Real Estate, Retail, and Technology

The Amazon effect reaches Grand Rapids

Retail industry shifting to e-commerce as evidenced by recent brick-and-mortar closings in West Michigan.

July 28, 2017
| By Pat Evans |
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Not yet physically in West Michigan, Amazon’s effect on the economy is felt in Grand Rapids.

For a company that started selling books in the mid-1990s, Seattle-based Amazon is changing the retail landscape and, in turn, shifting the real estate industry. While the company is primarily online, Amazon has opened brick-and-mortar bookstores and offered to buy Whole Foods in May for $13.7 billion, signaling a potential play in physical retail space.

NAI Wisinski of West Michigan retail advisor Rod Alderink said while brick-and-mortar retail is far from its death, the industry is making a shift. Obvious signs Alderink points to in the evolution are the bankruptcies of West Michigan-based retailers, such as MC Sports and Family Christian Stores, as well as big-box retailers, such as Sears and K-Mart, shuttering stores across Michigan and the rest of the U.S.

“Obviously, Amazon is certainly a force to be reckoned with in online, they’re not going away,” Alderink said. “The state of retail continues to evolve and some of the larger department stores, really a model from the ’60s, ’70s and ’80s, are being moved away from to a more experiential and unique shopping experience.”

Alderink said consumers have shifted online for commodity products, while they are continuing to seek out specialized products from physical retailers. He mentions the rise of small breweries and distilleries, farm-to-table restaurants and unique clothing stores.

Consumers are increasingly turning to purchase products where specialty isn’t a concern online and, in turn, have flipped a piece of retail estate on its head, said Stu Kingma, NAI Wisinski industrial advisor.

Where a big-box store might have taken up 330,000 square feet, like Sears at Woodland Mall, those products will shift to warehouses in industrial parks to be stored before shipment. In its place, a smaller, more specialty anchor store, Von Maur, will be built at the mall.

“There will be an increase in warehousing space to offset what is no longer being used on the retail front,” Kingma said.

Amazon has been building “fulfillment centers” across the country to help expedite the delivery process to its members. Amazon has its Prime subscription service, which for annual or monthly fees provides a variety of benefits for shoppers, including free, two-day shipping.

The company has 75 large distribution centers across the continent.

Amazon made its first commitment to Michigan earlier this month, as plans for distribution facilities in the Detroit area surfaced. The first of the facilities in southeast Michigan is a 1-million-square-foot warehouse in Livonia that could create up to 1,500 jobs when it opens later this year, according to the Detroit Free Press.

The Free Press also reported expected Amazon facilities in Hazel Park, Romulus and Shelby Township. The company already had a distribution center in Brownstown Township.

For the Livonia and Romulus centers, the state offered $12.5 million, according to the Free Press. The cluster in the Detroit suburbs are meant to serve as a hub for the Midwest; the Michigan Economic Development Corp. beat out bids by other states, including Ohio and Indiana, according to the Free Press.

“It's part of the transformation of the Michigan economy," MEDC spokesperson Frank Provenzano told the Free Press. "It shows Amazon is looking at Michigan as a strategic location, primarily because of the population center and network of transportation routes, whether it's highway, airports or rail."

The Romulus facility was announced by the MEDC and will be 2.3 million square feet and create up to 1,600 jobs, according to the Free Press. The Shelby Township facility could be the redevelopment of the former Visteon site and include more than 1 million square feet, according to the Free Press.

There are no known plans for West Michigan Amazon facilities at the moment, but Kingma said all signs point to a future entry into the market.

“It’s a matter of when, not if,” he said.

With more than 3 million square feet of industrial space in southeast Michigan dedicated to the company, Kingma said West Michigan could be in for a shock.

There are approximately 115 million square feet of industrial space in the Grand Rapids area, so one building of 1 million square feet is nearly 1 percent of available space. He also notes there are no buildings of that size currently available in West Michigan.

“If you plop one building, that’s a lot of space,” Kingma said. “It’ll put pressure on existing buildings. Our market is tight today, and that only exacerbates it.”

The effect of Amazon on the global economy is not small. Amazon’s recent movements have sent the publicly traded stock soaring, and Forbes reported last week that founder and CEO Jeff Bezos overtook Microsoft founder Bill Gates as the world’s richest man. His stay at the top was shortlived. Bezos has seen his net worth rise $17.8 billion since Forbes published its 2017 Billionaires List, as his net worth now sits at an estimated $90.6 billion, $500 million ahead of Gates.

Despite the growing influence of Amazon on the retail world, Kingma and Alderink both said there are some things e-commerce can’t replace.

A suit, skis or other specialty products must still be fitted to an individual user, Kingma said.

“I bought my socks and T-shirts online, but I buy my suits at Fitzgerald’s for the service and fitting,” he said. “If you need to buy a ski coat, you know if you’re a large or extra large, but for that set of skis you need them fitted to you at some level. There’s a level of specialization required that is less favorably e-commerced. The demise of MC, at least today, does not turn to the demise of Bill & Paul’s (Sporthaus, 1200 E. Paris Ave. SE.)”

Alderink said there were fears nearly two decades ago when Lowe’s and Home Depot began their expansion that neighborhood hardware stores would close. Instead, outlets like Rylee’s Ace Hardware, 1234 Michigan St. SE, have expanded. The need for quick trips for weekend projects at hardware and auto stores can’t be replaced, at least for now, he said.

No matter how large the piece of the retail pie e-commerce eats up, Alderink said there always will be a segment of consumers who enjoy the shopping experience and will visit physical stores.

“There is a piece of people who like going out with each other,” he said. “I know nonshoppers can’t relate to that, but there are a good many of those who enjoy going to the stores that are unique, attentive, helpful and value-driven.”

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