small, are integrating their properties with the online shopping experience. Shoppers browse in person to see, touch or try on items before ordering them online. They are picking up or returning purchases in stores, and retailers are increasingly relying on their shops as fulfillment hubs, shipping items ordered online from store stockrooms, in addition to warehouses. And a recent study confirms this trend: Overall, nearly 42% of e-commerce orders last year involved stores, up from about 27% in 2015. The study reports that the concept that as online grew, stores would become less relevant. But it hasn’t worked out that way, the report says, and it is apparent the brick-and-mortar store is still the heart or hub of retail.
ONLINE, IN-STORE INTEGRATION
It is another example of how online-only retail has its limits, and why physical stores are making a comeback. After decades of overbuilding that lead to a sharp contraction, retailers are on track to open more stores than they close in 2024 for the third consecutive year. Many retailers have found that it is too expensive and difficult to attract and retain customers without physical stores. And using stores as pickup and drop-off points helps lower the labor, packaging and shipping costs involved in online orders. Big-box retailers started building up their store-fulfillment operations and infrastructure for in-store pickups and returns before the pandemic after realizing that returns were higher for items bought online—and that digital sales were less profitable. Kohl’s now fulfills more than a third of its online orders in stores, Walmart more than half, and Target nearly all its sales from its network of roughly 2,000 locations.
Just as I suspected, it seems the pandemic sped up the integration of online and in-store shopping, as mandated closures and infection concerns forced retailers to offer curbside and pickup services. Now, many customers expect these options, which often allow them to avoid shipping fees and get their sunblock and dish soap sooner than waiting for delivery.
And all of the above is very evident in my town, where a friend of mine is a successful, local real estate developer; he bought an old, run-down, yellow-brick K-Mart shopping center that was mostly vacant. I really wondered what he was thinking at the time, but today, he has physically re-imagined the facades, subdivided the spaces, and has created a bustling, completely full shopping center populated by many of the national retail names we all frequent—online. So much for the death of brick-and-mortar store construction, which bodes well for concrete demand.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter – @allenvillere.
