Will e-tail clicks affect area bricks?

Real Estate Weekly, Feb 2, 2000 by Lois Weiss

Here's a slice of e cartoon strip "Cathy" as the single, working woman character took a look at shopping:

"First millions of people discovered the joy of sitting at home and shopping by catalog... then millions more discovered the joy of sitting at home and shopping on the TV shopping channels... Now millions and millions more are discovering the joy of sitting at home and hopping on-line. Leaving one big question for the future: how many millions of people have to be sitting at home before there's an empty parking space at the mall?!"

No matter how many people shop on the Internet, area brokers don't believe New York City's retail stores will be affected.

But in the malls of America, where tenant deals are cut based on percentages of sales, e-tailing is lurking like a predator around the campfire.

While mall owners work to enflame their sales and fret about e-tail returns being taken off their grosses, industrial owners are scouting e-commerce fulfillment centers, hoping to lure cyberspace sellers into bricks and mortar square footage.

Consumers surf-shopped for their Christmas gifts in record numbers this past fall, thus changing the face of retailing forever.

Brick and mortar owners are rethinking retail leases, reshuffling industrial portfolios, capitalizing on call centers, and renting oceans of office space to upstart e-commerce entrepreneurs.

When Amazon.com's founder Jeff Bezos recognized the need for a fulfillment center for its 1998 Christmas orders, he took on two regional centers.

But the Amazon.com holiday shoppers of 1999 were serviced through seven such fulfillment centers located in Atlanta; Seattle; Delaware; Coffeeville, Kansas; Camp-bellville, Kentucky; Furnley, Nevada; and Grand Forks, North Dakota - totalling some three million square feet.

"That's quite a build-out, and it gave us much needed capacity for the busy holiday season, where it is more important than ever to be near your customers," said Emily Glassman, a spokesperson for Amazon.com. "When we decided to open our new distribution centers, it was part of our on-going effort to continually enhance service to customers. We could keep more product on to, service our customers and also be closer to our customers by having the shipping closer to our customers."

According to Media Matrix, a monitor of web traffic and usage, Amazon was the most visited site from November 22nd to December 26th, averaging 5.7 million daily visitors during that time.

Those that ordered from more well-known names like Toys 'R Us were disappointed by poorly operating web sites and promises of sugarplums that never arrived, thus tying up trade dollars. Amazon was ready with so many toys, books and music media that they had too many left on their shelves.

Charles J. Urstadt of Urstadt Biddle Properties, chairman and CEO of the real estate investment trust that owns neighborhood shopping centers in the New York metropolitan area, said their centers did not feel any imposition this year from e-tailing.

"It will affect catalog sales first, department stores second, and finally strip centers," he predicted. "I don't think it is as big as a lot of people portray it to be."

Urstadt tried web shopping first-hand by using an e-retailer to order groceries. "The [pears] came in as hard as baseballs and green as St. Patrick's apples," he laughed. "I'm prejudiced. We want to make sure our grocery stores do well."

But Urstadt says with approximately 30 percent of all books and 30 percent of travel now being booked and sold over the Internet, the REIT must take those choices into their strategic planning. When they had an option of leasing to a small bookstore or a fitness center, they took on the latter.

"You can't build up your muscles on the Internet and you can't take off weight on the Internet," Urstadt said by way of explanation.

The REIT is also examining its industrial properties and considering working with the trend by investing in warehouses. " But I'd heard of some cases where the grocery stores are stocking the deliveries at night," he worried, which would mean less need for a stand-alone warehouse.

Marvin Schnee, who heads Schnee Real Estate in Cedarhurst, predicts that as these e-commerce companies become successful they will all need warehousing. Companies like First Industrial will be able to help by providing those services and managing the real estate, Schnee explained. "You need high ceilings and access, and good shipping facilities and good loading docks."

Mike Brennan, CEO of First Industrial Properties, a major owner of warehouse space around the country, was among those that cut deals with Amazon.com.

He says the Internet is good for the industrial segment for three reasons. The first is due to "disintermediation." This means that goods, rather than being sold in retail outlets, need not be sent to or sold from those locations anymore. "It is just sent to the warehouse and fulfilled from there," Brennan explained. "So the layer is distribution to the actual retail store."