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The American Consumer Shuns Malls For The Internet

Mar 11, 2008
The Census Bureau of the Department of Commerce recently announced the adjusted e-commerce and retail sales for the fourth quarter of 2007:

- U.S. retail e-commerce sales for the fourth quarter of 2007 were $36.2 billion, an increase of 4.6 percent from the third quarter of 2007.

- Total retail sales for the fourth quarter of 2007 were estimated at $1,030.7 billion, an increase of 0.9 percent from the third quarter of 2007.

- The fourth quarter 2007 e-commerce estimate increased 18.0 percent from the fourth quarter of 2006, while total retail sales increased 4.7 percent in the same period.

- E-commerce sales in the fourth quarter of 2007 accounted for 3.5 percent of total retail sales compared to 3 percent for 2006, and were 3.6 percent for the final quarter of 2007.

In plain language, e-commerce retail sales are growing at approximately five times the rate of traditional retail sales.

The conclusion from these numbers is that American consumers are changing their buying habits. Whereas previously American consumers went to a retail property to buy goods, they are increasingly buying more goods through the Internet. Starting from zero fifteen years ago, online sales are now growing at the rate of 3.6 percent of total retail sales, and increasing. What are some core reasons behind the trend?

- Families with both spouses working have less time to get in their car, drive to a retail property, park the car, go to a store, shop, and then reverse the whole process.

- Families with one spouse working are seeking more quality time with family members and have less time to get in their car, drive to a retail property, park the car, go to a store, shop, and then reverse the whole process.

- Today's single people have an increasing diversity of interests and are less interested in getting in their car, driving to a retail property, parking the car, going to a store, shopping, and then reversing the whole process.

- Dramatic increase in the availability and affordability of personal computers and Internet service, which is sometimes free.

- Steady increase in the "trust" factor for online purchasing and credit card processing.

A new factor adding to the convenience of shopping from home is the cost of gasoline. In 2007, gasoline consumption dropped to its lowest level since 2003. The California State Board of Equalization said Californians purchased 15.8 billion gallons of gas, down about 100 million gallons from the previous year. That means people are driving less in general.

Most retail stores are not blind to this new competition. Many retail businesses that use traditional square feet to sell their products have developed their own websites, and are selling their goods over the Internet. Of course, this only further strengthens the change in the buying habits of the American consumer as retail stores embrace the online demand.

The combination of the convenience of shopping on the Internet, the increased cost of gasoline, and the improved security, delivery service, and product quality on the Internet portends a troubled future for the traditional retail store and those income properties financially dependent on the retail store.
About the Author
Allen Cymrot was one of the first real estate executives to testify before both houses of Congress, among many other commercial real estate investment accomplishments. He is co-founder of the income property blog www.NetGainRealEstate.com.
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