Has the importance of physical retail space been vindicated by Alibaba?

April 11, 2014 / By

Alibaba’s decision to significantly invest into Intime Retail, which operates 36 department stores throughout China provides an interesting insight into how internet retailers might be viewing the importance of multi-channel retailing and the role of physical retail stores.

China’s Alibaba Group, one of the world’s largest internet retailers, globally has agreed to invest US$ 692 million to acquire a 26% stake in Intime Retail (Group) Co., the Hong Kong listed operator of predominantly luxury orientated department stores, throughout mainland China.

While this news should not be read as a reversal of the significant global trend of retail spending switching from some physical retail stores to the internet, it is in our opinion a vindication from one of the strongest internet retailers as to the ongoing importance of physical retail space.

We anticipate that the most successful retailers in the future are going to be those with a complete multi-channel offering. Those providing efficient and convenient methods of sales, deliveries and returns through both a physical store portfolio and a strong internet platform will likely be the best performers. Much comment has been made of “older” retailers having to modernise and embrace the growing trend of internet selling in order to survive in the modern retailing world. As the online competitive landscape evolves, it will be interesting to observe whether other internet retailing giants follow Alibaba’s move into physical stores almost as a second generation evolution of e-commerce.

In addition to retailing, the ownership and management of retail places is becoming increasingly specialized and challenging. Shopping mall owners need to ensure that their retail assets remain relevant in the rapidly evolving retail landscape. Nowhere is this more prevalent than in China, which has the world’s largest supply pipeline of shopping malls under development. As luxury brands and first mover fast fashion retailers look carefully at and rationalise their own expansion plans, developers might look to attract internet based operators as one way to ensure that their malls remain competitive. Don’t be surprised to see landlords chasing the signatures of internet retailers with as much vigor as they once did with global luxury brands and international department stores.

JLL global retail research team has completed a fascinating piece of research called Redefining Retail Places. While it can be read as presenting a daunting future for shopping malls, its themes should certainly be used to form part of the picture when owners are making: buy; sell; hold; joint venture and strategic management decisions.

Our most recent outlook to retail real estate investment in Asia Pacific also highlights an expected trend of specialist retail asset managers and co-investors playing a growing role alongside the investment capital and developers, in ensuring assets are built and managed to their best advantage.

We are confident of the role that physical retail space will play in retailing going forward, however, we believe that now more than ever the design, development and management of retail assets requires greater specialist skills from ever before.


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