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Tuesday May 19, 2020 |Notes

Too much retail space

There's entirely too much retail space in the United States. It's not unthinkable that a quarter of individual retail stores will be out of business within the next 12 months as commerce moves online.

In 2PM's msot recent newsletter, Web Smith discusses the issue of retail space, noting that the US has 10x the retail space of China on a per capita basis.

The United States is over-retailed. With ten times the square footage (per capita) of China, a growing eCommerce economy could be catastrophic in the short term. Online retail’s growth will exacerbate existing issues with commercial real estate vacancies and revenue collection. A $5.27 trillion dollar market, retail is nearly one-quarter of America’s gross domestic product. Bank of America’s credit card data and others have placed eCommerce as 20-30% of a down retail market (-16% in April)

Similarly, Horan Capital recently noted that the US has rougly 40% more retail space on a per capita basis than the second leading country, Canada.

!retail space per capita

Stores are reopening - and many shoppers are unlikely to return in the same numbers. Digital commerce has seen huge increases in the last 2 months, following a two-decade long trend and those gains are unlikely to go away. With unemployment numbers spiking and millions out of work, it's unlikely that retail spending will jump back to pre-covid levels for some time.

With more customers taking to digital commerce, it's easier for businesses to serve a nearly unlimited audience via a digital storefront, rather than try to copy the same stores dozens or hundreds of times in various markets in the physical world.

The covid pandemic and the economic fallout will be the tipping point for millions of stores that were already having trouble generating enough revenue to meet the overhead costs. Many of these stores were going to be forced to close in the next 3-10 years, and the demise is coming much faster now.

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