Benzinga | Jan 4, 2021 12:18PM EST

E-Commerce Or Brick-And-Mortar? Real Estate Leader Says Both

At the start of 2010, e-commerce accounted for just 4.2% of total retail purchases in the U.S according to the Federal Reserve. By the end of 2019, that figure had risen to 11.3%. Then, the pandemic forced brick-and-mortar retailers to close, causing e-commerce traffic to skyrocket to all-time highs.

While many investors believe that brick-and-mortar retail is dead, that is far from the truth according to Joey Agree. Agree serves as the President and CEO of Agree Realty (NYSE:ADC), a real estate investment trust (REIT) with an enterprise value of approximately $5 billion. Agree is spearheading their new initiative, Rethink Retail, aimed at challenging misperceptions about the future of brick-and-mortar retail.

It is well documented that the pandemic has been great for e-commerce companies like Shopify Inc (NYSE:SHOP), Amazon.com Inc (NASDAQ:AMZN), and Etsy Inc (NASDAQ:ETSY), and equally as tough for large physical retailers with weak e-commerce operations. The Rethink Retail initiative is based on their belief that retailers will be more successful if they are able to command both e-commerce and physical presence.

E-commerce + Brick-And-Mortar = Omnichannel

What's really happening, according to Agree, is not retailers abandoning brick-and-mortar for e-commerce. It's the realization that both are critically important in a 21st-century omnichannel world.

"Retail real estate is going through fundamental changes in this country. In 10 years, obviously, e-commerce has expanded dramatically. I think everybody is well aware of that. What they aren't aware of is e-commerce-based retailers have found that brick-and-mortar retail presence also helps their sales. So, what we think we'll continue to see is brick-and-mortar being the linchpin for an omnichannel world."

"Omnichannel" refers to retailers giving their customers as many options as possible to shop. This includes online, in-person, mobile apps, mobile sites, same-day delivery, and buying online with pickup in-store (known as BOPIS).

Agree pointed to the fact that many traditional retailers have beefed up their e-commerce operations (such as Walmart) while, at the same time, Amazon has invested heavily in its physical presence via Whole Foods, Amazon Locker, Amazon Go, returns at Kohl's Corporation (NYSE:KSS) and most recently the launch of Amazon Fresh, their newest entry into the brick and mortar channel.

Investing In The Best Omnichannel Retailers

The downside of omnichannel is that, while great for consumers, it's very expensive for retailers to compete. In addition to traditional costs of real estate and inventory management, retailers are also expected to scale their technology platforms and direct-to-consumer distribution. Not to mention compete on price across the board.

As a result, Agree believes the larger retailers have an inherent advantage. This is why Agree Realty has focused on buying real estate leased to large national retailers that have the financial wherewithal to invest in their omnichannel operations while simultaneously competing on price. Walmart Inc (NYSE:WMT), Home Depot Inc (NYSE:HD), Lowe's Companies Inc (NYSE:LOW), AutoZone, Inc. (NYSE:AZO), and O'Reilly Automotive Inc (NASDAQ:ORLY) are among Agree's top tenants.

Agree Realty built up a "war chest," in Agree's terms, --during April and used it to go on a shopping spree. In the third quarter, Agree Realty acquired approximately $460 million of real estate, about 80% of which is leased to retailers who fit that bill.

"The regional and weaker national players that are stuck in the middle will be the losers in this transformation," he said. "They don't have the one-on-one customer relationship you have with your local merchant, and they also don't have the access to capital to compete with the nationals in a highly competitive world."

Image source: Walmart