Insight: physical retail space needs new metrics to determine rentals and success
Physical retail space has been under serious pressure from shoppers diverting their spending online but there is an increasing recognition of the important role stores continue to play and the realisation that the industry needs to finds new ways to measure their contribution.
Melina Cordero, global head of retail research at CBRE, says there needs to be alternative ways to determine rental levels for retailers other than basing them purely on sales per square foot: “All the industry knows that it needs to change this. In 2017 nobody knew the answer but in 2018 we are figuring it out. We are all working on it.”
She acknowledges that “we need to be experimental” and that rentals will be very much more customised to different types of retailers and even down to their individual stores, which might have different functions based on their locations. Flagship outlets in cities might be about brand building while other smaller stores could have a click and collect type of role - thereby warranting different tailored rental levels.
As online sales continue to grow the role of the physical store space is evolving to have myriad different roles - beyond just driving sales. This is exemplified by Made.com that is opening showrooms around Europe but which Philippe Chainieux, CEO of Made.com, says they do not have a sales function.
“It’s about the brand experience. The number one objective [of the stores] is to engage with the audience. The showrooms are not a retail channel to drive revenues, they are an extension of our online business,” he says.
There is certainly growing evidence of stores driving strong online sales for pure play retailers, according to Julie Villet, director of URLab and CSR at Unibail-Rodamco-Westfield - that operates the Westfield shopping centres in the UK, who says they can be very effective marketing spaces that drive powerful sales online.
“The cost of media spending online is high and the returns are decreasing. Media costs are increasing by 40% each year but ecommerce click-through rates are more like 10%. A digital retailer going into physical can see their web traffic increase by 52% and for those retailers with less than 30 stores the increase can be 84%,” she explains.
Ilona Taillade, founder of the experimental FOMO store in Sweden, is a firm believer that physical store space should be very much regarded as a media channel and this thinking is reflected in the company’s first concept store in Gothenburg: “Retailers need to move from transactions to experiences. We focus on the events side of things and host pop-ups for brands that want to use our space in FOMO as a test bed.”
This thinking has led to brands like Volvo and Electrolux taking space to introduce new products or target new market demographics. “It’s a maximum of three-month stays as it’s about showcasing [a brand] and not about being a retailer. We need to ensure people do not get tired of the brands. When I go to shop I want to come back having had an experience,” suggests Taillade.
FOMO also provides a website that the brands can sell through - in addition to operating their own - as well as promoting their presence in the store through social media, which makes it a full multichannel proposition.
Offering an evolving mix of brands in this way is filtering through to even the biggest operators of retail space. Christoph Cuvillier, CEO of Unibail-Rodamco-Westfield, says that at least 10% of units at its Westfield sites will be changed every year in order to bring in new retailers or new concepts from existing tenants.
There is also the continued expansion of the leisure offer in its shopping centres with food and beverage now accounting for a bigger part of the tenant mix as shoppers’ appetites for ‘experiences’ grows. Cuvillier reveals that cinemas are the most effective non-retail addition to its centres as they can drive between 10% and 15% of traffic, with these people then potentially eating and drinking before and after their film showings.
The growth of pop-ups has also been driven by consumers’ desire for experiencing new brands - as well as the increasing levels of vacant units. Pyjama brand Desmond & Dempsey benefited from operating just such a temporary outlet when it took a space via pop-up marketplace Appear Here.
It was deemed a great success but there was recognition that sales from the physical unit was not the core metric being used to determine its viability. When asked about the results of the pop-up Molly Jeffery, founder of Desmond & Dempsey, firstly revealed that the retailer signed up 1,000 new Instagram followers on the morning of the opening. It was only after this that she referenced selling-out of the whole collection in only 10 weeks following the unit being opened. “We’ve had huge growth from the pop-up,” she says.
As landlords come to terms with the need for new metrics to determine rental levels Ross Bailey, founder of Appear Here, says his business is playing a starring role in “bridging the gap between landlords and brands” and helping introduce new retailers and concepts like Desmond & Dempsey onto the high street and shopping malls.
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