The E- Commerce Retail Analysis, Crunching The Numbers

credit to Lucy May

Ryan McCullough, recipe real estate economist for CoStar, said e-commerce is responsible for 160 million square feet of lost absorption of retail space.

Here’s a post-Cyber Monday wake-up call: E-commerce is responsible for nearly 160 million feet of lost absorption of retail space.

That’s more square feet than the entire retail footprint of Cincinnati-based Macy’s Inc.

So says a new analysis from CoStar Group Inc., the commercial real estate information and marketing services firm. CoStar is headquartered in Washington, D.C., and has offices in Cincinnati.

To understand all this, I spoke with Ryan McCullough, the real estate economist at CoStar who crunched the numbers to figure this out.

McCullough looked at the 40 largest public retailers and calculated the average sales per square foot among those companies. He came up with a figure of $368. (Meaning a company with annual sales of $368 million has about 1 million square feet of physical space.)

He figured that if there were no Internet and e-commerce, every additional $368 in sales would logically result in demand for another square foot of physical space.

Then he used U.S. Department of Commerce data for e-commerce dating back to 2000 to figure out how many square feet of absorption those sales represent.

McCullough acknowledges that the formula is pretty simple. It assumes, for example, that all those sales would still occur if there were no Internet and no e-commerce, which they likely wouldn’t.

But he said the calculation gives a rough idea of the impact of e-commerce on physical retail space.

The bottom line: E-commerce is taking a toll on bricks-and-mortar stores. But McCullough said it’s not a death sentence for traditional retail.

“Even though e-commerce is getting all this hype and has a super fast growth rate, it’s still a relatively small portion overall,” he said, noting that e-commerce represented only 6.7 percent of all retail sales in the third quarter of 2012, excluding automobile and gasoline purchases.

“The death of the store has kind of been over-exaggerated at this point,” McCullough said. “Even though e-commerce is certainly the most dynamic sector of the market, all indications are we will continue to see retailers invest in their physical inf