Thought Leadership

State of the Industry Q4 2017: A Discussion with Dr. Peter Linneman

Trademark|November 2, 2017

Written by: Terry Montesi, CEO of Trademark

What is the true state of the retail real estate industry in the wake of rapid, unpredictable change?

Dr. Peter Linneman is principal of Linneman Associates and chief economist of NAI Global. He was named one of the “25 Most Influential People in Commercial Real Estate” by Realtor Magazine.

Terry: In the face of the crazy changes in the retail business, what are some current trends in consumer behavior and demographics that will affect our industry in the future? What’s some advice for those in the retail/mixed-use development business? Where’s the opportunity?

Peter: It’s something I’ve thought a lot about. I don’t know if I have the answers, but I know what questions to ask – let’s put it that way.

As you know, it has more to do with the media than it does with retail behavior. About eight months ago, the media decided that retail, except for e-commerce, was dead. I think a main reason they made it such a big story is because Amazon reported real profits for the first time in its history, and it became a great narrative. By the way, Amazon had never made profits until the last year and a half. There was a small period about five years ago where they made a little bit and had a lot of sales growth, but not profits. I think when they announced that they were finally profitable, the media misinterpreted it, and of course Amazon became the poster child for e-commerce.

Terry: So, I want to be clear: What do you think Amazon’s source of profitability was?

Peter: The media interpreted Amazon’s profitability as if retail sales were the source of their sudden profitability, which it has nothing to do with. If you line through their stuff, as best I’ve been able to, their profitability spike is at a 250 multiple – or a 0.4 cap rate in our world, to put that in context. That’s what the market is valuing them at, and the market may well be right. Every day there’s $5-10 billion in trades saying that’s right.

Remember, this isn’t a startup company – this is a 20-year-old company that’s never made profits, just sales. Their profitability spike came from two things…


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