Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

Subscribe

Tag: ecommerce

  • Amazon moves away from “Just Walk Out” technology at its grocery stores

    Back in 2018, Amazon opened its first cashier-less grocery store. The technology — which it later branded as “Just Walk Out” — was intended to allow customers to do exactly that. All you had to do was put items into your cart and walk out of the store. And then, through the magic of sophisticated computer vision, machine learning, and lots of sensors, you would be billed and sent a receipt.

    However, this month the company announced that it will be moving away from this technology, and instead focusing on its Dash Carts (more on this shortly). It turns out that the technology wasn’t nearly automated enough.

    Last year, The Information reported that “Just Walk Out” was relying on at least 1,000 off-site workers in India to constantly review video footage and figure out who had bought what. This is why it apparently took so long to receive a bill sometimes; humans far away were working to figure out if that was a persimmon in your hand, or a tomato.

    I’m not an expert on this space, but I’m guessing it is not (yet) feasible to do what Uniqlo and other retailers now do with their supply chains and checkouts. So this was the workaround. Whatever the case, Amazon has now said that it will be focusing on its Dash Carts, which are kind of like roaming checkout counters. They come with screens and scales for weighing things.

    Obviously the ideal solution is to not have to do or scan anything. But being able to avoid check-out lines still feels like meaningful progress. I just wonder if these smart carts will encourage or discourage spending. Because now everyone will have a live receipt in front of them. That might discourage spending unless you can offset it with rewards and/or other incentives.

  • What might happen in 2024

    Yesterday we looked in the rear-view mirror. Today we’re looking forward:

    • The market consensus right now is that this cycle of interest rate increases has come to an end, and that we should see rates start to come down next year. Having confidence that rates won’t go any higher in the near future is what markets need in order to start making more decisions. So this is, of course, positive. At the same time, I don’t think anyone should expect a return to ultra-low rates. Rates today are still low when viewed historically.
    • Lower rates are good for levered assets such as real estate, but I don’t think that our industry has fully felt and processed the impacts of higher rates. Unfortunately, I think that things will get worse (in 2024) before they get better (maybe toward the end of 2024 or perhaps in 2025). This is when a “risk-on” approach will return in commercial real estate. A year ago today, I thought 2023 would be the year for this, but as I said yesterday, I was overly optimistic in terms of my timing.
    • On the residential resale side, I think we will see greater optimism sooner, certainly for the most in-demand cities and areas. There is pent up demand waiting on the sidelines and, once we can get past the current bid-ask spreads and deadlock, I believe we’ll return to a more balanced market in 2024. To be clear, I’m not expecting bidding wars and the like. And because of our housing affordability crisis, I also think the Bank of Canada will be more resistant to lowering rates compared to other central banks. This will help the Canadian dollar.
    • If you’re a buyer of real estate, I generally believe that 2024 will turn out to be a pivotal year for you. Roughly speaking, you win acquisitions in one of two ways: either (1) you pay the most or (2) you believe in something that most other people in the market don’t. This second approach is harder to achieve in bull markets. But in slower markets, the door is open and history has taught us that it can be the foundation in which great fortunes are made.
    • As I mentioned yesterday, I agree with the prognostications that hard costs will soften further next year (perhaps even more than 5% on average). Obviously every market is different. But here in Toronto, I just don’t see us returning to the level of construction starts that we have seen over the last number of years.
    • Since 2021, I have used my hyper scientific Jimmy the Greek Reopening Index to keep tabs on office utilization and the overall return to office. And based on this, 2023 was a positive year. Initially, souvlaki consumption appeared dramatically lower on days like Monday. But I noticed discernible increases as the year went on. However, if you look at actual data, such as what we have from swipe cards, the great return to office seems to have stalled out at around 50%. I don’t think this will hold, though. I continue to believe that of the people who work in offices, most will spend > 50% of each week there. And we will see that in 2024.
    • 2023 was the year of AI. But Fred Wilson makes an excellent point, here. AI is 40+ years in the making. Last year only became the year of AI because a consumer-facing app — ChatGPT — was revealed that captured everyone’s attention. Crypto will eventually have this moment, but it will likely need to marinate a bit longer. Instead, I think 2024 will be the year of augmented reality (AR) and a further blurring of our offline and online worlds. Think digital art, fashion, and other collectibles (such as NFTs).
    • Right now, autonomous vehicles feel like they’re in the trough of disillusionment (within the hype cycle). There were moments last year where it felt like we were finally moving beyond this phase. But then some very suboptimal things happened. I think AVs are our reality in the next 5+ years, which means that for next year we likely want to be focused on the inputs: vision/LIDAR, battery tech, etc.
    • Zooming out, we should be thinking about the above two trends in the context of a broader shift toward greater automation. I think it will feel more insidious than immediate (certainly in 2024), but the longer-term impacts are going to be profound for our society. The so-called gig economy is likely to be impacted first. Eventually the overall economy will create new jobs, but we are still going to need to manage this transition toward more automation.
    • TikTok Shop is where to look for the future of shopping. I think the platform will continue to see strong adoption and ultimately prove to be a dominant e-commerce platform throughout 2024. Amazon, Meta, and others will see this, and try their best to catch up and copy it.
    • At the time of writing this post, the total crypto market capitalization is about $1.74 trillion. This is down from nearly $3 trillion at the peak of the market in 2021. The recent gains suggest that the so-called “crypto winter” might be over, and so combined with lower interest rates and more real-world use cases, I think that 2024 will be another strong year for crypto. Total crypto market cap at the end of the year will exceed its 2021 peak.

