ADAPT AND EVOLVE QUICKLY

Continuing on from last month, Gary Burrows, Managing Director & Rupert Wood, Executive Advisor, Malls and Meeting Places at FitForCommerce, a global strategy & advisory company conclude their discussion on how companies must adapt to the merging of the digital and the physical customer journey, experience and the growth of online as a result of Covid-19 and its effect on retail, landlords, malls and meeting places.


Futurist William Gibson said: “The future is already here, it’s just unevenly distributed.” The same can be applied to the current situation in real estate, as traditional retailers like Alshaya, with 100 brands under management, build and operate malls & meeting places, such as The Avenues in Kuwait. This has worked so well for them, that they are building a massive new mixed use project in KSA. This truly merges the retailer and mall owner/operator into one seamless model that allows transparent dataflow on both sides, resulting in an improved personalised customer journey and experience. Due to the current retail crisis, Brookfield Asset Management, the mall and meeting place developer, owner and operator, have recently rescued Forever 21. They have also just announced a $5bn dollar rescue fund for other retailers and tenants of their malls. This will enable a breakdown of barriers and create a singular business model of retailer and mall owner. Is this the unevenly distributed future that William Gibson was talking about?

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Retailers are struggling to adapt and evolve to the breath-taking pace of change, created by this new reality that has condensed a slow decline into a matter of months. With a scramble for e-commerce platforms, new logistics processes, store to door, last mile delivery, curb side pick-up or click and collect. Many retailers and operators have already fallen by the wayside, and many more will do so over the short-term. The prolonged closure of physical assets has exposed the fragile online business models of retailers, resulting in the bankruptcy of household name brands. We could highlight fashion trends, poor inventory buying and inability to adapt to or adequately predict consumer behaviour. Whilst these are all contributory factors, one of the fundamental flaws of those failing brands is that they did not invest in digital and e-commerce when the times were good.

This point is starkly made when we highlight retailers like Nike, who did invest in strong and robust e-commerce platforms. Fortunately they have mitigated their losses during Covid-19 and managed to make up much of its lost physical store sales via online orders. Due to the growth in online sales, in a country where physical store sales have dropped: “We now have a playbook that we can use elsewhere,” stated Nike CEO John Donahoe.

The debate highlighted by Property Week (Growing retail crisis reignites debate over turnover leases 07/05/20), regarding the growing retailer requirement for turnover rents is a valid one and demonstrates the case for shared risk and a partnership approach. As a new merged physical and digital (or phygital) ecosystem becomes the norm in our malls and meeting places, then so too should the relationship between the landlord and tenant. The sharing of transactional data, based on a turnover only rent has to be fair and reasonable, if the landlord is sharing in that risk. Equally the significant amount of data that the landlord collects on visitors, cars, pedestrian flows, hot spots, events, Wi-Fi and more should also be shared with their tenants (their ‘customers’). This will support a big data flow that needs to be managed and shaped into meaningful and intelligent, actionable information. It is only when we have this open and transparent relationship, that malls and meeting places, retailers and operators will be able to provide a personalised customer journey and experience. After all, the new normal no longer requires physical location for a customer to be a customer, as they can be sat at home watching TV, or on a beach in Dubai, and they are still your customer. That will only be true, if they resonate with your meeting place and it is their primary hub in which to socialise, culturally enrich themselves and adopt as the heart of their community.

A customer who patronises your meeting place no longer needs to ‘actually’ be at your mall or meeting place; they just have to emotionally connect with it. They will purchase from your stores, order food from your restaurants and regularly visit your smart, digitally enabled space.

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This point is starkly made when we highlight retailers like Nike, who did invest in strong and robust e-commerce platforms. Fortunately they have mitigated their losses during Covid-19 and managed to make up much of its lost physical store sales via online orders. Due to the growth in online sales, in a country where physical store sales have dropped: “We now have a playbook that we can use elsewhere,” stated Nike CEO John Donahoe.

The debate highlighted by Property Week (Growing retail crisis reignites debate over turnover leases 07/05/20), regarding the growing retailer requirement for turnover rents is a valid one and demonstrates the case for shared risk and a partnership approach. As a new merged physical and digital (or phygital) ecosystem becomes the norm in our malls and meeting places, then so too should the relationship between the landlord and tenant. The sharing of transactional data, based on a turnover only rent has to be fair and reasonable, if the landlord is sharing in that risk. Equally the significant amount of data that the landlord collects on visitors, cars, pedestrian flows, hot spots, events, Wi-Fi and more should also be shared with their tenants (their ‘customers’). This will support a big data flow that needs to be managed and shaped into meaningful and intelligent, actionable information. It is only when we have this open and transparent relationship, that malls and meeting places, retailers and operators will be able to provide a personalised customer journey and experience. After all, the new normal no longer requires physical location for a customer to be a customer, as they can be sat at home watching TV, or on a beach in Dubai, and they are still your customer. That will only be true, if they resonate with your meeting place and it is their primary hub in which to socialise, culturally enrich themselves and adopt as the heart of their community.

A customer who patronises your meeting place no longer needs to ‘actually’ be at your mall or meeting place; they just have to emotionally connect with it. They will purchase from your stores, order food from your restaurants and regularly visit your smart, digitally enabled space.

This brings us back to the lease structure required to meet the bright new, post-Covid-19 future. We all have to accept that we will never go back to how we were and that the digital or online world has just received a significant evolutionary boost. Whilst we can expect some bounce back, or revenge spending, as it has been called. Some of the behavioural change will stick and certain categories of consumer spending will follow a new trajectory.

If the unevenly distributed future is showing us a glimpse of the new consumer spending model, then malls & meeting places will have to adapt and evolve current business formats. This is in order to re-shape a merged online and offline income stream and ultimately allows realistic valuations of our assets. This will be driven by ‘Digital Transformation Strategies’ that identify, qualify, quantify and realise the new revenue streams that can be driven from the physical and digital world of retail. It is only by understanding, adapting and evolving quickly, we can properly shape an aligned lease structure between landlords and operators, even if this is initially category specific. By using enhanced data analytics from an e-commerce ecosystem, trusted by all parties, we will be able to capture the true turnover income from a merged digital and physical retail singularity.

The retail singularity is a model that adapts and evolves to allow accuracy of income that will drive performance and deliver the capital valuation structure for the future of the real estate industry. It is only by merging the digital and physical, aligning owners and tenants and allowing big data to drive solutions, that we can deliver a true personalised customer journey and experience.

Part One of this article was featured
in the June edition of RLI.

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