Good news for retail REITs: Bricks still beat clicks

Don't make the mistake of assuming the growth of Internet retail sales is the beginning of the end for retail stores and, thus, a negative sign for retail-sector real estate investments. “We all lose sleep over the impact of the Internet, because we know that Internet sales are growing three times as fast as in-store sales,” said David Henry, president and chief executive of Kimco Realty Corp. “But, you have to remember, there are entire segments that are not impacted by the Internet, such as stores like Home Depot, and restaurants,” he added. Mr. Henry, speaking in Dallas at the National Association of Real Estate Investment Trusts' annual convention, explained that the Internet is at least the third threat to face the retail store business, and therefore real estate investment trusts “First, everyone thought catalog sales were going to put retailers out of business, then it was the home shopping networks that let you do everything from home,” he said. However, he added, “unless you're buying a plain white shirt,” the unique challenges associated with size and fashion make it difficult to shop online. That difficulty, research has found, leads to multiple sales and multiple returns. “Online, somebody will buy six pair of shoes and return five,” said Sandeep Mathrani, chief executive of General Growth Properties Inc. When those returns are made at a retail outlet, Mr. Mathrani said, “it's basically a store coupon,” which ultimately drives more traffic to the physical retail stores. Mr. Henry, whose firm specializes in outlet centers, said he now rents space to companies that sell products over the home shopping networks. RELATED ITEM The largest nontraded REITs » There are also examples such as Apple Inc., which continues to increase its number of so-called showroom stores that provide consumers with more exposure to Apple products. Keep in mind, however, that even as real estate investors like Mr. Henry are making the most of the pattern of Internet sales and returns, the REIT industry remains one of the major supporters of legislation to require that sales tax be automatically applied to Internet sales.