Retail Space: Less About Products, More About Brand Experience

Image representing Amazon as depicted in Crunc...

We’ve written on the various impacts the e-commerce wave has had on the retail space industry. Usually, the trends point to a general future decline in demand for brick-and-mortar as the growth in  e-commerce shows no signs of slowing.

But not every trend and development is bad news for traditional retail. It’s possible that internet retail’s growth does not always come at the expense of traditional retail., whose revenues have been rising an incredible 30-40% per year are a huge part of the internet retail picture, a $200 billion market expected to reach a 9% share of total retail by 2016. With numbers like these, it might be surprising to learn that Amazon is planning to open brick-and-mortar retail anywhere. But they are.

Industry analysts say Amazon’s planned Seattle retail store could be inspired by the runaway real estate success of another technology giant, Apple Computer.

There’s a lot to be inspired by. Apple’s business model relies heavily on commercial real estate, sporting more than 300 retail stores in 11 countries. 13% of Apple’s overall sales were due to retail in 2011, and that includes 21% of its flagship laptop products. It’s Retail division claims 30,000 “full time equivalent” employees, and most eye-popping to retail experts, Apple claimed in 2009 that its stores brought in $4,300 per square foot.

Apple’s singular success in meshing technology and bricks might be leading Amazon into a wisdom about retail that is often overlooked: the customer is there for goods, to be sure, but not only goods. Brand experience draws people into retail too – the entirety of their experience, from personal customer service, to amenities, trying out items, to all the intangible expectations that come with that brand.

Finding the right balance between brand experience and goods availability is the trick. Will a customer base brave traffic, parking, crowds and lines for a radically reduced set of on-the-shelf items? Amazon might be put into the position to try to prove that the brand experience can trump physical offerings if their strategy will rely on Amazon’s flagship gadget, the Kindle Fire.

Amazon’s impact on national commercial real estate is growing far beyond its retail test: the company sports 69 enormous warehouses, 17 of which came online in 2011. That kind of growth could encourage experimentation and might give the giant the conceptual space it needs to tinker with a retail formula to rival Apple’s. If they get it right, it can only be good news for shopping centers across the country.


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