When the market gives you lemons, distribute lemonade

By: J. David Chapman/October 20, 2016

A significant transaction took place in the national retail market recently when the world’s largest retailer paid more than $3 billion for the fast-growing online retailer Jet.com.

Wal-Mart bought the company in an effort to fight off competition from Amazon, the online industry leader. In 2015, Amazon saw a 97-percent increase in year-over-year sales. Its phenomenal increase is chipping away at the sales-of-brick and mortar national retail chains, like Wal-Mart, Target and Barnes & Noble. Those of us in real estate academia have been predicting this trend for years, but the purchase of Jet.com by Wal-Mart finally confirms what we believed. At the same time, Wal-Mart announced it will slow new store openings and focus on increasing sales in the online space.

A month ago Ted Jones, chief economist and senior vice president for Stewart Title Guaranty Co., presented data to the Oklahoma real estate community that showed retail and industrial as the strongest real estate segments in Oklahoma City. While residential and office segments appear to be slowing, rents for retail and industrial space continue to show gains in price per square foot.

This latest move by Wal-Mart will create the necessity of other large retailers to counter the move by increasing their focus in the online retail space to compete with Amazon and Wal-Mart. Local retailers relying on brick-and-mortar sales will need to justify their less convenient and more expensive shopping method by concentrating on the customer experience, thereby creating a high-end destination atmosphere in addition to a concierge shopping experience.

While the continued consumer move to online purchases is probably not good news for retail in Oklahoma City, it could be really good news for the growing industrial space in our market. With access to interstate highways, rail infrastructure, underutilized airport capacity, relatively inexpensive land, and a centralized location in the middle of the United States, Oklahoma City is one of the most attractive regional and national distribution plays in the country. The current investment in large brick-and-mortar retail stores might just be repositioned in the large, modernized distribution centers to feed this growing online marketplace. When given lemons, make and distribute lemonade.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).