In the course of the coronavirus pandemic, many consumers have changed the way they shop. When fears of becoming infected with COVID-19 kept them away from stores, they turned to their tablets and computers to make purchases instead. And now, online sales are soaring, which is great for retail giants like Amazon (NASDAQ: AMZN).
One of the things that's always set Amazon apart from the competition is its ability to ship out goods swiftly and efficiently. But now the company has a demand problem on its hands.
It's a good problem to have, of course, but it also means Amazon will need to expand its network of warehouses and fulfillment centers to keep up with order volume and continuously improve its delivery speed. And that could work to real estate investors' advantage.
Getting closer to customers
These days, Amazon is sinking more and more money into growing its network of warehouses and distribution centers in an effort to offer even faster delivery times for customers. In 2018, 51% of the U.S. population lived within a 60-minute drive of an Amazon delivery station, according to an analysis by UBS. By 2021, that percentage grew to 77%.
At first glance, 77% seems impressive. But it still lags behind other power players in the delivery business. FedEx, UPS, and the U.S. Postal Service all have networks in place that put them within 60 minutes of 98% of the population.
Amazon also lags behind its big-box competition with regard to proximity to customers. Walmart's store network can reach 99% of the U.S. population within 60 minutes, while Target's can reach 94%. Plus, both retailers offer shoppers the option to make purchases online and pick them up in stores -- something Amazon does not.
Of course, proximity to people isn't the only thing Amazon is working on. Being within 60 minutes of a customer doesn't guarantee that an order will go out that same day. To pull that off, Amazon needs to work on boosting and consolidating inventory and improving efficiencies within its distribution centers. But if it does that in conjunction with getting closer to customers, it can really up its shipping game and fulfill more orders within 24 hours of receipt.
The real estate takeaway
The fact that Amazon is so focused on boosting its distribution network is good news for investors in the industrial REIT (real estate investment trust) space. In recent years, the demand for warehouses has boomed, and as Amazon seeks to acquire more space, we can bet that its competitors like Walmart and Target will seek to do something similar.
Meanwhile, investors who don't have money in industrial REITs may want to reconsider. As e-commerce continues to boom, the need for warehouses and fulfillment centers is only likely to grow. During the second quarter of 2021, digital sales reached $211.70 billion, up 9.3% compared to the same period last year. And if that trend continues, there could be a lot of money to be made on the industrial property side.