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REPLACING BUILDINGS WITH WEB SITES SAVES ENERGY AND NATURAL RESOURCES
Business, Consumer E-Commerce Could Eliminate Demand For 3 Billion Square Feet of Bricks and Mortar by 2007
Probably the best-known and most widely studied consumer e-commerce activity is book purchasing, popularized first by Amazon.com. Using business and financial data on the online bookseller, the Center for Energy & Climate Solutions calculates that the ratio of commercial building energy consumption per book sold in traditional bricks-and-mortar stores versus Amazon.com is 16 to 1. That figure does not include energy for transportation and shipping, where the e-tailer also has a likely advantage.
Energy Use in Online vs. "Bricks-and-Mortar" Bookstores
| Traditional BookSuperstore | Online Bookstore
(Amazon.com) | | Titles per Store | 175,000 | 2,500,000 | | Revenue per Operating Employee | $100,000 | $300,000 | | Annual Inventory Turnover | 2-3 times | 40-60 times | | Sales per square foot | $250 | $2,000 | | Rent per sq. ft. | $20 | $8 | | Energy costs per sq. ft. | $ 1.10 | $ 0.56 | | Energy costs per $100 of sales | $ 0.44 | $ 0.03 |
Energy calculations by the Center for Energy & Climate Solutions. Business data are from Mohan Sawhney and David Contreras, "Amazon.com-Winning the Online Book Wars," case study, Kellogg Graduate School of Management, Northwestern University http://sawhney.kellogg.nwu.edu.
Energy calculations by the Center for Energy & Climate Solutions. Business data are from Mohan Sawhney and David Contreras, "Amazon.com-Winning the Online Book Wars," case study, Kellogg Graduate School of Management, Northwestern University http://sawhney.kellogg.nwu.edu.
By 2003, International Data Corporation predicts $33 billion of software will be sold on the Internet, with nearly half of that being delivered by the Internet. Forrester Research predicts half of all software distribution by giants like Microsoft, Netscape, and Oracle will take place over the Internet.
Book and software sellers represent just the tip of the Internet's energy-saving iceberg. According to calculations by the Center for Energy and Climate Solutions, current Internet business trends could reduce the demand for commercial space by up to 3 billion square feet between 1997 and 2007 (see table, next page), along with all the lighting, heating and cooling that goes with it. That could mean an average reduction in new building construction of 300 million square feet per year - 20 percent of projected new commercial space.
The net electric savings from the Internet in this scenario come to more than 50 billion kilowatt hours by 2007 - about 13 percent of total growth projected in the business-as-usual scenario. The resulting reduction in the greenhouse gases emissions that cause global warming total 35 million metric tons. Because construction is one of the most energy-intensive activities in the economy, the additional power savings by the avoided building would be the equivalent of 10 power plants, and greenhouse pollution cuts of about 40 million metric tons.
Just as consumer e-commerce saves energy by substituting warehouses for retail stores, business e-commerce is likely to dramatically reduce the need for both warehouses and manufacturing storage space. Manufacturers had 12.3 billion square feet of enclosed floor space in 1994. If the Internet economy increases capacity utilization by just half a percent per year for 10 years, it would cut the number by 600 million square feet.
Potential Impact of Internet on Buildings, 1997 to 2007
| Building Type | Sq. Ft. Saved | Electricity Saved
(Kilowatt hours) | Natural Gas Saved
(BTUs) (cubic feet) | GreenhousePollution Prevented
(Metric Tons) | | Retail | 1.5 Billion | 18 billion | (67 trillion) (67 billion) | 14 million | | Office | 2 Billion + | 35 billion | -- | 21 million | | Warehouse | Up to 1 Billion | (negligible) | (negligible) | (negligible) | | TOTAL | 3.5 Billion + | 53 billion | (67 trillion) (67 billion) | 35 million |
But the story doesn't end there. While some online retailers like Amazon.com and Webvan are building new warehouses of their own, others use existing facilities. eToys, Levis.com, and Pier1.com all use warehouses owned by Fingerhut, a 51-year-old Minnesota company. Others are going farther: Ingram Publishing announced last year it would offer drop-shipping of books ordered from retailers directly to consumers. In other sectors, the trend is to bypass retailers entirely. The New York Times reported in October that 30 percent of household PCs sold in the U.S. in the last six months were purchased directly from manufacturers.
Location, Location, Location? Not Anymore
If the Internet garners even 5 percent of retail sales across all categories, it would put tremendous pressure on "bricks-and-mortar" retailers. Last year's Internet sales were estimated at just one half of 1 percent of total retail business, but projections are for U.S. online retails to hit 7 percent of total retail sales by 2004 ($185 billion). This would constitute a quarter of all the growth in retail sales during the next five years, and much more in certain categories.
It doesn't take much for the New Economy of the Internet to make a dent in traditional business demand. A recent PricewaterhouseCoopers analysis found a 5 percent slip in sales can cut store profits by 20 percent - which means a dollar of lost sales equals four dollars of lost profit. A 1999 study by the Organization for Economic Cooperation and Development (OECD) estimates the Interned could render 12.5 percent retail building space superfluous - equaling 1.5 billion square feet that would no longer be needed. Based on OECD's estimate, the Center for Energy & Climate Solutions say shifts from traditional to consumer e-commerce would save as much as $5 billion worth of energy per year.
Bricks-and-Mortar Chain Goes 100 percent Virtual
The trend is already starting. Egghead software, for example, decided in January 1998 to close every one of its retail stores, becoming the first bricks-and-mortar company to go entirely virtual. Most experts say bookstores will be the next to feel the pinch. For example, Barnes & Noble was expected to add 50 new stores in 1998, but opened just 37 by year's end.
Music is another area where the Internet stands to replace materials with electrons. Many experts expect compact discs to go the way of vinyl LPs within the decade, replaced by music stored and transmitted electronically over the Web. A number of programs have been developed recently to digitally encode music; perhaps the best known is MP3. Net measurement firm Media Metrix reported in August that an estimated 4 million people in the United States listened to digital music in the month of June.
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