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About the Author:
David Gearhart, CFA
Vice President
David Gearhart is a vice president specializing in research and investment in software-as-a-service (SaaS) and the Internet of Things sector and has played a key role in establishing First Analysis’s Internet of Things franchise. He is a thought leader in his sectors, having authored several widely read white papers. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. Prior to joining First Analysis in 2011, he was an accountant with The Northern Trust Co. and an options broker with American Option Services. He earned a bachelor’s degree from Purdue University with a concentration in economics and finance and his MBA at DePaul University with a focus on finance and entrepreneurship. He is a CFA charterholder.
First Analysis E-commerce Optimization Team
Matthew Nicklin
Managing Director
David Gearhart
Vice President
Richard Conklin
Managing Director
First Analysis Quarterly Insights
E-commerce Optimization
Faster growth for tech enabling stores repurposed for e-commerce
October 7, 2020
  • The rise of e-commerce has come at the expense of traditional retail. E-commerce, along with COVID-19 and several other factors, is likely to push traditional retail location closures to 20,000 to 25,000 in 2020, leaving retailers and landlords with a large and growing amount of empty retail space.
  • A portion of this space is being repurposed for e-commerce, creating opportunity for technology vendors that enable these businesses. These include companies providing warehouse and order management software, artificial intelligence software for inventory forecasting, allocation and restocking, hardware and software for automated warehouses, and kiosks.
  • We explore the trend to repurpose physical stores for e-commerce and highlight some specific technology companies likely to profit from this tailwind.

TABLE OF CONTENTS

Includes discussion of AMZN, ECOM, HD, JWN, SHOP, STMP, TGT, WMT and ten private companies

Vacant retail space growing and needs to be absorbed

The case and potential for converting physical stores to e-commerce fulfillment centers

An ongoing evolution

First Analysis e-commerce stock index leveling after huge gains

E-commerce optimization M&A rebounds in Q3

E-commerce optimization Q3 private placements near high of past two years

Vacant retail space growing and needs to be absorbed

The rise of e-commerce has come at the expense of traditional retail, with online sales now accounting for over 16% of total retail sales. It's well known that several major traditional retailers have been driven into bankruptcy or forced to close locations as a result and that the COVID-19 pandemic has accelerated this trend by making shopping in physical stores unsafe. In hindsight, headwinds were inevitable for brick-and-mortar retail due to years of overbuilding and expansion: U.S. retail square footage per person increased by more than 50% from 1970 to 2016. And despite many store closings in recent years, including more than 9,000 in 2019, the United States is still over-indexed to physical retail with retail space per person about five times the level in Europe (PwC) and much more than the level in most countries (see Table 1). All these factors are likely to push retail location closures to 20,000 to 25,000 in 2020, according to Coresight Research, leaving retailers and landlords with a huge and growing amount of retail capacity.

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