The Rise and Rise of Multi-Channel Retailing

Transcription

The Rise and Rise of
Multi-Channel Retailing
clickbrickflick
Foreword
The report urges flexibility on several fronts.
This means flexibility in accommodating consumer
aspirations, and a dynamic approach to freshening
tenant mix and lease structures to drive footfall, sales
and ultimately rental growth, often at the expense of
maximising value. These issues need to be addressed
collectively so that we provide the right space, in the
right place and at the right price.
It’s not just what you buy, it’s the way that you buy it.
Retail is changing. The standard shopping centre is
a thing of the past. Savvy and intelligent consumers
are seeking a multi-channel mix of convenience and
experience; the freedom to shop when they like, how
they like and more importantly where they like whether
this is in-store, online or via their smartphone. Our
industry must respond; this is not a cyclical issue but
a radical structural change taking shape which retail
real estate has to get to grips with. How we adapt is
a complex and immediate challenge.
When BCSC published its Online Retailing: Impact of
Click on Brick report in 2006, there was no mention made
of a smartphone. Six years on and look where we are?
Another five years and the game will have changed again.
This research The Rise and Rise of Multi-Channel
Retailing seeks to understand the issues and impact
of multi-channel, omni-channel, e-commerce and
s-commerce – all simply meaning retail. It boldly states
that the percentage of retail sales to go online in the
near future is approximately 25%.
I would like to thank the following organisations
which have contributed their invaluable insights to this
paper as to where they see their respective businesses
and indeed the industry heading, in addressing this
fundamental shift: Lend Lease, Hammerson, Westfield,
Meyer Bergman, Argos, Marks & Spencer, Aurora Fashions,
LaSalle Investment Management, Superdry, Sainsbury’s,
Harrods, Next, HMV, John Lewis, House of Fraser,
Monitise, King and Allen, Odeon, Gondola, Conlumino,
CACI and Jonathan Reynolds.
We hope this paper gets to the heart of the debate if
this industry is to keep pace with this rapidly changing
environment. More importantly, it is continuing to give
the consumer a reason to keep visiting our centres,
providing them with the flexibility and freedom to shop
and the ultimate experience.
Peter Drummond
BCSC President
BDP Chief Executive
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3
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Researched and written by:
Jones Lang LaSalle;
James Brown
Hilary Atherton
Colin Burnet
Jones Lang LaSalle
30 Warwick Street
London
W1B 5NH
w: www.joneslanglasalle.co.uk
BCSC
1 Queen Anne’s Gate
Westminster
London
SW1H 9BT
w: www.bcsc.org.uk
ISBN 978 1 897958 56 8
© BCSC (British Council of Shopping Centres) 2012
Acknowledgements
BCSC wishes to thank the following members of the
project steering group for their support throughout this
study and colleagues at Jones Lang LaSalle for their
input and guidance.
Yvonne Court Cushman & Wakefield / Sarah Hitchcock
Sainsbury’s / Alexandra Petit Hammerson / Chris
Paterson Aviva Investors / Mark Rycraft Middleton
Grange Shopping Centre / Alan Thornton MADISONSOHO
/ Davinder Jhamat BCSC / Edward Cooke BCSC.
The text of this publication may not be reproduced nor may talks or lectures based on material contained within the document be given without the written consent of BCSC.
No responsibility for loss occasioned to any person acting or refraining from action as a result of the material included in this publication can be accepted by the authors or
the publishers.
Contents
Executive summary
Introduction
Consumers and technology The retailer response Implications for retail space and retail hierarchy
Strategic asset management Challenges for retail leasing 05
12
14
18
24
26
28
arketing innovation for retail M
real estate
30
Rethinking retail real estate operations 32
Implications for retail planning 33
Financial implications 34
Conclusion
38
Case studies 40
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5
Executive
summary
Key points for consideration
1.25% of total UK retail sales are estimated
to go to online channels by 2020, driven
by m-commerce.
2.In Q1 2012, 8.2% of all e-retail sales
were mobile (a two-year growth rate of
over 2,000%), driven by high levels of
smartphone penetration in the UK.
3.The majority of legacy retailers in the
UK will be net reducers of space in the
coming decade; UK retail portfolios need
to go through a period of adjustment /
rationalisation.
4.‘Shoppers’ are becoming ‘visitors’;
retail space must provide experience;
technology is key to ensure physical
space is relevant.
