During the last few years, almost all retailers’ volume gains occurred in deliveries, curbside pick up and in shipping. In other words, all the volume growth came from the “back door” and the volume out the “front door” was unchanged. For the foreseeable future, there will be no additional dinners sold inside your favorite restaurant and no more shoppers at your local grocery store even if your town’s population is growing. Those stores sales will grow, but it will all happen out the “back door”.
It’s no surprise that Walmart stopped adding stores in many key markets recently and instead made massive investments in their “back door” e-commerce platform. Other retailers followed: Target spend $550M to buy Shipt, McDonalds spent $300M to buy a geo-fencing platform. Still, because of high delivery costs, all the profits are coming from the front door where the profit margins average 8%. Warehouse, labor and delivery cost and rising rapidly and it is very difficult to make any profit from e-commerce sales. And so, it’s no surprise that the King of the Back Door, Amazon, is embarking on a massive store expansion with its Amazon Fresh stores. The profits are from the in-store sales, but all the growth is happening out the “back door”.
By 2030, it will all be over. Most retail businesses will get 25-30% of their sales from e-commerce. They will all have cool apps, frictionless check outs, one-hour delivery and so on. Ecommerce growth and brick and mortar growth will equalize and once again, we will need more retail space to accommodate the growth. Until then we don’t need anymore retail space in the US, we just need to repurpose what we already have.
