Brookstone is the latest victim. Last month it was ToysRUs. Before that it was Sears. Who’s next you wonder? Who’s going to be left is what we wonder. CRE retail property investment is inherently risky enough as it is, but when you get to see a market disruption play out right in front of you (i.e.: the impact of e-commerce sales on retail property retail business operations sales is an example of a market disruption), you start to get the picture about the risks that CRE loans and investments are now exposed to in the Information Age. Loan loss and investment loss exposure isn’t just for retail properties.
Information is the key. At the turn of the last century critical market information could still take weeks, months or years to be known. Today’s computer-driven world has cut that timetable by an unbelievable margin, to say the least. The times have definitely changed – are you paying attention?
Market risk is the risk of your business assets becoming obsolete and therefore generating less earnings. Lower earnings mean lower investment value and that means potential losses are not possible, just waiting to happen. Asset obsolescence happens because healthy market economies have innovation baked into the recipe – businesses live for the purpose of finding a way to solve a problem or address a need in a more cost efficient way than their competitors are doing so because it is in their own self-interest. Market economies all function on the basis that individuals, businesses and governments will all continue to function in deference to their own self-interest, first.
We see self-interest manifest itself by the changes consumers make to their purchasing preferences as a result of being introduced to these new products and services that solve their problem or address their need in a more efficient way. These changes end up picking the winners and losers in businesses and that means the consumers end up inadvertently picking the winning and losing investors. It’s a brutal process, but there is no possible way to change these facts of life.
I think the question we should be asking ourselves is not what e-commerce tells us about the future investment prospects for CRE retail properties, but what market disruptions tell us about the potential for the future of investing, period. Until you are willing to stand up and face that tough question, you remain a volunteer for the “I Lost My Money Investing in the Market”, competition.
There are no villains in this world and there are no victims – only volunteers. What are you volunteering for today?