E-Commerce: Further Retail Destruction
The story is always the same with technology. When one watches the trends long enough, the cycle becomes clear. This is why it gets fairly easy to see disruption long before others are aware of what is taking place.
Of course, seeing what is coming and timing it are two different things. Trends are much easier to spot than putting a timeline on them. Here is where the idea of forecasting enters, something that is far from an exact science.
Nevertheless, even when people are aware of something taking place, it is beneficial to keep an eye on what is going on. It is from this exercise where we learn the process, furthering our ability to see things in the future.
In this article I will focus upon the retail apocalypse and how we are only at the early stages of this devastation.
E-Commerce Disruption
The term "retail apocalypse" probably became commonplace in 2015. This was used to describe the destruction related to the shopping malls. All over the United States, retail space was ending up vacant as stores closed down. Many major retailers went bankrupt, furthering the carnage.
There is a reason to focus upon the United States. This country outpaced every other by a wide margin when it came to retail space. The retail footage per person is 4x the next closest country.
It is no secret the damage Amazon did. When you look at the second largest retailer in the United States operating primarily online, it tells us how things are changing. Hundreds of billions in sales is now done outside of physical locations by this one company. That is going to have an impact.
To get an idea of what is taking place, let us look at a couple charts.
The first is e-commerce sales in the US.
As we can see there was a spike during COVID when everyone was locked down. However, something interesting happened. After things reopened, the earlier trend was resumed. That is one of the things about technological trends: they tend to be very consistent. Over time, they just keep churning ahead regardless of the economic circumstances.
In Q1 2020 the total was $160 billion; now it is $284 billion.
The second chart is e-commerce as a percentage of total sales.
We see the COVID spike which had some pullback after things reopened. However, notice how we are back near the long term trend. PRE-COVID, we were 11.9%, now 15.6%. From here, it is easy to see how we will hit 20% in only a few years.
This is going to continue to impact all that are involved in retail. One of the biggest sectors hit will be retail real estate. As more sales, especially as a percentage of the whole, shift online, we simply need less retail space. There is no need for all these strip malls and shopping centers.
E-commerce is going to continue to cause massive pain for the real estate market. This is, however, what technology does. Anyone who is in an area where prices are high will see a lot more land available in the future. Naturally, some zoning laws will need adjustment before housing is built.
Nevertheless, we get a clear indication of where things are heading.
Car Dealerships Next
Most understand the shopping mall scenario. I do seem to get some pushback when I mentioned the car dealership is going to follow this path.
The reality is e-commerce is starting to take over there also. People believe the car buying experience is going to be done through dealerships because that is what they know. This is an incorrect way to look at things. Disruption means doing things in ways we were not aware of previously.
Tesla is the leading electric vehicle manufacturer in the United States. They sell direct-to-consumer, with all purchases made online. They have showrooms set up in different areas yet do not sell out of there. In fact, in many states, due to archaic laws, Tesla is not allowed to sell out of these locations.
Nevertheless, each year the number of cars sold by this company keeps growing. The same is true for pickup truck maker Rivian, which also does direct. If the trend towards electric continues, and these companies remains as two of the leading in their particular segments, this could mean a lot more pain for the car dealerships.
In 2022, the company sold 450K cars in the U.S. What happens when this numbers tops 1 million? Add in another 150K from Rivian if they scale and we could be looking at a fair percentage of the overall automotive sales in the U.S. moving online. With a total of about 15 million, this would be around 8%.
Can the retail car establishments afford to lose 8% of their sales volume? That is going to cause a lot of pain.
Things tend to happen slowly at first. Over time, the tendency is for them to accelerate. It is during this phase when people start to see what is happening. However, I am here to tell you it is evident long before the masses are aware.
We are going to see an apocalypse in the retail automotive segment. Things are already in motion. When the Chinese finally arrive in the U.S., which they will at some point, do you think they are going to open a bunch of dealerships everywhere? Not likely.
It is an old model that is dead. Look at the e-commerce charts and look at the laughable numbers in the early 2000s. Well, nobody in retail is laughing now at what e-commerce is doing.
And it is not going to stop. A lot more real estate is going to become available over the next decade. The carnage is just starting.
Posted Using InLeo Alpha
The car dealer piece is interesting because I hear more and more commercials on the radio when I’m in my car about buying it online. To an extent I get and appreciate that but getting in the car and all that is important and where I’ll struggle for car buying. I know some things we can buy online because you don’t need to necessarily see it or test it first but a car is a tough one, and the price tag makes it harder.
For traditional dealers, yeah it is tough because they offer so many different models. But with Tesla and some of these EV companies, you have a few models and then some choices within them.
Again, we find it tough because we are accustomed to buying a car in that manner. However, there was a time when people said they would never put their credit card online.
So buying habits do change.
yup a lot of malls went boom :(
It is true that technology has disrupted many industries, including retail. Indeed, the e-commerce trend has been consistent and is likely to continue, causing pain for the real estate market. The retail automotive segment is also likely to be impacted, with e-commerce taking over the car buying experience as well.
At this point, it is important to keep an eye on what is going on and learn from the process to further our ability to see things in the future and get on baord sooner than later.
They were fun in the 90s, but let the malls burn!