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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

Feb. 16, 2024

Supply Chain News: Fresh Thoughts on eCommerce versus Brick and Mortar

Amazon Q4, Deerfield DC Ban Trigger Analysis

Brick and mortar retail is dead. Long live brick and mortar retail.

Which way is it going to go? The answer as I have said many times will have not only a major impact on logistics and the supply chain but on society as a whole.

I have written about this topic several times, but there were a couple of recent news items that triggered me to offer some fresh observations.

Gilmore Says....

That said, the ability of Amazon, Target, Walmart and a few others to get orders in growing percentages delivered same day is a game changer.

What do you say?

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Trigger 1: Amazon's on-line store sales rose 9% in Q4,according to the company’s Q4 earnings report.

Trigger 2: Deerfield, IL, a suburb of Chicago, last week adopted new rules that would ban new distribution centers, freight hubs and other logistics facilities from being opened.

On the first trigger, of course not all that long ago Amazon saw 40%+ ecommerce growth with regularity, them 20%+ growth as it ran into the law of large numbers.

Then Amazon, like the rest of retail, got a huge boost from the first two years of the pandemic. For example, according to the quarterly report from the Census Bureau, US ecommerce sales grew by more than 40% versus prior year in every quarter from Q2 2020 through Q1 2021.

That as consumers changed buying habits in a pandemic-induced stay-at-home economy for both work and non-work situations, leaving some folks, including me, wondering if we would see the end of much of the brick and mortar retail.

Around this time, upwards of 10,000 retail outlets were being shuttered per year, and the term “retail Armageddon” to reflect this dire situation gained some currency.

But something funny happened. It turned out the move to on-line in some ways pulled back.

Of course, that extreme growth rate could never be sustained, but it stopped faster than I would have guessed.

Again according to the Census Bureau data, ecommerce as a percent of retail sales basically flatlined from Q2 2021 though Q4 2022, at around 14.8%. As an aside, SCDigest calculates this number a little differently and which that shows a somewhat higher share for ecommerce (e.g., we don’t include sales of automobiles as part of total retail, as the government does), but directionally both showed the same thing.

In parts of 2022 and early into 2023 ecommerce sales at Amazon also flatlined, even falling slightly in a couple of quarters. But that 9% growth in Q4 follows 7% growth in Q3 2023. Neither numbers are like Amazon saw in the pandemic and before, but it’s a lot better than flat or down, and higher than growth in overall retail sales.

And indeed, in the Census Bureau statistics, the share of ecommerce sales versus overall retail has risen to 15.6% in Q3 2023, the last quarter for which we have data.

On trigger 2, I find the move by Deerfield, IL to ban new DCs quite interesting. There seems to be two main drivers for the new rule: (1) concern about ever-growing truck traffic into and out of massive ecommerce DCs; and (2) a related but more general belief that it is a lot better to have lots of office space than lots of DCs.

This scenario in part is indicative of the societal changes that result from the growth of ecommerce. Right or wrong, Deerfield is trying to hold back the tide.

There are some other positive trends for brick and mortar. As we reported a few weeks ago, according to new data from real estate company Cushman & Wakefield showed vacancies at US shopping centers fell to 5.3% in the fourth quarter, the lowest level since real-estate firm Cushman & Wakefield began tracking the metric in 2007. Average asking rents rose to $23.70 a square foot and are now nearly 17% above 2019 levels (see graphic below).

What's more, store openings outpaced closures for the second straight year in 2023 after years of net closures, according to research firm Coresight Research.

That’s to the good. Also to the good: the way Target, Walmart and a few others have embraced the store as the hub of the supply chain, including ecommerce.

Target, for example, fulfills something like 80% of its on-line orders from its stores.

Walmart (and Target) have long seen their thousands of stores as their key advantage against Amazon’s massive logistics network. To that end, last fall Amazon announced its Late Night Express Delivery Service, getting goods to consumers in as little as 30 minutes, for orders until 10 PM.

Take that Amazon. (Note: I am not sure of the cost for this.)

So where does all this lead us? I am frankly not sure.

I believe that Amazon took some market share with its 9% Q4 ecommerce growth, as the increase in on-line sales from here will continue to grow, but now slowly.

That said, the ability of Amazon, Target, Walmart and a few others to get orders in growing percentages delivered same day is a game changer.

Younger consumers often only know on-line.

In the end, I say on-line grows to about 35% in decade, but many other stores become hybrids, with sales and fulfillment operating together.


What is your reaction to these retail thoughts? What would you add? Let us know your thought at the Feedback section below

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