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News Release - February 24, 1999

“MILLENNIUM MADNESS: Online buying takes the shop out of shopping” presented by Mark Borsuk at NAIOP’s Back to Campus program last November gave institutional real estate investors a method for analyzing how the online sales channel would impact retailers and their stores.

Borsuk illustrated the point by assessing the leading consumer electronics retailers.   He discussed their vulnerability to stealth competitors while they defend the location based sales channel.  In addition, he noted how online competitors would negate the advantages of convenience, selection and pricing currently enjoyed by these big box retailers.  Borsuk urged institutional investors to revise their investment analysis to include online buying’s negative impact on store economics.

On February 5, Borsuk spoke at ICSC Idea Exchange in Long Beach, CA.  In the plenary session preceding his talk, the moderator asked the audience about buying online.   More than ninety percent of the attendees raised their hands.  The irony of the situation was apparent.

In “REDLINING RETAIL: The store’s diminished value in a wired world”, Borsuk urged ICSC members to consider how the impact of everyday tech on lifestyle and buying habits would affect their business.   He identified retailers likely to undertake store retrenchment during the 1999-2002 period.  These mass merchandisers will scale back on new store openings, reduce the number of stores in existing trade areas and downsize locations into showrooms sans inventory.   Borsuk also previewed his concept of MetaSpace(sm).  MetaSpace(sm) is the integration of cyberspace into retail space.

The writings of William Gibson (Neuromancer) and Neal Stephenson (Snow Crash) inspired his ideas for MetaSpace(sm).  MetaSpace(sm) offers developers and property owners the means to transcend the limitations of physical space in a wired world.  The same holds true for tenants.  Borsuk expects information technology driven users and retailers to populate MetaSpace(sm).  In addition, creating MetaSpace(sm) provides developers and property owners with other sources of revenue.  He believes new revenues can derive from furnishing greater bandwidth to tenants (“the last mile opportunity”), generating income through intellectual property licensing and reaping the location premium inherent in MetaSpace(sm) for first movers.

During February, the potential impact of online buying on retail property gained Wall Street’s attention.  In-store sales cannibalization was the underlying theme of the articles.  Moody’s Investors Services told readers online buying could adversely impact the property used as collateral for mortgages.(1)  The LA Times followed with a story asking developers and retailers whether online buying would impact their expansion plans.  The consensus was for them to continue to expand.(2)  The very next day, the Wall Street Journal’s REIT INTEREST column asked “Will the Internet Kill All the Shopping Centers?”  The story noted retail company and retail REIT equity analysts were becoming aware of the risk.(3)  The New York Times’ Sunday edition carried a long article about traditional retailers going online.   One Silicon Valley venture capitalist said “They [the traditional retailers] have to be willing to write off existing channels [stores] and dive in neck deep.”(4)  The Wall Street Journal also reported Border’s was losing in-store sales to the Web(5) and Forbes noted the possibility of traditional retailers who go online cannibalizing what would otherwise be in-store sales.(6)

On March 5, Borsuk will participate in the “Main Street 2020” round table sponsored by Gensler, the international architectural design and planning firm, and the La Jolla Institute under the direction of Senior Fellow Joel Kotkin.  Exploring the evolving retail environment and impact of electronic commerce over the next twenty years is the subject. 

In April, Borsuk is presenting a paper at the annual American Real Estate Society conference in Tampa.  The ARES meeting brings real estate professors and practitioners together to discuss issues influencing commercial real estate.  Borsuk will highlight cyberchannel developments, potential changes in retailer strategy and the resulting impact on stores.  Borsuk also intends to present a cyberspace research agenda to the audience.

Borsuk will debate the doyen of retail site selection Mark Zygmontowicz of Thomson Associates in the May issue of Chain Store Age.  Borsuk argues online buying compromises many assumptions underlying store site selection theory.   The questions presented are:

1.      Will online buying change geocentric shopping habits?

2.      If so, what are the implications for retail site selection analysis?

3.      How will a wired world change site selection methodology?

May’s Shopping Center World will have an article by Borsuk on new retail development strategies.

The Real Estate Transformation Group advises landlords, retailers and lenders on property strategies for the information age.  In addition to consulting, Mark Borsuk is a retail leasing broker and real property attorney practicing in San Francisco.

Contact Mark Borsuk, Managing Director at (415) 922-4740 / FAX 922-1485 /

mark@borsuk.com

The Real Estate Transformation Group thanks Mihalovich Partners, Commercial Real Estate Services {“http://www.mihalovich.com”}in San Francisco for hosting RETG articles.

(1) Sally Gordon, CMBS: Brave New World of Internet In Store for Retailers, February 5.

(2) Melinda Fulmer, Demand for Retail Space Still High, but Internet’s Threatening, Tuesday, February 16.

http://www.latimes.com/HOME/BUSINESS/COMMRE/t000014466.1.html

(3) Barbara Martinez, Will the Internet Kill All the Shopping Centers?, Wednesday, February 17.

(4) Leslie Kaufman, Scrambling at the Online Mall: Can Traditional Stores Catch Up?, Sunday, February 21.

http://www.nytimes.com/library/tec…2/biztech/articles/21commerce.html

(5) Patrick M. Reilly, In the Age of the Web, a Book Chain Flounders, Monday, February 22.

(6) Mary Beth Grover, Lost in cyberspace, February 22.

http://www.forbes.com/Forbes/99/0308/6305122a.htm

Copyright 1999.  All Rights Reserved.  Mark Borsuk.

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