The coronavirus outbreak came at a particularly tough time for the retail world. Brick and mortar stores were already feeling the crushing impact of a gradual yet comprehensive movement towards eCommerce. Meanwhile, eCommerce providers themselves have become increasingly experiential and adaptive in the face of fierce competition within the space. Delivery times have shrunk, and the process of buying online has become more and more pain-free. Amazon, for instance, recently introduced its Wardrobe service, where online shoppers have a week to try on a box of clothing, and make returns, before being charged anything.
The response to the growth of eCommerce has long been a push towards experiential retail and high-quality design amongst brick and mortar operators. Stores like REI, with classes and activities, as well as malls blending events with better food options and activity spaces, have both risen in popularity. The coronavirus crisis has jeopardized those plans by making the very experiential features that these retailers were banking on now areas of potential danger because they rely on crowds of people. However, COVID-19 will eventually become less of a factor for retail operators. Whether it is through a relaxing of regulations, as we are currently seeing, or the development of a treatment or even vaccine, the current shutdowns we are now facing will not last forever.
As the lockdowns lift, retail will continue to need all the help it can get. Already, retailers such as JC Penney are facing bankruptcy proceedings. While some brands will bounce back, others will never return. The 118-year old J.C. Penney is thought to be an acquisition target for Amazon, which could be eyeing it for its real estate, not the value of its brand name. For retail real estate owners, this poses an opportunity to gain a competitive advantage by offering tech platforms and tools to help tenant businesses serve customers and ultimately make sales as effectively as possible. This means not just using technology to improve the landlord’s own investment decisions and operations, but rather sharing technology by buying group licenses so that all of the occupiers in a retail property can take advantage of it.
In this report, we’ll explore the changing relationship between retailers and retail real estate owners before digging into the tech tools and design updates that these owners can begin leveraging to ensure their tenants succeed in the future.
The Changing Relationship Between Retailer and Property Owner
The coronavirus outbreak has underscored the need for retail property owners and their tenants to adopt a more collaborative, team-based approach to the future of their businesses. The rent collection response illustrates this well, with many landlords pausing or deferring rent and fee payments, at least presently. According to Ophir Steinberg, the founder and CEO of real estate investment firm Lionheart Capital, a company with a strong retail footprint, what the industry needs now is “compassionate capitalism,” as he called it. “We should all be working together. If we’re going to come out of this stronger, then we really have to work together,” he said, adding that “we are in the same boat as our tenants. Their success is our success.” The need for collaboration stretches beyond just rent collection, though. Interest in alternate lease structures highlights that a new working relationship is very much on the table as well. Retail tenants like Ross Stores are already looking to transition their traditional, flat rent payments to percentage leases. Other arrangements being discussed include no flat rent whatsoever, focusing solely on revenue sharing.
Such arrangements incentivize landlords to go above and beyond to ensure that their tenants are able to sell as effectively as possible. They also move risk from tenant to landlord. Instead of the general overarching concern about tenant default, landlords under revenue sharing leases would see their own income tied directly to how well their tenants do. While this could cause retail landlords to diversify into other property types in order to diminish risk, it also changes the calculus for landlords who remain in the field.
Whether or not the industry as a whole switches over to revenue sharing models for their leases, retail real estate in the post-coronavirus landscape will be increasingly interested in making it easier for their tenants to do business, whether to increase income under a sharing model or simply to decrease the risk of tenant default under fixed-rate leases. According to Mete Varas, co-founder and Middle East and North Africa VP for retail tech provider Shopi, “The relationship between landlords and tenants will evolve to a level that they actually become business partners. Landlords need to understand how retailers are behaving. They need to understand how retail and consumer habits are changing, and be familiar with the PropTech movement. That includes new business models, symbiotic relationships with other industries such as mobility, co-working and logistics. Landlords should learn that experience is not limited to in-store only.” Rather, it extends all the way out the front door and directly to the homes of the shoppers themselves. How people get to a center, collect their purchases and even fund them are in their own ways part of the shopping experience.
How Tech Can Help Landlords Help tenants
Reviewing the data shows that landlords are not always aware of their tenants’ needs and priorities. Specifically, FTI Consulting’s Retail Real Estate Beat survey sheds light on the themes landlords can explore to make their spaces more tailored around supporting tenant sales activity. Although the survey is now on the older side, coming out in 2017, it is still a useful illustration of retail priorities as it compares differences between perspectives amongst landlords and retailers. The most relevant and interesting conclusions of the survey were as follows. 40 percent of retailer respondents indicated that advertising and marketing support were in their top three for important landlord offerings, but only 10 percent of landlords thought that this kind of support was in their tenant’s top three list. Additionally, 40 percent of retailer respondents said that flexible store configuration was a top-three priority, while only 10 percent of landlords said the same. These disconnects point to the ways landlords can refine and tailor their retailer support to become more collaborative over the long term, like sharing data or even employees.