5.Stores will perform a crucial role in click
and collect models; returns remain a big
issue for retailers.
6.Fulfillment and seamless logistics are
crucial in the multi-channel world; at least
25% of logistics space secured by retailers
in 2011 was directly internet related.
7.Destination (or true convenience)
shopping is most resilient to the multichannel impact. The larger the scheme,
the more rental growth is resilient to
multi-channel retailing.
8.Flexibility (often at the expense of
values) is key to freshening up tenant
mix, driving footfall, sales, and ultimately
rental growth.
9.Landlord focus must be on increasing
engagement with retailers and customers,
and creating the right space, in the right
place, at the right price to drive value.
10.Up to 150 million sq ft (20%) of current
retail space across the UK is potentially
surplus to modern retailing requirements
in its current form.
Opportunities and challenges
for retailers
Creating a seamless offer
•The multi-channel retail environment creates the
opportunity for retailers to develop an offer which
is seamless, and greater than the sum of its parts.
Physical stores represent an opportunity for brand
engagement and inspiration. This needs to be
combined with the stock management, range and
convenience, delivered through an online store.
In essence, the channels have to complement each
other, rather than compete.
Changing form of stores and store networks
•The consensus is that the majority of retailers in the
UK will be net reducers of space in the coming decade
(albeit international expansion opportunities will be
enhanced by online) partly in response to online, but
also in response to economic headwinds and changing
retail models.
•Technology can be an enabler. Social media and
location-based technology, for instance, allows
retailers to stay connected with consumers, and
drives traffic away from, but also to their stores.
It drives efficiency and gives consumers full access
to product ranges from smaller store formats.
•Retailers need to use technology and the physical
space to build their brand image, and create an
exciting lifestyle around the product. For comparison
type goods ‘brand pavilions’ are one answer; these
are showroom style stores that showcase the brand,
in prime locations.
Fulfillment crucial in multi-channel world
•The store is, and will remain the key end distribution
point for most retailers, particularly with the rise
of click and collect. This however throws up its own
challenges around the profitability of click and collect
and whether it is workable for retailers without large,
or strategically well located, store networks.
•Retailers will have to re-think and streamline their
back-end operations for the multi-channel world.
They may need to create, for example, new fit-forpurpose distribution centres with online pick-up
points, dark stores (customer free supermarkets)
servicing large conurbations, existing stores servicing
direct retail, while also acting as distribution points
for e-commerce. This is driving the demand for quality
logistics space; at least 25% of logistics space secured
by retailers in 2011 was directly internet related.
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The store is,
and will remain,
the key end
distribution point
for most retailers,
particularly with
the rise of click
and collect.
Implications of multi-channel
on retail space and the retail
hierarchy
•With 25% of UK retail sales estimated to go to online
channels by 2020, there is simply too much retail
space in certain UK retail locations. It is perhaps
not true that we have too much space overall, but
we do not necessarily have the right space in the
right locations. With shifts in how retailers utilise
space, changing net to gross ratios and tenant mixes
moving towards more resilient uses, we believe up
to 150 million sq ft of space across the UK (20% of
total stock) will over time, potentially be surplus to
modern retailing requirements.
•In-town centres and easily accessible out-of-town
schemes offering convenience, will continue to
appeal to time constrained shoppers wanting ‘needs’
based goods. At the other end of the spectrum, intown and out-of-town centres offering ‘experience’
will continue to thrive, in some instances getting
bigger and better.
7
Challenges and opportunities
for owners / investors / landlords
A new era of asset management
•For asset managers, one of the key challenges is
around creating the right, adaptable space for
retailers in a multi-channel world. They must also
attempt to incorporate enough leisure and catering
into schemes to create experience and drive dwell
time. For local shopping schemes, they must ensure
that they are as convenient as possible, with the
focus on the ease and cost of access.
•While not without current challenges of weak
occupier demand and limited availability of finance,
there is an opportunity for asset managers to
establish a differentiated experience that is more
conducive to sustaining long-term values. Shopping
centres have an advantage over retail locations with
multi ownership. They have the opportunity to be
more creative and flexible with the space available,
and over time, to make the right space available if it
does not exist.
Responsive leasing
•From a leasing perspective, the challenges posed
by multi-channel retailing centre around providing
the flexibility of leasing and vibrancy of tenant
mix, to enable the physical space to compete with
online in terms of offer and dynamism.
