As the dust settles on another Black Friday, it is worth remembering an old adage based on the California Gold Rush: if you want to exploit a growing trend, you can either mine for gold or sell pickaxes.
The point being that those selling miners' supplies were often more successful than the miners, given the unpredictable business of goldmining.
E-commerce is, to some extent, a modern-day gold rush. China's e-commerce is now worth $1.132trn, but the US ($450.81bn), UK ($110.07bn) and Japan ($95.33bn) also have well-established and growing e-commerce markets.
There are two ways for investors to take part in this trend: they can be 'gold miners', participating directly through retailers such as Amazon; or they can take the 'pickaxe' approach by exploiting the opportunities in logistics, which facilitate the distribution of goods across countries.
Investing in logistics does not promise the same heady gains as the big e-commerce names. However, it capitalises on the growing demand for warehouses and distribution centres, and the pricing power of those that supply them.
Across the logistics chain, e-commerce demands major distribution hubs to store goods, plus single warehouses close to urban areas to ensure speedy delivery
This is a response to consumer demand for convenient deliveries. Part of this is having 'last mile' delivery, creating demand for space on the fringes of towns and cities.
It has also demanded more sophisticated logistics dominated by automation and robotics to make the process as efficient as possible. This pushes the occupiers of such properties to sign longer leases.
Given this backdrop, there is understandably high demand for logistics assets among investors. They increasingly tend to have relatively long contracts and the rents will rise with inflation across most of Europe. This should translate into a reliable, inflation-protected income stream with some potential for capital growth.
While logistics are already well established in major e-commerce centres like the UK, the sector is in the nascent stages in Europe. This has an effect on valuations.
In the UK, logistics assets are often relatively expensive; the e-commerce trend is well established and investors understand its value.
In Europe, it is possible to buy assets at an earlier stage of the cycle. For example, the prime yield for this type of asset in the UK is currently around 4%; in Europe, for comparable buildings, it is as high as 5%-6% – and with strong financial covenants, especially for new-build, modern facilities.
There are still opportunities in the UK, but investors will need to be more selective to identify good value.
The 'new game in town'
We think of e-commerce as the new game in town, stimulating a structural change in how the distribution of global goods works.
Increasing demand is also supported by globalisation trends and supply chain reconfiguration. This implies a far greater requirement for the storage and movement of goods.
Retailers quietly despair at Black Friday because it hits their margins at a vital time for their businesses.
But for anyone with an interest in the logistics that underpin so much of the revenue from last week, it is a good time to be selling pickaxes.