EastAlliance Sector Watch: Shifts in Consumer Behavior and Their Impact on Logistics & Retail Space

“…we must also take into account the behavioral trends that may suggest how the money will be spent, because those decisions will have a profound impact on… demand and for retail and logistics real estate. “

As you know from previous posts or having worked with us in the past, we are constantly researching trends that extend beyond the traditional focus on interest rates, housing statistics, the stock market, jobs numbers, broad economic data. etc. Of course, those data points are relevant, but they are not the only ones that drive markets, behavior, innovation and opportunity – especially when developing real estate strategies, which have holding periods and strategies measured in years not trading sessions.

As we have witnessed in recent weeks, there can be some drivers of change that not only turn traditional financial indicators on their head, but disrupt global events in such a way that they genuinely change the way we eat, shop, work, travel, and live – seemingly overnight.

So as we continue to monitor the impact of COVID-19 as it makes its way across the globe, we think it is wise to spend just as much time researching emerging trends and behavioral shifts as we do monitoring central bank coordination and global efforts toward economic stimulus. While proposed stimulus packages will put money in the hands of the consumer, we must also take into account the behavioral trends that may suggest how the money will be spent (i.e. in store vs online, national chain vs local retailer, in-person service vs streaming, etc.), because those decisions will have a profound impact on the short- and long-term demand and for retail and logistics real estate. 

As it relates to EastAlliance’s short- and long-term real estate investment strategy, we continue to monitor several interesting fulfillment and retail models that have emerged (and caught our attention) as assess opportunities in both retail and logistics space (particularly, where the two intersect…more on that in a future post!).  But this is what we are keeping our eye on so far:

First, what has been clear is that the global supply chain of just about any good has been impaired or halted entirely due to pandemic.  Yet, some markets and segments seem to have handled the shock a bit better than others – for some, it was because the market and processes were already in place and mature enough to absorb the shock (especially in Asia), while others were simply in a better position to pivot and adjust.  We believe we can unlock opportunity by understanding which advanced delivery models and retail platforms will translate well into the US market, and why. 

Second, we already know that prior to COVID-19, consumers in the US were growing accustomed to on-demand deliveries of nearly all types of products, the fulfillment times were getting shorter, and the share of online grocery shopping was growing.  It will be interesting to see how recent events accelerate the rate of change in how consumers browse, order, and receive their on-demand products, and what this will mean for both retail and logistics space demand (and supply) in the US.   

Third, we must track which retail segments were hit hardest, and which were resilient when it came to consumer demand, and then further examine the breakdown of these goods between online and offline.   Because what has become clear to us in recent weeks, is that the US infrastructure, supply chain, and processes may not be as mature as some overseas markets when it comes to last mile or on-demand delivery (both bulk and small items).  So we want to follow how retailers are adjusting to what seems to be an irreversible (and rapid) shift from offline to online ordering (and what they did when they ran out of items!).  We suspect this structural (and generational) change may have a profound effect on the demand for logistics and retail space, and perhaps by understanding some overseas models we may gain a better handle on where the US market is headed (We suspect our New York and Shanghai offices will be comparing notes for months to come!).  

As our research continues and we work with our investors in developing innovative investment strategies in the retail and logistics sector, we will continue to share some of our preliminary observations with our followers in future EastAlliance Sector Watch Reports, so be sure to check back with us often!  If you are interested in receiving future EastAlliance Sector Watch Reports, or would like to attend one of our live stream events led by our global team, be sure to follow us on WeChat!  

In the meantime, please stay safe during this challenging time and thank you for reading and sharing our perspective.