•Opportunities exist for landlords willing to place
some income at risk, for the greater good of the
offer, and therefore the appeal of their centres.
For example, by embedding flexibility into the
leasing strategy to enable start-ups or pure play
(online only) retailers to take temporary space.
This may act as a differentiator, a footfall driver,
or even as a publicity stunt. Dynamic landlords will
view this as an opportunity to add a new dimension
to a scheme, rather than focus on the threat to
long-term income.
•Understanding consumers’ propensity to shop online
by product category can provide valuable insight
into creating an occupier mix that is relevant to the
demographic profile of the retail catchment. Tenant
mix strategy should embrace online, while mitigating
the risk of competition from online sales, in order to
ultimately deliver a sustainable income stream.
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Up to 150 million
sq ft (20%) of
current retail space
across the UK
potentially surplus
to modern retailing
requirements in its
current form.
Marketing comes of age
•The significant challenges facing shopping centre
marketing teams include mastering all the new ways
in which shopping centres need to communicate with
their retailers and customers. Creating connectivity
and collaboration with retailers, in order to create
a seamless offer, and increasingly how to use
technology to connect with end customers
are amongst the key challenges here.
•Is the ultimate opportunity for shopping centres to
build on the centralised click and collect concept,
and become a virtual department store? Imagine one
payment system, joint click and collect services,
overarching transactional websites, fitting rooms and
customer service points servicing all retailers within
the centre and home delivery services run by the
centre. This is what the consumer is seeking, and is
all possible.
•The opportunity lies in getting closer to the
end consumer, and the creative use of space to
meet consumer needs which will drive additional
commercialisation revenues (for example, from
interactive shopping walls). E-commerce, technology
and in particular social media provides part of the
answer, and are crucial for embedding a scheme at
the heart of a community, both online and physical.
Planning remains a barrier
Space challenges for operations
•As new retail spaces, such as non-transactional
stores and collection points taking prime retail
sites, become more prevalent, better guidance is
needed to assist decision makers in accommodating
these changes. With landlords under increasing
pressure to deliver values and create the right space,
conversion of retail to other uses will have to become
more commonplace. The planning system needs
to acknowledge the changes that are occurring
in order to provide centres with the flexibility to
be successful.
•For operations managers, there are specific
challenges around rebalancing space (front office
versus back of house) to enable centralised click and
collect services, and also individual retailer click and
collect offers. For town centre schemes, there are
additional delivery and logistics issues to overcome
that many out-of-town schemes are immune from.
•As new retail channels emerge, the traditional role
of the store alters and has a knock-on effect on the
role of the town centre. While planning recognises
the need to respond to what the town centre should
stand for as the role of retail space changes, in many
cases this is constrained by decision makers showing
resistance to change.
Financial implications
of multi-channel
Leases and rents
•The existing rental model, which is based on covenant
and lease length, is under pressure in this new era.
Incorporating more flexibility into leases in terms of
lease lengths and two-way breaks will be a must.
•Grappling with how landlords get increased
visibility of online sales and the allocation to
stores (if appropriate), and what this means for
the future of turnover leases is also key. Anything
that detracts from sales within a physical store
environment cannot be good for rents that are
calculated on a turnover basis.
•The main challenge however, is identifying where
rental growth is coming from (particularly for smaller
schemes which are viewed as more susceptible to
negative rental growth). Here, the challenge is also
the opportunity; rental growth can actually be driven
through increasing flexibility of leases, enabling the
introduction of short-term lets which continually
refresh and differentiates tenant mix, ultimately
drawing footfall and retail spend. Only once this is
achieved can an asset management strategy for rental
growth be implemented.
•The fact that some retailers are actually becoming
more profitable as a result of multi-channel (with
more efficient retail models and leaner store
networks), may also lead to increased rent
affordability, or a willingness to accept higher effort
rates (rent to sales ratios) for the right stores.
•A more flexible model for leasing and rents already
exists in the form of factory outlet or airport
retailing, and lessons can be learned here, albeit a
wave of new turnover rents is unlikely to be the way
forward for mainstream UK retail.
Values
•Perhaps the key challenge facing the industry is
how to maintain and enhance value when vacancy
rates are rising, and rental income is under pressure,
especially for non-prime centres. Landlords need
to ensure they view their centres as an increasingly
dynamic business, create the right space, in the
right place, at the right price and embed more
flexibility within centres. This will enable active
asset management and responsiveness to changing
industry trends, in turn increasing engagement with
retailers and customers, to protect, or better still
to drive value.
