It is stunning how quickly technological explosions can happen. The key is they take years (often decades) to materialized but, there comes a point in the exponential curve when things explode.
eCommerce came about not long after the World Wide Web came into being. Over the past 25 years, more of our physical shopping has occurred in the digital realm. Of course, the leader, by a wide margin, in this arena is Amazon.
COVID-19 changes a great many things in life. Ultimately, it took trends that were already in place and accelerated them forward. For example, the move to video conferencing was growing consistently during the last decade. However, in response to COVID, it absolutely exploded. This has ushered in the "work from home" movement.
Not to be outdone, retail is also seeing acceleration. Even though the trend was in place for more than 20 years, we see a massive amount of acceleration this year. Naturally, this is on top of the large growth that was taking place already.
Here is a chart as to what the growth of eCommerce looks like.
This chart is an example of how things proceed along at a consistent pace, albeit growing. Here we see the eCommerce rate go from roughly 4% in 2010 to just shy of 12% by the end of Q1, 2020. That is a tripling in a little more than a decade.
However, as we can see, after the acceleration takes place, the numbers really grow. During the second quarter, the rate went from 11.8% to 16.1%. We an see how statistically significant that is when looking at the chart.
Here is the typical exponential curve. Notice how we see the "elbow" forming already.
Over time it is easy to envision how the new trajectory will continue and make the top chart mirror, to a degree, the bottom one.
The key is this puts enormous pressure on retail real estate. The retail apocalypse is nothing new. The challenge is that it is accelerating. This is how technological disruption happens. Things move slowly, in comparison, at first, only to go into overdrive.
Another issue is the fact that the square footage in the United States for retail far outpaces the rest of the world. During the last 40 years, the country went retail happy, building out stores wherever it could. This resulted in a large percentage of space that simply cannot be filled.
This takes on added meaning in the eCommerce era, especially since it is obvious that things are only starting to accelerate. It is a situation that is going to cause a great deal of pain for those who are involved in the owning, financing, and management of retail real estate.
On the bright side of things, all that land will be available for repurposing. Over the next decade, we are likely to see a lot of land freed up due to technology. Parking lots, office and retail space, and eventually, farm land will all be used for purposes other than they are now.
That said, it will be a process to get there. The retail real estate is only going to be the first to bear the burden of disruption.
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