Miami Retail Market Faces Obstacles from E-Commerce, Declining Foreign Tourism
There are two major trends affecting retailers across South Florida: the reduction of affluent foreign tourists in the market and the internet, which is forcing retailers to shift their concepts at an accelerating pace. Both factors have led to a slight decline in market conditions, specifically a deceleration of growth rates, but not significantly enough to cause great concern or to feel South Florida has become a “falling market.” Instead, much like origami, one must shape retail concepts to adapt to the new online reality.
The American dollar is still very strong against Latin American and most foreign currency. This has created a downward spiral for hotel occupancy and retail sales in South Florida’s tourist driven areas such as South Beach and Lincoln Road. Miami-Dade County hotel occupancy was down 0.6 percent year-over-year to 83.5 percent in February/March 2017.
This tourism decline has also created a shift in foreign investing. While large foreign investors are still active in the market, there has been a noticeable exit of smaller foreign investors. This has created an unusual twist in the South Florida market as now domestic (primarily from the Northeast) and Canadian investors are actively looking and purchasing retail opportunities given they can get more for their dollar than in their home metropolitan areas such as New York and Boston. This has created rising cap rates (averaging 6.23 percent year-end 2016) in retail properties, with the exception of trophy properties.
There is an accelerating shift by all consumer groups to buy more retail products online, irregardless of income level. Roughly one-third of consumers now shop online at least once a week, an increase of 41 percent from two years ago. The variety, price comparison and convenience of purchasing items including groceries, electronics, household goods, clothes, shoes, sporting goods and even fitness classes and programs online are changing our retail spectrum. The only retail sectors that seem to be immune to this change are service groups such as nail and hair salons, car servicing centers and massage parlors, to name a few.
While this change is impacting the entire United States significantly, South Florida has been somewhat spared, seeing only moderate closures of stores to date such as JC Penney, Macy’s, Limited, Bebe and Sears.
There is a major influx of foreign and high-end luxury stores including Valentino, a Louis Vuitton’s flagship store, Van Cleef & Arpels, Bulgari, Christian Dior, Italian fashion house Armani Collezioni, major women’s clothing chain Intermix and REISS, a modern global fashion brand opening at the new Brickell City Centre. In the Design District, Bal Harbour Shoppes and Aventura Mall are still holding court for expanding retailers.
Certain discounts stores have also fared well despite the boom of internet shopping including T.J. Maxx, (and sister brands HomeGoods and Marshalls), Aldi and Fallas because they have minimal to no online presence, requiring value-oriented shoppers to visit their brick-and-mortar stores to find bargains.
Investors have pulled back from acquiring retail centers anchored by merchants with high internet risk. This would include strip centers with anchors selling electronic and sporting goods, as these company are struggling with sales given the increase in online spending.
Many retailers have or are close to failure because of online shopping, forcing them to reinvent themselves to create a unique niche. More than half of retail executives (56 percent) increased their store operations technology budgets in 2016, according to a media survey. This can help direct online shopping to a specialty site, but in many cases, it has not been enough. One example is Staples.
Staples realized quickly its market was dwindling due largely in part to online retail sales and began collaborating with Workbar to offer shared work spaces inside select retail locations. The effort is paying off with Staples offering high-end workspaces, conference rooms and private phone rooms, among other accommodations in addition to office supplies and a full copy and printing service center. Other similar concepts with large retailers have included JC Penney offering space to Sephora and Target partnering with Starbucks. A retailer adding a secondary point of purchase can increase margins on those points of sale by 30 to 40 percent, and sometimes even greater numbers have shown.
The physical and online shopping worlds have and will continue to collide. As retailers pursue different strategies, the digital experience will bleed into brick-and-mortar stores through technology, and the in-store experience will come to e-commerce through virtual reality. As a result, retailers that offer the most consistent brand experience across the board will rise to the top and those that are embracing change and adapting their services will continue to thrive.
— By Joseph Gallaher, Associate, NAI Miami. This article originally appeared in the May 2017 issue of Southeast Real Estate Business.