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It is effectively
about ‘right space,
right place’.
For most though,
smaller store
networks are on
the horizon.
11
Introduction
The evolution of multi-channel shopping
Definition of multi-channel
Retailing is defined as ‘the sale of goods to the public
in relatively small quantities for use or consumption
rather than for resale,’ (oxfordictionaries.com).
Multi-channel retailing is the merging of retail operations
to enable the customer to transact via numerous
channels. These channels include: physical stores,
online, mobile, telephone sales, mail order, TV, social
media and door-to-door. The essence of multi-channel
retailing is that the customer dictates the route they
take to transact; multi-channel equals true customer
convenience. But from a consumer perspective, the
terms multi-channel, or cross-channel, or omni-channel,
have little relevance; it is simply retailing.
Although the definition of retailing has not changed,
we have been bold enough to state that ‘shopping as
we knew it is dead’. But it is instructive to explore
briefly how retailing in the UK emerged to the place
that we are now; essentially, how did we progress
from one channel to multi-channel? The following
illustration tells the story.
The original
channel
Catalogue
shopping
Door-to-door
Supermarkets
Victorian era the
emergence of the
high street
Kay’s launched
in 1880 but 1930’s
saw catalogue
shopping boom
Widespread in
the 1950’s Avon
launched in UK
in 1959
Self-service shops
were introduced
in the 1950’s,
with the birth of the
supermarket as we
know it.
1568
Royal Exchange,
London
1818
Burlington Arcade,
London
1864
John Lewis founded
1896
Sainsbury’s founded
1884
Marks & Spencer
founded
The evolution of
supermarket space
continued with the
likes of Sainsbury’s
experimenting with
non-food in the
mid-1970’s.
Shopping
centres / retail
parks
1964
Bullring, first in
town shopping
centre
1974
Bretton,
Peterborough
1979
Brent Cross first
out-of-town scheme
Modern shopping
centres also started
to emerge in the
1950’s, with the
Festival of Britain
making way for the
first purpose built
pedestrianised
shopping area in
Poplar.
TV shopping
Internet
e-commerce
M-commerce
QVC launched
in 1993, which
brought retailing
directly into our
living rooms for the
first time.
1991
www launched
The fundamental
shift provided by
the internet was
reinforced and
accelerated by
smartphone and
tablet technology
in the late 2000s,
which enables the
shopper to shop
‘whenever and
wherever’ through
mobile devices.
.com launches
1994; Amazon
1995; Ebay
2010
Click and collect
Shopping habits
have been
revolutionised since
1991, with the
emergence of the
world wide web.
It was no longer a
question of ‘popping
to the shops’,
the shops now
came to you.
2011
Shopping Walls Self
scan with mobile
2012
Interactive adverts,
purchase via
QR code scanned
on mobile
Source: Jones Lang LaSalle
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Whilst economic
growth will return, the
structural change to
the industry as a result
of the multi-channel
revolution is permanent.
Capturing the pace of change
This report sets out to understand how retailers are
equipped to trade in a multi-channel retail environment,
and crucially, the impact that this is having on the store
and the store network. It also seeks to explore the
perspective of landlords, owners and developers,
and the impact of multi-channel on their real estate
assets, the plans being put in place, and the tools they
are using to maintain value in a changing world.
BCSC produced a ground-breaking report in 2006,
outlining the ‘Future of Retail Property’, which included
a chapter exploring the impact of click and brick1.
We are in a privileged position to be able to revisit this
research and to build upon it. We have canvassed
current opinion to see if and how opinion has changed
and hope to be able to highlight how far our perspectives
on e- and m-commerce have come since 2006. At that
time the average proportion of total sales attributed to
e-tailing was 4.5%, and the consensus within our industry
was that in the ‘next 5-10 years’, 14.7% of sales would
go to e-tailing. We are now six years on and 14.3% of
sales are now online (Verdict Research). The pace of
change has been staggering; the outlook from here
needs careful consideration. While economic growth will
return, the structural change to the industry as a result
of the multi-channel revolution is permanent.
Methodology
Our findings and views have been shaped by desk-based
research, as well as by interviews with leading retail
experts, developers, investors, owners and retailers.