Considerations in choosing the right technology
Brick and mortar retail is predicated on getting people into stores. This is what makes it different from eCommerce; even if lease structures, niches, fulfillment systems and brand names change, it is a fundamental truth of the field. It is also one of the areas where landlords have the most opportunity to make a difference by providing tech to tenants. However, a big challenge in choosing the right tech tools is that individual tenant businesses will often have marketing or IT departments working to integrate tech in their own ways. This limits the number of tools that are applicable for landlords to offer to ones that won’t replicate much of what tenants are already doing, and in particular, ones that stretch across multiple tenants to offer center-wide benefits. For instance, plenty of retail owners use footfall data to help determine where to invest in new shopping centers. Landlords may be inclined to share this data with their tenants, but that could be a wasted effort since many retailers themselves analyze this type of data individually. Instead, taking approaches that benefit every tenant in the mall are more effective.
Consider the example of providing center-wide Wi-Fi. Even if individual tenants offer connectivity within their stores, customers looking to check prices or navigate while between stores would be well-served by the introduction of wireless internet in the common areas and indeed, in stores that haven’t invested in their own Wi-Fi networks.
A highly visible, widely-applicable choice, made even more obvious against the backdrop of the outbreak, is touchless technology, better air filtration and surface antiviral coatings using harmless materials like copper. These solutions are relatively straightforward if not necessarily cheap to institute at entryways and bathrooms. All are associated with marked reductions in virus transmission rates, and malls are already investing in some of them. Malaysia’s largest shopping mall, 1 Utama Shopping Centre, has invested in UV light filtration systems for its HVAC equipment. Meanwhile, American malls are introducing touchless technology to help employees and customers access spaces without coming into contact with high-touch surfaces.
Even once the actual risk of spreading the virus is substantially behind us, embracing these technologies will help assuage the fears of shopping center stakeholders now that their collective eyes have been opened to the significant risk of transmissible diseases. Solutions to mitigate the risk of the coronavirus may be the most obvious tech implementation at retail centers now, but they are far from the only option. Other tech implementations can help businesses make more sales in a time when sales are, in general, compromised.
Connecting with customers
One of the most straightforward ways for landlords and tenants to collaborate is to begin working together to address the customers of the center. By coordinating and using digital tools to centralize messaging, these stakeholders can communicate consistent messaging, with promotions and events that stretch from store to store to amenity area. But in many cases, landlords and retailers, particularly smaller ones, don’t take advantage of even the simplest digital outreach channels. In a recent ICSC article, Mark Winter, the founding partner and president of Identity, a PR firm that works with many real estate and retail clients, said that “It is hard to believe, but some do not have a website, and many others do not have active social-media channels. The retailers and centers that are getting it right are thinking differently, leveraging technologies and tools, stepping up instead of stepping back and investing deeply in their virtual connection with audiences.” Even though numerous retailers and landlords don’t have sophisticated social media and web strategies, these platforms are themselves only the minimum required in the 21st century retail landscape.
More sophisticated, purpose-built tools can offer deeper features specifically meant for retail-landlord-customer relationships. Mallcomm is one such app, featuring a number of management tools for internal use between landlords and tenants as well as a variety of customer-facing modules like an event calendar, native food ordering and wayfinding. Against the backdrop of COVID-19, this type of communication-enhancing tool is even more relevant than ever. According to Mallcomm executive vice president Americas Randall McKillop, “What has happened to the industry in the past few weeks has demonstrated that tenant engagement platforms are no longer a ‘nice to have’ accessory for retail real estate. They are an essential tool that has the power to determine how successful your crisis management processes will end up being.” Sales and marketing communication is critical to competitive modern shopping centers, but much of the tech transformation of the retail world will happen behind the scenes, focusing on data and supply chains.
A new data paradigm
We are on the brink of a reorienting of the way that data is shared and presented. Instead of providing a simple data subscription to tenant businesses, a landlord could use a real-time tool like ShopperTrak, which measures visitors to stores throughout a shopping center. Armed with this information across the entire center as well as all the stores within it, landlords and retailers could work together to help ensure social distancing in every space. In a post-coronavirus world, this kind of live data, shared and made freely available throughout the center’s business community, could allow retailers and landlords alike to tailor displays and experiences based on relational information that would otherwise be impossible to analyze. For instance, forward-thinking landlords could help their tenants understand where customers come from or go to within the center, thus allowing retailers to better design advertising and store facades to better capitalize on existing traffic trends.
