Retail Sector Update 2/7/2016

Amazon to Open Bookstores? Maybe.

The Wall Street Journal reported on Tuesday, February 2nd that Inc., the Seattle-based online retailer, has plans to open up to four hundred bookstores across the country. This would represent a huge leap for Amazon, as it currently operates just one bookstore in Seattle. The report was based on comments by General Growth Properties, Inc.’s Sandeep Mathrani, though it is unclear where he got those figures. The WSJ further speculated that Amazon was using the Seattle bookstore to experiment in urban retailing using nearby warehouses to quickly stock shelves. Mathrani noted that another motivation for the retail expansion could be to facilitate returns, citing that 38% of clothing and paper goods (i.e. books) bought online are returned. On Wednesday, Amazon declined to comment on the rumor. GGP issued a statement, however, saying that Mr. Mathrani’s comments “were not intended to reflect Amazon’s plans.” In the wake of Mr. Mathrani’s comments, news sources have continued to speculate on the plans by speaking with anonymous sources close to Amazon. New York Times blogger Nick Wingfield wrote that Mathrani’s comments were not necessarily inaccurate, but that he vastly overstated the number of store that Amazon is intending on opening. Gizmodo, a tech media reporting site, stated that “anonymous Amazon sources” were unpleased with the initial report, but would not issue an outright denial of the plans. Jason Del Rey of Re/code, another tech reporting site, went furthest in stating that Amazon was definitely moving forward with retail expansion, and that the project was being headed by its longtime executive Steve Kessel. Rey noted that the expansion was not just bookstores, however, but would include other types of retail locations as well. While “other types” of retail doesn’t give much away, it could be an allusion to the presence Amazon is trying to assert on college campuses. In fact, in the coming months Amazon will open a package facility underneath 1920 Common’s here at Penn. It’s difficult to say exactly what the company is planning at this time, but retail expansion seems to fit the bill of Amazon’s growth mentality.

Slow Recovery for Retail Nationwide

The years leading up to the Great Recession of 2008-2009 were particularly strong for the retail sector – total stock increased by 14.2 percent. The downturn, however, left the retail market with an oversupply of space, as decreased consumer spending pushed many retailers out of the market. Since then, new construction has progressed much slower than it did before 2008. The market has not been hot enough to fuel speculative construction, and retail centers are rarely expanding. Community center retail inventory only grew by 1.2 million sq. ft. in the final quarter of 2015, well below the 15-year historical average of 5.2 million sq. ft. With demand rising faster than supply, however, vacancies have fallen such that Reis, a NYC research firm, projects vacancy to reach 9% by the end of 2017. Further, the company projects nearly 34.0 million sq. ft. to have been added to the market from 2014 to 2017, equaling the inventory output of the six years before that. In that three year window, the top five markets for retail completions are forecasted to be Houston, Dallas, Chicago, Philadelphia, and Atlanta, in that order. As employment and wage growth continue to rise, Reis expects discretionary income, and thus retail demand, to rise. The year 2016 is expected to generate the strongest demand for retail space of any year since before the recession.