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Primed for Success: How Amazon’s eCommerce Holiday is Making an Impact on the Industrial Sector

Amazon Prime Day Boosts Industrial Real EstateAmazon Prime Day Boosts Industrial Real Estate

By Ben Conwell

Amazon Prime Day, the biggest sale of the summer, has come and gone, and just as expected, the “holiday” sales came in at a record high. For those that missed the headlines about the eCommerce giant’s fourth annual Prime Day, the 36-hour sales event for Amazon Prime members featured over one million deals and reached 17 countries across the globe. For the first time, Amazon also offered in-store deals to Prime members at their local Whole Foods Market during the week leading up to the event.

Despite a technology glitch at the start of the sale, which reportedly cost the company between $70-99 million in missed sales, the results were impressive. Without releasing specific sales revenue, Amazon said the company welcomed more new Prime members on July 16 than any previous day in history, and this year’s event surpassed all prior single event sales records in Amazon’s 24 years of existence. To put that in perspective, it is estimated that last year, the company sold over $2.4 billion worth of goods during the event.

Based on a variety of estimates, it is within the realm of reason that Prime Day 2018 saw Amazon cross the $4 billion threshold in sales over 36-hour period. But, while massive, Prime Day still doesn’t compare to Alibaba’s 11.11 Global Shopping Festival, formerly known as Singles’ Day, which last year passed $25.3 billion in sales in a mere 24 hours (according to Internet Retailer).

The emergence of sales like Prime Day and Singles’ Day have caused some to question whether these eCommerce holidays hurt Amazon’s larger competitors. The surprising answer, at least in terms of Prime Day, is no. To capitalize on the holiday, retailers such as Target, eBay, Macy’s, and others have started running their own discounts and promotional campaigns timed to coincide with Prime Day. This year, competing retailers made an additional push to promote spending by emphasizing that shoppers didn’t need a membership to participate in their sales. Target even offered a free six-month membership for same-day delivery to customers that spent at least $100 on Target.com on July 17.

Early numbers suggest that this strategy was a success. In fact, Adobe Analytics found that retailers with more than $1 billion in revenue saw a sales increase of 54 percent on Prime Day, compared to an average Tuesday.

Might this positive shopping momentum, both online and in stores, be tied to broader positive economic indicators underpinning the state of retail, including high consumer confidence, wage growth, and low unemployment? Yes. But the 36-hour Prime Day is making a profound impact of its own, and we shouldn’t discount the positive effect it is having on several industries, including commercial real estate.

From an industrial real estate standpoint, it’s clear that Prime Day, and the growth of eCommerce overall, has been good for business. In just five years, demand for eCommerce distribution space has grown from less than 5 percent of U.S. industrial leasing to consistently comprising 22-25 percent of absorption, according to our data at Cushman & Wakefield. For suppliers of goods, that means industrial properties are now revenue centers rather than cost centers, leading operators to move closer to urban areas to keep up with consumer demand for same-day, next-day, or 2-day shipping, a standard set by Amazon.

Altogether, this activity is likely driving more online-to-offline (O2O) commerce in the sector. For example, Amazon encouraged Prime members to shop in-store at Whole Foods by offering promotions during the week of Prime Day. Brands like Target may also benefit by driving brand loyalty to private labels through their online sales, anticipating that loyalty translates to shoppers making in-store purchases in the long term.

Further, Prime Day is helping to smooth out some of the Q4 shopping peaks by encouraging summer spending. During the 2017 holiday season, there was a 5.5 percent boost in total retail sales from the year before. It was the strongest increase the industry had seen since 2005. There was also 14.7 percent growth in online spending during the holiday season last year compared to the year prior. This success translated into increased demand for commercial real estate, and the boost from Prime Day is helping to maintain that demand throughout the year. It truly is Christmas in July for retailers, parcel delivery firms, and other stakeholders.

Because millennials are most likely to have Amazon Prime accounts, we expect the holiday’s popularity to grow continually in the years ahead. Amazon currently has 140 million square feet in U.S. fulfillment center space, but we are confident that number will increase substantially due to high demand. The takeaway? This is likely just the beginning for eCommerce holidays, and if the popularity of Prime Day, Cyber Monday, and the 11.11 Global Shopping Festival continues, the future looks bright for several sectors, including industrial real estate.

cushwakenewCommerce.com

Ben ConwellBen Conwell is a Managing Director and Leader of Cushman & Wakefield’s eCommerce Advisory Group. He is an expert in newCommerce, a Cushman & Wakefield initiative that provides seamless, full-service solutions for today’s ever-evolving retail landscape.

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