The internet has had a huge influence on how we live our lives, perhaps nowhere more than how we buy things. The growth in online shopping has been staggering, and online retailers such as Amazon.com Inc. (AMZN) continue to claim an increasing share of shoppers' dollars. That’s prompted many analysts to proclaim that traditional “bricks and mortar” shopping was going the way of the dodo.

Well, those analysts may want to think again.

A new study, shows that the traditional shopping experience is alive and well for many Americans. Physical retail spaces aren’t going away. In fact, they are thriving. With that in mind, investors may want consider adding the owners of these retail locations to their portfolios.

Bricks and Mortar: Alive and Kicking

According to new study by global consulting firm A.T. Kearney, consumers continue to flock to physical retail locations and are actually crucial in generating online sales for retailers (see showrooming). By a wide margin, bricks and mortar remains the preferred channel for shoppers. (For related reading, see: How Wal-Mart Makes Its Money.)

That’s a sharp contrast to what many analysts and investors have predicted.

According to the study, 90% of all U.S. retail sales conducted last year were done in a physical store versus only about 9% done online. What’s more, 95% of all sales were accounted for by retailers with a bricks and mortar presence. A.T. Kearney found that just over two-thirds of customers purchasing online used a physical store before or after the transaction. Kearney noted that stores make a significant contribution to generating sales, even if the transaction is eventually done online. Through the five stages of a retail transaction — Discovery, Trial & Test, Purchase, Delivery or Pickup, and Returns — at some point along the chain, the majority of consumers will use a physical store.

The study can only serve as bullish news for those owners retail-focused real estate structured as real estate investment trusts (REITs).

Much has been published about the death of shopping malls, power centers and free-standing retail locations at the hand of online shopping and websites like eBay Inc. (EBAY). The owners of the these retail locations probably don't have a lot to fear, though, as they should continue to power portfolios with strong dividends and capital gains for years to come.

Buying Some Retail REIT Muscle

Given that physical stores still remain an important part of the American shopping experience, investors may want to give them a prime spot in their portfolios. While most broad REIT funds like the Vanguard REIT Index ETF (VNQ) do include exposure to retail real estate, the iShares FTSE NAREIT Retail ETF (RTL) is more of a direct bet.

RTL tracks 35 different power center, shopping mall and outlet centers owners. Top holdings include giants like Simon Property Group Inc. (SPG) and Kimco Realty Corp. (KIM). Overall, the ETF is proof that Americans still love to go out to shop, with RTL returning around 25% annual over the last five years. Expenses for the ETF run 0.48% and RTL yields a healthy 3.25%.

The only drawback to RTL is that the fund features very low trading volumes. To that end, investors may want to consider other individual options. (For related reading, see: How to Assess a Real Estate Investment Trust.)

Don't Forget Small Malls

One could be in smaller mall operators. While Simon is the largest owner, smaller firms like CBL & Associates Properties Inc. (CBL), Macerich Co. (MAC) and General Growth Properties Inc. (GGP) have all experienced faster funds-from-operations (FFO) growth than their bigger rival. That often-touted REIT metric directly puts cash back into investor’s hands as dividends. In fact, both CBL & GGP saw FFO growth of nearly 12% this quarter.

Another great choice could the owners of freestanding retail properties. Often these properties are triple-net leased, meaning all the resulting costs of ownership are passed down towards the tenant, leaving the property owner to sit back and collect rent. Realty Income Corp. (O) continues to be one of the best performers in the sector and has a 45-year track record of paying dividends. O currently yields 4.9%.

Finally, traditional grocery store-anchored real estate and neighborhood shopping centers continue to pack in customers, with DDR Corp. (DDR) leading the way. The firm continues to expand by buying assets from other developers, including private equity firms looking to raise cash. That strategy seems to be working as DDR has realized higher occupancy rates as well as FFO measures.

The Bottom Line

Bricks and mortar stores aren’t dead or even dying. Not by a long shot. For investors, that means the owners of shopping malls, power centers and other retail real estate are in a prime position to continue paying strong dividends for years to come. (For related reading, see: 5 Types of REITs and How to Invest in Them.)

Related Articles
  1. Investing Basics

    Investing In Real Estate Versus REITs

    Article on Real Estate Investing Versus REITs.
  2. Mutual Funds & ETFs

    What Are The Best Real Estate REIT ETFs?

    In a period of low interest rates, Real Estate Investment Trusts (REITs) offer great income potential.
  3. Home & Auto

    How To Calculate ROI For Real Estate Investments

    Calculating return on real estate investments can be difficult. We help you figure it out.
  4. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  5. Fundamental Analysis

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  3. Series 6

    A securities license entitling the holder to register as a limited ...
  4. Proprietary Reverse Mortgage

    A loan that lets senior homeowners retrieve the equity in their ...
  5. Single-Purpose Reverse Mortgage

    A financial tool that lets senior homeowners retrieve some of ...
  6. Turnkey Property

    A fully renovated home or apartment building that an investor ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!