Just when investors in retail property thought they had seen off the sector's Internet shopping rivals, a new study emerges to challenge that view. In the European Retail Bulletin, Insignia Richard Ellis, the property consultants, concludes that the projected rise in internet shopping in Britain alone could lop off 1 to 2 per cent of average rental growth over each of the next five years. Even from the current low base, the reduction could occur with no more than 5 to 7.5 per cent annual growth in online buying.
The study, which examined patterns of shopping in 17 European countries, concludes that overall internet spending could rise by an average of 53 per cent a year to 2005.
Indeed, the study says, the internet is an increasingly popular way to shop, particularly in wealthier European countries. Internet penetration is highest in the relatively wealthy Scandinavian countries, led by Norway and Sweden where more than 30 per cent of the population has access. Meanwhile, Spain, Italy, Portugal and Greece occupy four of the five lowest slots for populations with internet access.
The data suggest that whatever complaints consumers have raised about efficiency, demand for desktop shopping remains. Analysts at property consultants Jones Lang LaSalle (JLL) warn that the growing mass of "e-literate cyber-civilisation" has the power to force a total restructuring of retailing.
"The power of the new media in Europe should not be underestimated," JLL concluded in a recent presentation on the convergence between traditional bricks-and-mortar retailing and cybershopping. JLL points out that the majority of e-tailing by consumers involves information gathering and price comparison. However, it warns that the gap between trying the internet out and using it for shopping is now a mere four months. In the US, say JLL, some 147.8m users are online, while in Europe the number is just under 92m.
Forecasted growth in demand for online shopping may seem odd against a corporate scene littered with the carcasses of e-tailers that have eschewed bricks and mortar. In a recent article in the International Council of Shopping Centres' Research Express publication, David Brand highlights the quandary of retailers operating "virtual stores" with no physical sites at all. It is this category of retailer, he argues, that has been most vulnerable.
"As a result of having no physical stores, many e-tailers found that they had to spend exorbitant sums on marketing and advertising to announce their existence, a task that became even more daunting and expensive as more sites hopped on to the online retailing bandwagon," the article says. Marketing costs exceeded 40 per cent of sales for several online-only retailers, including Barnes and Noble.com, eBay, eToys and Webvan, Mr Brand writes, citing data from Goldman Sachs, the investment bank. It may well be that companies such as Boo.com are falling by the wayside for a good reason.
Desktop shoppers in the US and in Europe have a litany of complaints; sites are difficult to navigate, offer too few details about goods and services, contain insecure payment methods and make the receipt and return of goods too difficult. But other retailers are clearly trying to fight back.
In another article in the ICSC's Research Express, Bindu Nair points to the growing number of retailers who are piggy-backing on their physical property to boost online sales. Of 42 retailers with websites, 16 allowed customers to return items to a store, although only a handful allowed customers to purchase an item online and collect it from the shop.
Such strategies address one of the main shortcomings of web shopping: busy people are at work during peak delivery times and cannot be at home to receive purchases.
With e-tail making its way into mainstream retail sales, property owners cannot be complacent. Spending data in the US suggest that consumers are none too happy with their malls either.
Data from the ICSC show that sales per square foot for non-anchor shopping mall tenants are rising at a far slower rate than that of consumer spending generally. General merchandise, clothing, furniture/home and other types rose by 1.9 per cent in the year to the end of August. Meanwhile, consumer spending in the third quarter of this year picked up 4.5 per cent, after a 3.1 per cent rise in the second quarter.
Sales at department stores have fared even worse, according to the ICSC data, showing only a 0.1 per cent rise in the year to the end of September compared with sales the year before. This disenchantment is showing itself in US shopping mall yields, according to data from Green Street Advisers, the California-based research firm specialising in property securities.
Mall capitalisation rates - yields - have risen roughly 150 basis points since December 1993, suggesting that investors are paying less and less for them. Among the factors influencing yield movements has been the bankruptcy of a number of large retail chains.
The threat to the high street - and the shopping centre - is real, says Insignia Richard Ellis. "The high street will have to reinvent itself if it is to compete against web shopping," the firm notes in its latest report.
