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This Report Says Retail Jobs Will Disappear Entirely To Automation. Here’s The Effect On Real Estate.

Human employment in the retail sector could disappear entirely.

That is the startling assertion made by Oxford University academic Carl Benedikt Frey and Citigroup last week in a 114-page report. Frey came to prominence in 2013 when he predicted that 47% of all current global employment was susceptible to automation. The current report, Technology At Work 3.0, goes even further for the retail sector.

Here is what you need to know about the predictions for employment, which have big implications for real estate.

Robot manufacturing factory

What are the headline conclusions?

Frey said human employment in retail could vanish entirely, and 80% of jobs in transportation, warehousing and logistics and 63% of jobs in sales are at high risk of automation. He argues we are only on “Day 1” of the impact of robot and artificial intelligence technology on employment. But do not get hung up on the robots. “Technological progress in sensors, data and software are as important as that in robots and drones to enable this automation,” Frey wrote in the report. 

Will this have pretty huge implications for society in general?

“Retail is one industry in which employment is likely to vanish, but unlike manufacturing jobs which are highly concentrated, the downfall of retail employment will affect every city and region,” Frey said.

How well regarded is Frey?

Very, but he is controversial. His 2013 prognosis about 47% of jobs being susceptible to automation caused an outcry, with opponents arguing that the predictions made by John Maynard Keynes about similar levels of mass unemployment have not born out in the last century. Frey argues that it was not that jobs were not lost, it is just that new ones were created, and this time around the same thing will not happen.

What kind of numbers are we talking about?

U.S. companies employ 2 million people just to do stock and order fulfillment work and over 90% of warehouse picking is done by hand, Frey said. In the U.K. the report estimates that 2.25 million jobs in the wholesale and retail trade are at risk of automation.

Vacant mall, empty mall, abandoned store

What will be the impact on real estate?

“First is the already-visible decline of high street and mall footprints, or the need for them to fill with other experiential offerings,” the report said. “The levels of obsolescence within real estate is likely to increase. The primary example of this trend currently is the growing swathes of empty ghost retail space in the U.S.”

Is there any good news?

Yes, and it is all around industrial. The key takeaway from the report, which it spends 25 of 114 pages exploring, is just how fundamentally the world has underestimated the need for increased warehouse space, and how significantly this will change the way we live and build cities.

Go on ...

While the report argues that human retail jobs are going to disappear, the concept of consumerism is not, we are going to be buying more and more stuff. It is just that a greater proportion will be done via e-commerce.

“In the last decade, retail sales transacted online have gone from 2% of total to 8%, yet penetration of automation remains quite low,” the report said. “E-commerce penetration varies greatly by country, and as millennials enter peak spending years the e-commerce driver will increase, meaning that much of the disruption from automation in transport, warehousing, and logistics is yet to come.”

Industrials under pressure due to increased e-commerce

And this can be achieved without human employees?

Actually people are slowing down the growth of e-commerce. Frey pointed to a Boston Consulting Group report that said greater automation could drive down supply chain costs by as much as 30%, with the savings being ploughed back into further improvements in speed and service that will make people buy even more online. Automated stock picking is five to six times more efficient than the human version.

How much extra warehouse space will be needed?

Analysis by Prologis estimates that online fulfillment requires 300% more warehousing space than store-based fulfillment, which Prologis quantifies as being 800K SF of additional warehouse space for every $1B of incremental spend online. Based on forecasts from Euromonitor for global e-commerce growth, more than 2.3B SF of new warehousing space will be required by 2035; this equates to three and a half times the footprint of Prologis, the world’s biggest industrial company.

AmazonFresh grocery delivery

How is this going to change the way cities evolve?

London is used as an example of a trend that is common across the world — as big cities grow, more and more land is needed for housing, and with the value of residential being so much higher than that of industrial, the latter is losing out. The Greater London Authority had a target of how much industrial land could be given over to housing by 2031 and still leave the right amount of industrial space, and at the current rate of loss, the figure will be reached next year.

The report highlights how mixed-use development, which normally means residential sitting alongside retail or sometimes offices, is going to eventually combine residential with last-mile logistics. It points to schemes in London being undertaken by Segro as examples of this.

How else will logistics and industrial have to change to meet this demand?

New innovations include multistory industrial units, common in Asia but rare in the U.S. and Europe. High edge-of-city land values will mean these become the necessity, and greater automation and technological innovation will make them viable in a way they are not today.

Technology platforms like Flexe, which is a kind of Airbnb for industrial that uses an app to match empty warehouse space with people needing space, could also make the sector more efficient.