We have consolidated these views, alongside known
trends, to provide an industry perspective on what the
potential impact of multi-channel may be on retail
real estate.
1
CSC Future of Retail Property: Online Retailing: The Impact of Click on Brick, 2006
B
http://www.bcsc.org.uk/publication.asp?pub_id=207
As part of the methodology, the views of 52 BCSC
members (including occupiers, landlords, architects and
centre managers) were canvassed in July and August
2012. An online poll was constructed to reflect the
questions asked in the 2006 survey for the BCSC Future
of Retail Property: The Impact of Click on Brick report,
with an additional question on online retail sales. The
survey yielded a relatively small sample size, however
the results still provide valuable insight into the current
sentiment of the industry regarding the impact of multichannel retailing.
We will miss the unknowns, we will underestimate
or overestimate some trends, but we aim to fuel
the debate on how the industry should respond to
meaningful, structural change. We are also mindful
that there are other structural changes taking place
in the industry, and so there is a need to be balanced
about the extent to which impacts on our industry are
attributable to multi-channel.
Thanks must go to all the retailers, landlords, developers
and retail experts who have kindly given us their time
and insight into their business models in this changing
environment; these include: Argos, Aurora Fashions,
CACI, Conlumino, Gondola, Hammerson, Harrods, HMV,
House of Fraser, John Lewis, Jonathan Reynolds, King
and Allen, LaSalle Investment Management, Lend Lease,
Mark & Spencer, Meyer Bergman, Monitise, Next, Odeon,
Sainsbury’s, Superdry and Westfield.
Consumers and
technology
A new age of commerce has emerged, where from
the consumer’s perspective, bricks, e-commerce
(electronic), m-commerce (mobile) and s-commerce
(social) have all fused.
While the fundamentals of the consumer seeking
convenience, ease of shopping and experience remain
intact, the rapid growth of technology has led to the
emergence of different shopping channels. This has
crucially placed increased choice and power in the
consumer’s hands. This section explores the current and
future consumer and technological trends shaping the
retail industry.
1.The online revolution
Since the launch of Amazon in 1994, and boosted by the
advent of broadband in the early 2000s, e-commerce
in the UK has exploded. Boosted by high levels of
broadband penetration (80% compared with a European
average of 67%), the UK has 37 million online shoppers,
boasts the fastest growing online retail market in Europe,
and is second only to the United States globally (World
Pay Research).
According to BCG, online retail sales in the UK are
predicted to reach 23% of all retail sales by 2016, as the
take-up of new and growing mobile channels, such as
tablets and smartphones, increases.
Online retail sales – total and %
160
25%
Retail sales £bn
140
% of retail sales
20%
120
100
15%
80
10%
60
40
5%
20
0
0%
2009
Source: BCG2011, IMRG 2012
2010
2011
2016
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15
2.Transfiguration - reinventing
the role of the mobile
25%
The smartphone – a shop, a payment system, a sales
assistant and a friend, or as Steve Jobs comments, a
“widescreen iPod with touch controls”; a “revolutionary
mobile phone”; and a “breakthrough internet
communicator”.
of sales moving
to online channels.
With broadband in place, recent technological
advancements have enabled the mobile phone to
reinvent the concept of communication. Exponential
growth in mobile device sales (tablets and web access
smartphones) is a significant factor in the recent growth
of e-commerce; smartphones now account for over 50%
of all mobile phones in the UK. It is fast becoming a key
channel for retailers.
The recent 2012 BCSC online survey on multi-channel
asked respondents within our industry what percentage
of total retail sales they expected to go online. 29% cited
15% to 20%, representing the dominant band, while 63%
expect in excess of 20% to ultimately go online.
The average for all respondents to the survey was 24.9%,
which broadly reflects retailer sentiment towards the
opportunity for online, captured through interviews
undertaken as part of this research. So if you believe
in the ‘wisdom of crowds’, 25% is a probable outcome
– which incidentally sits comfortably alongside BCG’s
prediction of 23% by 2016.
– The take-up of tablets since launch in 2010 has been
dramatic; in May 2012, 8% of the UK population owned
a tablet. (YouGov survey.)
– Total Google retail search volumes grew by 9% in the
second quarter of 2012, compared with the same
quarter a year earlier. The increase was driven by a rise
in mobile / tablet search volumes, which grew by 113%
year-on-year. Tablet searches now account for 40% of
mobile searches. (BRC Monthly Tracker.)