This kind of information would be impossible for individual tenants to gather alone, since their world of analytics would otherwise end at the front doors of their space. However, by sharing data, greater and more comprehensive analytics projects could be on the table. There is no doubt that this will require a change in the mindset of both landlords and retailers, many of whom may need to get used to the prospect of sharing information with their competitors in the same mall or strip center. However, with COVID-19’s rent hardships still only beginning to hit home, the table is already set for a perhaps temporarily uncomfortable wave of increasing collaboration in pursuit of long-term business goals.
This perspective is becoming more common in the field. According to Stephen Lebovitz, CEO of CBL Properties, a retail REIT based in Tennessee, “I think retailers realize that we’re competing against Amazon and other experiences, so we need to pool our resources to stay competitive.” Sharing data could potentially be less invasive. Adopting a virtual retail concierge service is one such opportunity. A virtual concierge service can provide customers with indoor navigation from store to store, as well as serve as another advertising touchpoint with coupons, perks and rewards functionality. These platforms can go even farther than helping sell products, and also help establish connections with services like delivery, valet parking and even childcare.
With the in-person disruption of the outbreak now laid bare for all to see, retailers will need to increasingly improve their own omnichannel offerings not only to satisfy their customers but also to compete with Amazon and other successful eCommerce operators. In turn, landlords will look towards these tenants more and more as the most reliable rent payers. According to William Wamble, First Vice President of SRS Real Estate Partners’ National Net Lease Group, “Prior to the arrival of the coronavirus the trend has been toward omnichannel retail with a strong online presence. Moving forward it will look better and better to have a tenant that has an online presence so they can still thrive in times like these.” This illustrates one of the interesting ironies facing the modern landlord: eCommerce initially started putting pressure on the brick and mortar retail space, and yet eCommerce can, in many ways, also be brick and mortar’s salvation.
While the goal of any retailer is to sell a product, the shape that sale takes can vary. The traditional sense of bringing a product to the front of the store and going through a checkout process is still relevant, but other ways of closing sales are also increasingly possible. In a clothing store, customers can size and try on an item, purchase it with the help of a sales associate, and then have the product delivered to their home. Such a system could allow for greater choices (fabric types, colors and other options) while minimizing the necessary footprint of the store since such retailers would not need to worry about as much inventory space.
And of course, omnichannel means that plenty of orders can be placed and fulfilled without ever stepping foot in the store to begin with. With the outbreak in mind, BOPAC (Buy Online, Pickup At Curb) options have surged in popularity, but their success points to additional changes landlords will need to make to keep up.
Realizing the fullest potential of omnichannel fulfillment will require changes to design, as well. In a way, this goes back to FTI’s observation on the importance of flexible store spaces, but truly solving for omnichannel optimization requires customizing common areas, too. Curbs and parking lots will need to be redesigned to make for more effective curbside pickup locations. It’s often easy enough for anchor tenants with exterior storefronts to manage the order fulfillment process, but for smaller tenants without exterior access, things can be tricky. This is an area where landlords can step in to fill a need. Perhaps they could identify a less-used part of the parking lot, equip it with signage, and set it apart as an order fulfillment spot. With the right concierge app, customers could check in when they are 30 minutes or one hour out, allowing delivery carriers to efficiently get their purchases to the location on time.
Part and parcel with these front-of-house solutions are some that are less obvious to customers. Flexible staffing is shifting in light of the coronavirus outbreak. In fact, this sort of approach stretches beyond the walls of the shopping center. Hilton spokesperson Alison Menon said that the crisis is “creating challenges for all 4.7 million people working in the U.S. hospitality industry. Helping our team members find alternative work at this time is one of the best ways to support their financial health and ensure that Hilton is able to welcome them back when travel resumes.”
Sharing employees can provide “workforce liquidity” between companies that either have too much or not enough staff. Building trust in the hiring process of a partner business can open up a vast pool of labor for businesses that need it the most in any sector, but shopping centers provide a particular benefit as well. Employee-sharing in this context need not stretch all the way across a major company; it could only apply to a few smaller stores in a center, where skill sets are shared and employees easily transferred from shop to shop. For small businesses like specialty grocers that might be swamped with demand, this could be a lifesaver while helping other employees, for instance, bookstore workers, stay busy and generating income. Big retailers like 7Fresh in China are already taking major steps towards absorbing excess hospitality labor through sharing plans. Even after the outbreak is behind us, pooling employees, perhaps moderated through a new app or backend on a concierge platform, could help owners cut down on labor costs and improve flexibility for employees.
Technology was the source of the initial disruption for the retail world, but it can also be the force that propels brick and mortar back into a position of primacy. Even without the outbreak, the lifeline for retail was technology: experiential gadgets and interactions, omnichannel fulfillment and more customized, bespoke shopping excursions that served as a hedge against pure eCommerce. Far from spelling the doom of the segment, the coronavirus only illustrates yet again how integral technology has come to be for the retail world and how transformative the experiences of the future will become.