Back in October, the U.S. Postal Service announced its latest batch of price increases for both domestic and international mail, an honored tradition for the quasi-government agency. News that a normal stamp will cost one cent more isn’t catching anyone by surprise, but it signals an ever-present concern for real estate owners, developers, and tenants involved with retail.
According to the the Wetumpka Herald (my number one source for news and commentary from Wetumpka, Alabama),
The price increase announced by the U.S. Postal Service Oct. 11, 2012 will go into effect Jan. 27. Among the higher costs will be a 1-cent rise for a typical 1-ounce mail piece from 45 to 46 cents.
… In addition, the Postal Service will soon introduce a first-class mail global forever stamp which will allow customers to mail letters anywhere in the world for $1.10.
That last part is my favorite. For a mere $1.10, I can send a letter to the Philippines. That’s a bargain.
Federal subsidies aside, there’s no way an enterprise can offer such impressive service for so little money without putting pressure on its bottom line. While prices have so far increased incrementally, the USPS has resorted to some major cost-cutting (closing lots of post offices) and will no doubt continue to raise its rates.
My guess? Rates will soon grow at a much faster pace.
This is relevant to retail real estate because postal services–the USPS primarily, but also private services like UPS and FedEx–are fundamental to Internet retail. Sure, Amazon.com (NASDAQ: AMZN) doesn’t need a healthy mail delivery network to sell MP3s, but what about clothes, furniture, and electronics?
For Amazon and other mainstays of Internet retail, the postal service is something of an Achilles heal. Its convenience, speed and cost-efficiency have given e-commerce an enormous advantage over brick-and-mortar retailers. Like the failure of many states to charge sales tax on online purchases (a reality that trade organizations like the ICSC have been working hard to change), it gives online retail a very unfair advantage.
Today, it seems the retail playing field is slowly leveling out–for the first time in years. If shipping costs increase, and more states levy sales taxes for online purchases, the battle between Amazon and its shopping center competitors could become much less lopsided.
As the competition between online and traditional retail continues, commercial real estate seems poised to benefit. Obviously, if customers figure out they can buy their Xbox at Best Buy for the same price as they can online, this big-box retailer stands a chance at recovery, as does the shopping center it anchors.
On the other hand, Amazon is aggressively expanding its distribution network, developing or leasing fulfillment centers to provide more markets with its coveted “same-day shipping.” In fact, Amazon recently inked a deal with industrial REIT Prologis (NYSE: PLD) for a one million SF built-to-suit facility in San Francisco. According to Scott Lamson of Prologis Americas,
The growth of e-commerce is driving strong demand for large facilities, not only from our online retail customers, but with traditional brick and mortars as well.
Whatever type of retail it may be, it still needs real estate.
The success of online versus traditional retail will depend on many outside factors, most of which are out of the industries’ control: the cost of fuel, sales taxes, the cost of shipping, etc. More than likely, the online-versus-brick and mortar battle will continue for years to come, meaning there will be investment opportunities in both distribution centers and traditional shopping centers.