– In May 2012, 64% of smartphone owners reported using
their mobile devices to shop online, a number that has
quadrupled since June 2010. (eDigital Research.)
Clearly a greater proportion of sales will be ‘internet
informed’, but against this backdrop of 25% of sales
moving to online channels, we will explore the likely
impact that this will have on retail and retail property.
– The percentage of sales via mobile devices in Q1 2010
was 0.4% of all e-retail sales. By the first quarter
of 2012, this reached 8.2%, a growth rate of over
2,000% over the period. (IMRG Capgemini Quarterly
Benchmarking Index.)
Anticipated percentage of total retail sales to go online
Smartphone share of total mobile audience
BCSC survey results, August 2012
40%
60%
Dec 2010
Dec 2011
50%
30%
40%
20%
30%
20%
10%
10%
0%
0%
0-15%
15-20%
Source: BCSC Survey 2012
21-25%
26-30%
31-40%
40-50%
UK
Spain
Source: Comscore 2012
EU5
Italy
US
France Germany
3.Mobile improves
consumer experience
4.Mobile is an enabler
of s-commerce
In order for developments in technology, such as
m-commerce, to take on mass market appeal, they
have to offer a step change in behaviour, (or significant
cost savings) for consumers to buy into them, and then
for retailers to invest in the hardware and associated
costs for the roll out to their portfolio. “Technology has
to deliver an improvement in experience, rather than
technology for the sake of innovation” a technology
expert at Monitise, which specialises in m-commerce,
comments. In other words, we need to differentiate
between ‘fad’ and ‘value add’.
S-commerce, which is effectively the use of social
networks to market and / or sell goods, is set to take off,
partly as a result of smartphone / tablet take-up. Retail
specialist, Conlumino, has looked into the growth of
s-commerce, and its research shows that in the next
five years, the value of s-commerce in the UK will rise
from £1.6 billion today to around £3.3 billion.
Appropriate and effective technology results in greater
connectivity with end users, and once a new technology
has gained consumer traction, the next stage for
retailers is to convert this improvement to the bottom
line. There are signs that this is starting to happen
with m-commerce:
– In May 2012, 50% of retailers reported that average
order values generated via tablets were higher
than those originating from traditional web-based
channels (Shop.org / Forrester Research State of
Retailing survey).
According to the Gartner Group, by 2015, companies
will generate 50% of web sales via their social presence
and mobile applications. F-commerce (Facebook
commerce) in particular, is set to explode, as specific
social media platforms have been launched enabling
business to sell directly via Facebook, with Facebook
gifts recently launched.
Used in conjunction with location enabled technology,
social media can be used to push deals and discounts to
mobile devices in real time, while consumers are in or
near a physical shopping environment. The real challenge
is to use s-commerce to drive consumers into physical
retail space.
–1
0% of total sales at eBay originated from m-commerce
in 2011 (£5 billion), and this is set to rise to £8 billion
in 2012. According to Olivier Ropars, EU Mobile Senior
Director, driving traffic to the mobile site through
the marketing of flash deals has contributed to eBay
customers embracing m-commerce.
Consumer shopping channels
LI
all
gw
pin
op
r
ys
Telep
hone
ue
e
ven
or
ng
St
ppi
Sho
c
M-
Mail orde
Ph
ce
er
m
ue
og
tal
Ca
Seamless
retailing
Digital TV
om
Sh
SE
RE
AWARENESS
rce
ic
al
sp
RETURNS
me
e
When it comes to
shopping, today’s
consumers do what
they want, when they
want, where they want.
hom
om
RY
or /
-do
S-c
E-commerce
r-to
VE
Doo
AR
DE
CH
AQUIRE
ac
e
Source: Jones Lang LaSalle
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5.Consumers demand seamless
experience and personalisation
BCSC research carried out in 2006 found that consumers
were already multi-channel savvy and used a combination
of different shopping channels to meet their needs. Six
years later, these channels have expanded and become
more interchangeable, with consumers being able to
watch QVC from their tablet while sitting in a shopping
centre using free Wi-Fi.
The fundamentals of retailing have not changed
however, the number of channels consumers have
access to and use certainly has. The illustration on page
16 highlights the number of channels consumers can
potentially engage with as they navigate through the
transactional process.
When it comes to shopping, today’s consumers do what
they want, when they want, where they want. When
they are in the mood, they will source online and buy instore, but they will also see it in-store and buy online.
