With the boom in consumer spending during the holiday season, it would seem that the retail sector would lobby for at least one major holiday each month. Thanksgiving, Christmas, Valentine’s Day, Easter, and those special shopping holidays—Black Friday and Saturday—are just not enough anymore to keep stores profitable year round. Unfortunately, even though consumers boost same-store sales on those rare special days, store profits are cut significantly due to the extreme sale prices and prolific giveaways.
So what will bring more shoppers out to spend the economy back to its senses? The Internet is one solution (or problem, depending on whom you ask). In the first quarter of 2012, e-commerce grew to 4.9 percent of total retail sales. According to the U.S. Census Bureau in May, “Nonstore retailers’ sales were up 12.4 percent (plus or minus 3.1 percent) from May 2011.” Meanwhile, brick-and-mortar stores are becoming more like showrooms for shoppers to examine and hold the goods before retreating online for the best deals. To rub salt into the wound, consumers may even go back to the stores to pick up the merchandise. More buyers are avoiding altogether the hassle of driving, parking, and waiting in line by simply having the online merchandise be shipped straight to their doors. This is good business for the likes of FedEx, UPS, and the U.S. Postal Service.
While consumers are coming back to the marketplace in fits and starts, many factors beyond the growing competition from e-commerce inhibit the addition of new retail space. Significant shifts in demographics and spending power may play a role; for example, younger people may hold fewer stable jobs, postpone parenthood, and move into urban multifamily housing. Although our forecast does expect commercial construction will grow another 5 percent in 2012 and then another 8 percent in 2013, to reach approximately $49.1 billion—$9 billion more than 2010 figures—commercial Construction Put in Place is still working its way back to the rate we saw in the mid-1990s.
A different development is that the slow recovery in commercial and retail construction has helped keep vacancy rates from rising, which is good for landlords. “Slow recovery” is the operative term: The first-quarter GDP came in at a mere 1.9 percent; retail sales fell 0.2 percent in May, which ate away some of the gains made earlier in the year. However, the drop in spending was in part due to lower gasoline prices and slower building product sales. Even in areas ready to grow again, credit may be hard to find as there are around $1.73 trillion in commercial real estate loans set to mature in the next five years, according to DSNews.com.
The areas of retail construction improving the fastest are what the industry calls the upscale urban power centers with name-brand anchor stores. Upscale grocery stores have also been booming, but will face more competition in the coming year from others grocers seeking to enter that lucrative market. What will really bring consumers at all income levels back into the stores are more jobs and better job security. Ironically, the decline in retail jobs is one symptom of declining consumer-buying power.
As consumers continue to dig their way out of mortgage debt and the housing market improves, they will be ready to relieve some of their pent-up shopping needs. Maybe this is something to wish for in the next gift-giving season.
John Hughes, vice president of FMI Corp., Raleigh, N.C., works with national manufacturers of construction products and equipment, distributors, retailers, and industry suppliers in the areas of strategy, channel assessment, customer development, organizational development and training, and market research. He can be reached at firstname.lastname@example.org or (919) 785-9224.