If you’re involved in commercial real estate in any capacity, we’re recommending Re-Engineering Retail by Doug Stephens. Even more broadly, if you’re curious about what the future of retail might look like, you’ll find some very interesting predictions in this book. While the focus is on the future of the retail landscape, there are underlying issues that will address the commercial supply chain, distribution and warehousing.
It’s a compelling topic and the right time, so we’ll get to our review and the reasons for our recommendation after a bit of rambling.
If you’ve read any of our previous articles, you’ll know we cover a broad spectrum of topics relating to the commercial real estate market (with a particular emphasis on Edmonton). With over 150 articles on that subject, we have yet to review even a single book. And it’s not that we don’t read. In fact, with the exception of Atlas Shrugged and One Hundred Years of Solitude, collectively we’ve read 100’s of business / non-fiction books over the past few years.
We subscribe to the notion that a book takes a significant investment. Not just in the time it takes to actually read the book, but in the opportunity cost of all the other books that could be read instead. Deciding to read a book, in other words, mean that you are forgoing countless other things we could be reading (or doing). We therefore like to research what we’re reading ahead of time, which includes reading other reviews or learning about the author. There haven’t been any meaningful reviews (until today!) so instead we looked into the author. We like to see that warm and fluffy stuff about their client list, education, hobbies, etc. Doug Stephens has worked with a number of major retailers, but we didn’t see anything about his education or if he has a dog or not, so we had to take a leap of faith with his book (facetiously speaking of course). We did learn he’s Canadian, so he had that going for him.
Stephen is a self-described futurist, so be cognizant that many futurists are dead wrong. In fact, history has shown some Epic Prediction Fails by Very Smart People (that sounds like the title of something we would click on facebook). The world is flat, the world will end. Retail sales are flat, retail sales will end. Steve Ballmer, CEO of Microsoft, predicted in 2007 that “there’s no chance that the iPhone is going to get any significant market share”. For added emphasis, he added “No chance” one more time. Futurists make a name from themselves by making bold predictions. It’s easy to do, and if you’re wrong you have plenty of things to blame it on. You can drift into obscurity or just make another prediction, and boom, you’re back in business.
Go into this book with the proverbial grain of salt.
There’s a powerful statement in the book:
“[The] growing chasm between the ease and convenience of the online shopping experience versus the challenges and rigors of the offline experience will soon reach a tipping point, and it simply will no longer make sense to venture into the relative information vacuum of a physical store…”. More on this in a moment.
Stephens based his statement on many many different facts and trends, the most noteworthy of which we’ve included as follows:
In 2015, Amazon had revenue equal to $623,000 per employee, which was 3 times as much as Walmart’s revenue per employee. The same year, Amazon had 260 million products on their website, while Walmart.com had 11 million products (roughly 4% of Amazon). Amazon’s current share of the ecommerce market is greater than Walmart, Apple, Costco, Home Depot and Nordstrom – combined!
Renowned for their commitment to technology, Amazon applied for a patent in 2014 called “anticipatory shipping”, which in theory could ship products before a customer ordered them. Picture the potential disruption to the grocery industry if Amazon automatically delivered necessities such as milk, fruit and vegetables without the customer needing to do anything. In what Stephens describes as the “Replenishment Economy”, a substantial amount of items we need and use will be ordered for us by technology. Consider toothpaste, which most people buy in a store or order online. In the future, a series of “sensors, devices and robust analytics” will ensure you automatically receive a new tube of toothpaste when you need it. Amazon already has these with Dash Buttons, and now a larger platform called the Dash Replenishment Service. For example, Amazon has a Brita water jug that automatically orders a new filter after its purified 36 gallons of water. Early reviews suggest there’s work to do, but we suspect that’s exactly what Amazon is prepared to do.
Amazon is a “data, technology and innovation company that also happens to sell things”.
The US is estimated to have double the retail square footage per capita of the next closet nation and some estimates suggest that 1/3 of all shopping malls will soon fail. In 2015, global ecommerce was $1.592 trillion and represented a 21% year-over-year increase whereas the global retail industry grew 6% by comparison. In 2015, China became the largest ecommerce market, with more people connected to the internet than the US has people. Even with this astonishing numbers, it still represents only 50% of China’s population. Alibaba, the massive Chinese-based ecommerce company, sold $476 billion worth of product in 2015 alone, while maintaining a gross profit margin near 30%. And it’s not just certain categories that are moving online, Alibaba just set a record by selling 6,500 cars in one day, entirely online. India passed the US in 2016 to become the second most connected country in the world with estimates they will have 1 billion people connected by 2030. Interestingly, India also has the world’s largest population of millennials.
Ecommerce is growing at rapid pace, with the potential for an even greater market share as more of the global population becomes connected to the internet. Companies like Amazon and Alibaba are investing in new technologies to capture more market share and further disrupt traditional retailers. Stephens suggests this arms race in ecommerce will result in certain product categories becoming completely unnecessary in a physical store.
Another futurist, Ray Kurzweil, predicts that by 2029 computers will have a higher cognitive capability greater than the entire human population combined. According to Kurzweil, “follow that out further to, say, 2045, we will have multiplied the intelligence, the human biological machine intelligence of our civilization a billion-fold.” As a side note, look into the topic of Technological Singularity if you want to explore the potential of computing potential.
The concept of how future technologies will impact the retail experience may seem daunting, and it doesn’t stop with sensors in your water filter. The book goes into great detail about the following technologies that may seem far-fetched but are closer than we may think:
– Virtual reality (VR), and how new technologies such as haptography and the ophone are looking to bridge the sensory gap of VR and make the experience feel more, well, life-like;
– Augmented reality. Read why a company called Magic Leap has raised over $4 billion without even releasing a single product;
– 3D printing, and how some believe it will transform the world. According to Pascal Morand, “3D printing is nothing short of a new industrial revolution that also holds potential for major innovation in terms of economic models, not least via on-demand production.”
Ultimately, the question many are asking: Is retail dead?
According to Stephens, the answer is “unequivocally no“.
Notwithstanding the proliferation of ecommerce and all the technological advancements that appear imminent, Stephen still believes bricks-and-mortar retailers still have a place in the future.
Backing up to the earlier statement about how it won’t make sense to enter into a physical store, Stephens ends that sentence with “as we know it today”.
Stephens suggests there are three general reasons on why shop:
- To discover
- Because it’s social
- It’s physiological (shopping can actually produce dopamine)
To capitalize on these three notions, he offers the following advice:
“To remain relevant, retailers will have to imbue their physical environments with the tools, data and technologies that consumers are becoming reliant on to make informed and frictionless decisions….in the retail space of the future, the most important product will be the experiences it offers shoppers.”
Retailers must adapt and change with the newly developing retail landscape and this book offers some great tips and advice if you want to read further into the subject. It was enjoyable to read and written in clear language free of industry jargon. We enthusiastically recommend this book. Whether or not you agree with his predictions, it will prompt you to ponder the endless possibilities of the future of retail.
We have not receive any commission or compensation whatsoever for this book review. Our comments represent our sole opinions and do not represent any organization or company.
Chad GriffithsPartner, SIOR, CCIM
Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer with NAI Canada-wide since 2013.
Ryan BrownPartner, BCom, SIOR
Ryan is a partner with NAI Commercial Real Estate in Edmonton and is currently ranked nationally as one of NAI's top advisors. Having executed in excess of $100 Million worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and long-term practicality.
Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.
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