By my calculations, retailers that sell goods that are also distributed digitally currently account for 381 million square feet of retail space in the United States. These retailers include bookstores, video rental stores, music stores and greeting card stores. Obviously, this number is much lower than it was just a few years ago, considering that the carnage has already occurred in the video rental and music space. Furthermore, this tally does not include photo processing stores, which I estimate accounted for roughly 12 million sq / ft prior to the introduction of digital cameras.
To put 381 million square feet in perspective, it equates to:
- 2,059 Walmart Super Centers
- Nearly 14 square miles, or about 60% of the land mass of Manhattan
- 4% of total US retail space excluding grocery. This doesn't sound like much but just think of all the retail available in the US - everything from roadside convenience stores to restaurants to clothing, shoe and jewelry stores to home goods / hardware stores.
Will the tailspin for bookstores be as fast as it was for music stores? The inflection point for digital music occurred when consumers buying habits changed from physical albums to single song downloads. In 2006, the unit sales of singles surpassed albums, and that was pretty much the end of the record store. Tower Records, the icon of the industry, filed for bankruptcy in August of 2006.
Bookstores have not had their "2006" moment, yet. As you can see from the chart below, physical books outsell eBooks by about double. But the gap is quickly narrowing, and a simple trend line suggests that physical and eBooks unit sales will converge 2014. This is 7 years after Amazon launched the Kindle, the first viable eReader. The spread between the first viable music device, Apple's iPod, and the demise of the music store was only 5 years.
Greeting card stores and greeting card "aisles" account for 25 million of the the 382 million square feet that will be vacated due to the digital revolution. As of today, the card market is stable. But eventually buying, writing and sending a physical card will seem as anachronistic as renting a video from a video store. Postagram, a three-month-old iPhone and Android app, melds the physical and digital world by allowing people to send personalized photo postcards to any US address for $0.99. Postagram will replace the postcard, thank you card and "thinking of you" card. Traditional greeting cards will also be digitized, thanks to the iPad and other tablets. Why go to a store, buy a card, write the card out and take the card to the post office when you can simply hand write the card on a touch screen and have the vendor print and ship it your mother?
In closing, the retail real estate market will shed more than 300 million square feet of space in the next few years. The bulk will come from bookstores and the final death throws of the music and video rental space. Greeting card space will be stable for a few more years, but by 2020 they will be extinct, too. Since there is not a new industry to fill the vacant space, demand for retail real estate and construction will be softer during this period. In another blog post, I will explore the exact dollar impact on the market.