Friday December 04, 2020 |Q&A

What is the future of local commerce?

The future of local commerce is taking shape quickly as the pandemic conditions hasten the demise of many struggling local businesses. From the begging of the pandemic, there's been reasonable concern about the future of local commerce that relies on in-person transactions.

Retail is a hyper competitive business and the margins are slim. Much of the revenue goes directly to overhead, including landlords continually increasing rents based upon revenue, thereby making it a near impossibility for many retailers to drastically increase profit margins. America has too much retail, rents are artificially high, and the changes were underway before coronavirus hit.

About fifteen years ago, I got a first hand glimpse into real estate aspect of retail. After launching an apparel brand online, we opened retail stores in Nantucket and Charleston. Both have idyllic downtown shopping areas, and both have extremely high turnover among retail establishments. From a commercial landlord's perspective, it's better to consistently increase rents than to lower rents and avoid vacancies.

In the shopping areas around me, the vacancies are increasing. Generally these are smaller businesses and restaurants closing. Meanwhile, mega-retailers and big tech are holding strong and even increasing share of local commerce. The big retailers have enormous advantages when it comes to providing safe shopping experiences, weathering the ups and downs, and providing more utility than 'leisure' based shopping.

Local commerce has relied upon being in the right place for too long. Most retailers have not created experiences that draw customers in. Now that local commerce is not the most shopping option, there's far less need for most local stores. And once a few stores close, those areas will draw fewer shoppers, leading to a downward spiral. It's past prime for many retailers, and that won't change in a post-pandemic environment.

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