Recently, Marc Andreessen made some bold statements about the future of the retail business:
“Retail chains are a fundamentally implausible economic structure if there’s a viable alternative,” he says. “You combine the fixed cost of real estate with inventory, and it puts every retailer in a highly leveraged position. Few can survive a decline of 20 to 30 percent in revenues. It just doesn’t make any sense for all this stuff to sit on shelves. There is fundamentally a better model.”
I am not sure if I agree with this prediction of his. However, these sentiments have caused me to start thinking about how 3D printing could increase the likelihood of those statements coming true.
The death of music & video retail chains: instructive?
Picture the amount of capital and energy it took to create companies that stocked and sold CDs/rented DVDs. In a music or video rental retail location, the only differences in the stocked product was the visual packaging and slightly different encoded information, i.e. pieces of roughly identical shiny plastic disks.
Having large amounts of physical infrastructure dedicated to running a supply chain of roughly identical pieces of plastic seems ripe for disruption. It’s not as if the CDs were lovingly handmade by craftsman with one-of-a-kind album art.
Perhaps the era right after the availability CD burners (but before iPods were introduced) is a decent approximation about what the world will be like with widespread availability of 3D printers. A CD burner is somewhat like a 3D printer: they both take digital information as input and use it to create a useful physical object.
Big Box Stores
I tend to associate “big box” stores with places I used to go to purchase music. Remember how much square footage that used to be dedicated to music and DVD sales at Best Buy and Circuit City? There is still somesquare footage devoted to CDs at Best Buy, but it seems to occupy about as much space as is dedicated to iPhone accessories.
What percentage of the square footage of Home Depot is devoted to items that could cheaply and easily be 3D printed? Let me give you an example: the lowly plastic drywall anchor. Would anyone care if their drywall anchors came out of a 3D printer?
What percentage of items stocked in a Target could easily be 3D printed? My thought first goes to toys. Also sports equipment. What percentage of Target’s square footage and revenue consists of these kinds of items?
The role of debt
In the debates I have participated in regarding 3D printing, one of the points made is usually something like “high-end clothes, food/perishables, heavy-duty tools, and hand-crafted custom items are not going to be replaced by 3D printing.” Let’s assume that is true: the vast majority of products have very little risk of being displaced by 3D printing using current technologies. The problem for retail stores is the revenue sensitivity caused by debt.
Taking the example of Borders (or Blockbuster or Circuit City or Tower Records or Virgin Megastores or Linens ‘n Things), it’s not as if revenues went to zero overnight and so they decided to close their doors. No, the issue is that they were highly leveraged. This is also the reason that Best Buy could declare bankruptcy in the near future: It’s not that their revenues will go to zero, but that relatively small revenue declines could cause a ticking time bomb of tight cashflows and corporate debt to explode.
If we accept Andreessen’s argument that most retail companies could be put out of business by a 20-30% decline in revenue, 3D printing could be plausibly be the vector by which this scenario is manifested.
Photo credit: On 3D Printing