Earlier this week, I was having a conversation with a number of smart real estate people about the future of retail in today’s internet and smartphone world. This, of course, isn’t a new topic. The industry has been discussing it for years. And while internet retailing still accounts for a relatively small percentage of overall retail sales (~10%), we all know that change is coming.

One company that came up during our discussion was not surprisingly Amazon.com. But the initial comment was that they don’t make any money. Fortunately for me I had just gone through a presentation by venture capitalist Benedict Evans the night before called: Mobile is eating the world. And so I pulled out my phone and presented this slide:

The fact that Amazon operates with basically no net income is on purpose. Look at their revenue growth! So I wouldn’t dismiss them as being a fad. They may only account for 1% of all US retail sales today, but I’d put money on that percentage growing.

The other reason I bring up Amazon is because, in some ways, I think of them as the online equivalent of a big box store. Just like a Walmart or Costco, where you can buy everything from tires to groceries to prescription drugs, I buy a lot of different things, besides just books, off of Amazon.com. You might do the same as well. And this is where I see the immediate threat to offline retailing and retail real estate: big box stores.

In the second half of the 20th century, big box stores were incredibly disruptive to the retail landscape (and to cities). They used cheap land on the outskirts of cities, cheap buildings, and economies of scale to offer rock bottom prices to consumers. The value proposition was about cheap, not about differentiation. But as cheap as they may be, the internet can still do it cheaper.

And retailers know this, which is why I think they all now sell groceries. Groceries have a very low online penetration. Basically everybody still buys groceries in-person. So if you offer that, you have a reason to draw people inside your store, where they will hopefully buy all the other stuff that they need. But as the online value proposition continues to get stronger, I think we’ll see many other, more significant, changes.

Image: Flickr

One of the biggest news pieces of the last few weeks—at least in retail and tech circles—has been Amazon’s unmanned aerial delivery drones (also known as Amazon Air Prime). In case you missed it, here’s a video from Amazon showing them in action. 

The goal:

"To get packages into customers’ hands in 30 minutes or less using unmanned aerial vehicles."

Now, this won’t happen for another few years, if even that soon, but I think it’s pretty clear that this is something epic in the making. If successful, it’s going to completely rewrite, not only the retail landscape, but probably the landscape of our cities.

If you think about it, cars enabled a certain kind of retail. They enabled big box stores and those, in turn, changed our cities (for the worse, I would argue). Now what happens when the undifferentiated products of a big box store can be flown to my door step in less than 30 minutes? Suddenly getting into my car seems archaic.

There’s a great article covering Amazon’s drones and the history of American retailing in Atlantic Cities. They do a better job conveying the potential magnitude of Amazon Air Prime and so I suggest you have a read if this topic interests you.