    And there you have it. My current thoughts for this upcoming year. I should note that I’m not an economist, analyst, or an expert on souvlaki demand for that matter. But I enjoy writing this post as an annual discipline. It forces me to think critically about the topics that interest me. And in the paraphrased words of Howard Lindzon, it gives me an archive that I can go back to and either cringe at or think to myself, “hey, I could have been a somebody!”

    And with that, a big thanks to everyone who has read this daily blog over the last year. This year marked its 10th anniversary. I wish you much success and happiness in 2024. Happy new year!

  • Beyond visual line of sight

    Drone delivery is one of those things that has always sounded really cool, but has yet to see a lot of adoption. As of May of this year, Amazon Prime Air has only made about 100 drone deliveries in California and Texas (the two states where it operates). This is compared to their initial target of 10,000 deliveries before the end of 2023.

    That said, last week, the Federal Aviation Administration (FAA) approved UPS (as well as other companies) to fly drones “beyond visual line of sight.” This seems like a pretty important approval, because I don’t know how you deliver anything meaningful if somebody needs to keep the drone within their line of sight.

    The thing that I can’t get over in my mind, though, is how you deal with the noise population associated with lots of drones flying around. It’s one thing if you live in a low-density community and a lonely drone comes by once in a blue moon to say hello. But in the city, even just replacing every cubed-shaped Uber Eats backpack would equal a hell of a lot of drones.

    Presumably they would fly, at least some of the time, on top of our existing streets, just above the cars. Because the authorization is only for altitudes below 400 feet. So for tall buildings, you wouldn’t always be able to do deliveries from the roof. And I guess that would be fine so long as they stop sounding like giant insects.

    If that were to be the case, it’s interesting to think about what that would do to all the real estate that exists at that same elevation.

  • Over 15% of retail sales in the US are now happening online

    Amazon was founded in 1994 and went public in 1997. By 1999, some 5 years after the company was started, only about 1% of total retail sales were being done online in the US. So you have to give it to Bezos, he saw what was coming and he got in early to help create it. This was not so obvious back in the mid 90s. The internet as a whole was still being viewed with skepticism, especially after the dot-com bubble.

    Today, online shopping represents over 15% of total retail sales. (See above chart from Charlie Bilello.) The pandemic pop is over, but it looks like we’ve returned to a pretty clear trendline — up and to the right. I guess the questions now are: When and where does this start to flatline? It doesn’t seem likely that this goes to 100% in the foreseeable future, especially if you include grocery. But it’s going to go a lot higher.

    For myself, if I were to exclude food/grocery, I would say that the vast majority (80-90%) of my retail purchases are done online. Even if I’m in a physical store, I’ll often pull out my phone to price compare. If it’s cheaper on Amazon, I’ll just order it there.

    Here’s another example.

    This past summer when I was in Park City, I discovered the brand Vuori. I had heard of them before, but I had never actually seen or touched their clothes. It’s great stuff. But instead of the store convincing me to buy something, it convinced me that I like the brand and that I should probably shop on their website at some point in the near future. And that’s exactly what I ended up doing. (Sorry Lululemon. You’re still my favorite.)

    All of this is perhaps obvious in a world where 15% of total retail sales are happening online. But I would imagine that the retail landscape and our cities will look very different when this number goes even higher. Our cities were different at 1% compared to today at 15%; so imagine what 50% or 80% might be like.

  • An interactive map of industrial space in southern California

    Here is an interactive map, created by the Robert Redford Conservancy for Southern California Sustainability, showing the approximately 1,573,777,062 square feet of industrial space that can be found in Los Angeles, Riverside, and San Bernardino.

    The map allows you to zoom in on specific parcels to see things like site area, warehouse size, and year built. You can also play around with different map radii to create a rollup of warehouse space within a specific area, which includes an estimate of daily truck traffic and CO2 produced.

    The Guardian also used this data to create the following chart, which is helpful in showing the dominance of certain cities, as well as how much of this industrial space has been built since 2010:

    The point of this interactive map, this data, and the accompanying articles is to highlight just how disruptive all of this new industrial space is to these southern California communities and to the environment in general. But I think it is also an important reminder that, whether we like it or not, our online activities have real-world physical implications.

    Online shopping requires warehouses and logistics. Online food delivery requires (ghost) kitchens. And online activity, in general, requires the storage of unprecedented amounts of data. All of these “back-end spaces” take up room, even if they’re mostly easy to ignore when we’re just looking at our phones.

    This is our new “phygital” world and, yes, it is changing the landscape of our cities. Now our task is to figure out how to do this in a way that respects communities and respects the environment.

