5Qs for Ami Ziff on e-coms' migration into physical retail

As the national retail director for Time Equities, Inc., Ami Ziff has long worked with digitally native brands looking to branch out into physical retail in urban areas where TEI owns many residential and office properties. He is firmly convinced that, sooner or later, all successful online sellers will find themselves seeking out physical retail space. We asked him to elaborate.

More and more digitally native brands are moving into physical retail. Is it a must for their survival? 
Amazon and Alibaba have hit a ceiling when it comes to online members. As a result, they’re opening more stores to drive growth and customer acquisition. What I see tech brands doing more and more is buying into businesses that actually make money, so there’s more of a push by them for retail operations. If you can control occupancy cost and do your job right, you make a lot of money. And e-coms have to have stores, if only because return rates for online purchases are so huge.

Does this mean the average store size of the specialty retailer will decline greatly over the next decade?
The short answer is yes, I would expect specialty retailer footprints to shrink. But it depends on how each retailer reinvents itself. For instance, office supply stores are shrinking their footprint while maintaining a similar SKU count by optimizing the merchandising of their spaces. In contrast, dollar stores throughout our portfolio are increasing footprints to beef up their grocery offerings. Medical offices are really getting bigger. We’re doubling the space of successful doctors’ and dentists’ practices.

What advantages do smaller store footprints offer retailers--both the traditional as well as the clicks-to-bricks crew?
Retailers shrinking their prototypes affords them the opportunity to penetrate new markets and discover new customer demographics. I live on the Upper East Side of New York, where Target added one of its smaller formats at 71st and Third. Before that, you had to travel up to 125th Street to shop at Target. What that did for me and other people who live here, and for the army of nannies we employ, is to experience a store that we never really had access to. We could now buy stuff on the Target website and return it at the store. Retailers are profiting by opening more, smaller stores in areas that would not have supported their more bloated formats.

I know a veteran of the e-commerce industry who likes to say "There is no such thing as free shipping." What role does the high cost of delivery play in this?
Well said. Over the past couple years, I have seen retailers steadily increase the minimum amount of money customers are required to spend in order to qualify for free or expedited shipping. I wager this trend will continue, as the largest delivery service companies continue to increase their shipping rates, which in some instances are being baked into the price of the product. Five or six years ago, Google Express rolled out in New York. You got free two-hour delivery with no minimum purchase. That proved too costly, so they discontinued it and rebranded it and now, depending on where you live, there are $35 or $50 minimums.

Do you ever see a time when online sales will equal or surpass physical store sales?
Who the heck knows? If things continue at their current pace, you might see an inflection point in 15 years or so. Maybe all of these stores will be last-mile distribution centers. But I can tell you this. We’re out there buying physical retail, a lot of it. The vast majority of online sales are coming from Walmart and other traditional retailers with physical stores. The world is not making more land and I’m convinced physical retail will stand the test of time.