In many ways, the biggest casualty of the rise of the internet has been the retail sector. When a consumer buys a product on Amazon they are effectively electing not to buy that item from the local retail store and that lowers revenue for the merchant. While big malls are suffering mightily, the strip center is not nearly as impacted. Indeed, the internet has little avenue to harm the successful strip center property. Why is that?
The difference between local retail needs and simply merchandise
Most strip centers engage in much more than simply merchandise. They include needed services, such as the cobbler and dry cleaner. These are not things that can be sold on the internet. Whereas malls and big box retail is all about moving vast amounts of tangible items, strip centers cater to different needs. As a result, they are not in danger of being attacked by Amazon or other internet groups that deal in mass sales of simple products.
Immediate point-of-purchase vs. waiting for delivery
Most strip center tenants deal in items that cannot wait a couple days for delivery. Whether it’s a doughnut or a candy bar, these are not things that Americans are willing to wait two days for. Some things you just need right now. When you need birthday candles for your kid’s cake, or that sympathy card, or shoelaces because yours just broke, you need it right now and you do not have the ability to plan ahead and place an on-line order (unless you have a crystal ball and a psychic).
Food and the internet don’t really go together. Many tenants in strip centers sell perishable items, and that insulates them from on-line competition. Whether it’s doughnuts or cakes or pizza or deli sandwiches, these are not items that are threatened by Amazon. Until such time as food can be delivered by drone directly to your home or office within minutes, there’s no danger of the on-line world impacting the sales of Domino’s Pizza or thousands of other strip center tenants.
All smart investors should fear the power and impact of the internet. But strip centers offer a unique level of protection to these new forces of commerce, and are a good contrarian hedge to an on-line world.