  • France clamps down on “dark stores”

    One way to shop for things is to make a list of all the things you want and/or need, and then go to a location that sells as many of those things as possible. As I understand, this is more or less what people do when they go to a place like Costco.

    Another way to shop is to just order things piecemeal, and have them delivered to you when you want them and in the least amount of time possible. And it turns out that this latter option is pretty popular.

    It is popular because it involves (1) not going anywhere and (2) not having to make a list and think proactively about the things you may want and/or need in the future. But it does mean that we need specific infrastructure to support this method of consumption. Generally speaking you need urban spaces close to where people live and work, and you need people to transport the goods.

    I mention all of this because it has translated into two areas of concern within our cities: (1) we now have “dark spaces” that are embedded into urban areas but don’t have any public-facing components and (2) we now have throngs of delivery vehicles starting to annoy local communities.

    In fact, France has already responded with a new federal policy that is expected to reclassify “dark stores and “ghost kitchens” as warehouses. This is intended to give local municipalities the power to shutter these sorts of spaces. Part of the thinking is that we all did just fine before delivery apps, so why not just go back to doing what we were doing?

    My own view is that this shift in consumption is here to stay. And so we would be better served by figuring out how to respond in a way that is both sensitive to communities and that maintains the vibrancy of our urban environments. We also managed without things like refrigerated food and mobile phones, but I’m pretty happy to have these tools available to me.

  • Rebalancing retail sector taxation

    Back in 2006, online shopping in the UK represented about 3% of total retail sales. As of March 2020, right before the pandemic, this number had increased to about 22%. Online shopping then spiked during the pandemic, as we all know, but it has since normalized and the January 2022 figure was about 27.1%. But if you exclude grocery sales (because food is special), I believe the percentage of online sales is now in the range of 35-40% for the UK.

    What is clear is that there is a longstanding shift towards more online shopping. It has just become so easy. However, UK retailers, as well as many others I’m sure, have been arguing that part of the reason for this systemic shift is an unfair tax advantage.

    Physical retailers tend to be located in high-traffic areas and so they are naturally subjected to higher municipal taxes. Online retailers, on the other hand, get to locate their warehouses and distribution centers in lower cost locations and so aren’t taxed at the same kind of rates.

    Because of this perceived imbalance, the UK is now studying the pros and cons of implementing an online sales tax (OST) as a way “to help rebalance taxation of the retail sector.” Tax online so offline seems more attractive.

    But this is a tricky thing. Nobody wants to see our main streets and urban centers void of retail activity. That would be like walking through a financial district that had decided to bury all of its retail activity underground or something. But at the same time, does it make sense to shift taxes to what the market seems to like and want? Though I suppose it could be a lucrative tax since you generally want to target things with inelastic demand.

    What are your thoughts?

    More info on the OST consultation, here.

  • Three steps to the future

    Each year, tech analyst Benedict Evans publishes a “big presentation” on the macro trends in the tech industry. This year’s presentation is now out (link here) and it’s called “Three Steps to the Future.” Not surprisingly, crypto, web3 and the metaverse feature prominently in his exploration of what tech might look like by 2030 (obligatory market cap chart shown above). But there’s also a lot about ecommerce, logistics, TV/content, and a number of other topics and industries. The back half is filled with some great charts and I think that many of you will find it interesting.

  • Ecommerce as logistics

    Benedict Evans asks some great questions in this recent post about ecommerce penetration. Instead of just looking at the product itself and/or the way in which we buy it (online versus offline, for example), he focuses on the logistics model that accompanies the transaction.

    What can be parceled and shipped via Amazon? What can be delivered using a bicycle? What requires some sort of special delivery or collection method?

    The point he is making is that different things need to happen for a new fridge to make it to your home, compared to say a Chipotle burrito. And these differences matter when it comes to how we should be thinking about ecommerce and the real estate in our cities.

    Personally, I find it helpful to reframe the questions in this way.

    Here’s an excerpt from the post:

    But if I buy online and then drive to the store to collect it, is that different to phoning and reserving it? We didn’t have a statistics category for ‘telephone ordering’. If I use an app to order pizza instead of phoning the restaurant, has that become ‘ecommerce’ or is it still pizza delivery? 30 years ago, if I drove to Walmart instead of walking to a neighbourhood store, or drove to Best Buy instead of going to a department store, we didn’t call that ‘car-based commerce’. So is this a tech question, or a retailing question, or an urbanism question?

    For the full thing, click here.

    Chart: Benedict Evans

  • The great unbundling

    Every year, Benedict Evans publishes a presentation about the “big macro tech trends” impacting the global economy. They are always excellent and I usually share them here on the blog. It’s also becoming harder and harder to differentiate tech trends from the rest of the economy, and so in many ways this is just a presentation about important macro trends.

    In this year’s presentation, he focuses on the “unbundling” of retail, ecommerce, advertising and TV; China and the end of the American internet; and a few other timely topics. To view the presentation, click here. Benedict also delivered this same presentation at a recent event by Protocol and Nasdaq (video link) in case you’d prefer to consume the content that way.