Retailers Beginning to Compete With Amazon…But Here’s a New Problem!
Amazon is a true commercial phenomenon. From it’s founding in 1994 to present day, the online retailer has grown its sales dramatically, reaching $35.7 billion for the first quarter of 2017. That’s a year-to-year ramp-up of about 23%, a clear indication that the giant is continuing to outdistance its rivals. Amazon is also capturing a pretty big segment of the labor market, having now amassed a workforce of over 340,000.
With more than a dozen subsidiaries, Amazon’s worldwide reach has placed it as the most valuable retailer in the United States (based on market capitalization) and the fourth most valuable public company in the world (based on revenue), behind only Apple, Alphabet Inc. (Google’s parent company), and Microsoft. Amazon’s strategy has been one of complete diversity in the products it offers, although their inventory can be broken into three main categories: media, electronics, and other merchandise.(1)
From its 1994 beginning under the moniker “Cadabra,” (the name “Amazon” was adopted in 1995), the Jeff Bezos creation has grown to be recognized almost as a reflex source for online shoppers. It’s not uncommon to hear the comment, “If Amazon doesn’t have it, you probably don’t need it.”
Amazon’s Competition…A Classic Uphill Battle
While head-to-head competition with a colossal enterprise like Amazon is something that very few companies can dream about, there of course are challengers in each of the three main product categories. In the media sector, for example, the likes of eBay, Netflix, Time Warner Cable, Apple/Tunes, Google/Play Store, and QVC Group’s Liberty Interactive show the way. The electronics segment likewise has a few competitors, including CDW, Best Buy, Oracle, and Citrix Systems, to name a few. Competitors in the other or general merchandise segment include big box, brick-and-mortar operations like Best Buy, Target, Walmart, and Staples.
Some of Amazon’s rivals indeed have focusing on expansion of their e-commerce strategies and have begun to realize modest levels of success. China-based Alibaba Group, for example, has seen its consortium of businesses achieve worldwide sales levels of well over $5 billion, while e-c0mmerce upstart Zulily has reached an annual sales level of $366 million. So, despite Amazon’s hulking shadow, it does appear that there’s room at the table for other online, internet-based marketers. And therein might lie the problem!
But Here’s a Fundamental Problem for the Competition
From baby products to sporting goods, from beauty aids to auto parts, from lawn and garden supplies to musical instruments, and with just about everything in between, Amazon cuts a wide swath across consumer interests. And recently, Amazon has laid plans to acquire Austin, Texas-based Whole Foods Market, a move that will substantially increase their product line through the addition of natural and organic foods. To offer a wide selection of products like this, however, and to make these products available to consumers across a national and worldwide geographic range, requires extensive warehousing capability. This fundamental fact has been at the core of Amazon’s internal planning since its inception and, in fact, has led to its acquisition of over a hundred million square feet of warehouse and distribution center space at a compound annual growth rate of roughly 35% since 2007.
So, here’s the problem. CNBC News Associate Lauren Thomas reports that “…there aren’t nearly enough warehouses across the U.S. to support internet retailers…”(2) and the problem will only get worse as additional e-commerce companies build momentum. Thomas’ research indicates that warehouse space requirements for e-commerce vendors outdistances brick-and-mortar store requirements by about 3:1, something that is creating urgent need for new conditioned storage space. Since the 2008 “great recession,” recovery surges in the retail market and a considerable shift to online marketing has caused demand for space to far exceed what’s available, causing leasing costs to spiral upward…as much as 20% according to some reports, along with occupancy rates approaching 100% in some regions. Some industry watchers report that 2017 may see some stabilizing of the warehouse real estate market, but with online sales continually increasing more than 10% (while department store spending continues to drop), it’s anybody’s guess how long the space problem will remain stable.
The irony here is that there is an awful lot of defunct mall space across the country, a quandary we reported on in a previous AMAC SBS post. While a number of these dead or dying malls are being re-purposed, there is the possibility that some of them may end up totally reconfigured as warehouse space to meet the demands that are clearly on the horizon. According to CoStar Group, an industry source for data on a variety of real estate sectors, there are about 1200 malls across the U.S., and in the past decade the rate at which they’ve fallen on hard times has increased by roughly 14%.
Real estate investment trusts (REITs) are keeping a close watch on this market shift, and it’s pretty clear that the years ahead will be fascinating as companies jockey for available space. And, if you’re interested in the phenomenon of dead and dying big-time shopping malls (it’s become somewhat of a fascination with internet junkies), there’s a website dedicated to tracking the demise of these once-glorious shopping meccas. Visit deadmalls.com to check it out.
LACK OF WAREHOUSE SPACE
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