Today’s shopping experience is far from optimal but one
size does not fit all. Although online shopping offers
flexibility, speed, convenience, the ability to quickly
compare prices and perhaps personalisation, it lacks the
immediacy and interactive emotional experience that
physical stores provide. However, bricks-and-mortar
shopping also has its limitations, such as the time taken,
cost of travel, limited ability to compare products and
prices across stores, and limited ability for retailers to
proactively respond to personal preferences.
What shoppers are looking for is the transparency and
convenience of e-commerce, coupled with the intimacy
of physical stores, tailored to their specific needs.
This desire for convenient and hi-tech personalisation
will be a key driver of consumer, and hence retailer
behaviour in the coming decade. Owners of physical
retail need to better use data and technology, in order
to improve customer engagement, and to provide
improved personalisation.
17
6.Future technology trends emerging
Broadband and the internet are clearly key enablers
for e-, m- and s-commerce. Increased accessibility and
improvement in bandwidth, in addition to affordable and
user-friendly mobile devices, will continue to fuel online
sales growth, and be the catalyst for new technological
advancements. Here are some of the technological
trends emerging as future game changers:
– ‘ Physical space’ technology: Interactive poster sites,
shopping walls, a vending machine that delivers to your
home, facilitated through a smartphone. Interactive
advertising hoardings or posters that track sales back to
that advert.
–L
ocation-based technology: Shopkick is a new
location-based app that has incorporated locationbased technology; it knows where you are and pushes
appropriate offers to you. It essentially incentivises you
to enter a store, with ‘walk-in’ rewards.
–S
peed enhancing technology: YouGov research reveals
that 59% of shoppers are not prepared to wait in a
queue and when faced with one, almost one third of
frustrated shoppers would turn to online retailers. One
answer lies in ‘queue busting’ or ‘in-store’ contactless
technology, which has the ability to speed up the
payment process.
– Vending: Self-help vending with remote electronic
stock management systems. Take away, or have it
delivered to the home.
–3
D printing: The technology enabling the creation of
three dimensional solid objects from a digital model
is in its infancy, but imagine being able to ‘print’ your
own designer sunglasses from the comfort of your
own home.
–B
ody scanning: The technology, synonymous with
airports, has been installed by some retailers, and is
being modified to work via webcam. By matching body
scanning to clothing sizes, the technology enables
virtual fittings, allowing customers to buy clothing
online with confidence.
– 4G: Just arrived in the UK, 4G will radically enhance
connection speeds, improving connectivity and fuelling
the potential for online retailing.
As we will go on to explore, the challenge and
opportunity is for retailers and the retail property
industry to start to leverage the value that comes
from technological improvements. These have enabled
direct access, connectivity and communication between
consumer and retailer, where physical retailing, from the
stores to the warehouse to shopping venues, will have to
adjust as a result.
The retailer
response
“Digital channels are no longer a bolt-on. They are
a tool for driving sales in-store and out,” UK landlord.
To the retailer, consumers interchangeably use different
channels, cross-channel shopping if you like, without
necessarily differentiating between them; they are
simply parts in a transactional process. Inevitably this
increases the need for retailers to place more emphasis
on new emerging channels, often at the expense of
traditional legacy channels. In a capital constrained era,
priorities have to change.
This section explores how the increasing number of
ways in which the retailer is connected to the customer
is impacting the store, the store network and retailer
requirements.
1.Connectivity (not the store)
is king
Multi-channel equals greater connectivity, both face to
face and through remote channels. Remote connectivity
is the key, and new tools hinged around social networking
are becoming established as a credible way of driving
sales, not just to websites but also to physical stores.
Social networks have become embedded within the
brand, and the speed of adjustment to new emerging
social channels (such as social platforms, Pinterest and
NUJI) has forced the physical retail space to reaffirm its
role in the retailer’s commercial model. Pinterest was
established in 2010 and now has 17 million members;
social platforms and networks are not something that
retailers can afford to overlook.
There is a clear distinction between retailers born into
this multi-channel era – the ‘natives’ (with channels
established and seamless interaction), and with some
traditional retailers faced with a mountain of legacy
issues linked to inefficient, ‘baggy’ store networks and
ageing stock management systems. These traditional
retailers will either have to adapt or will get left behind.
With the emergence of different channels, there is
a danger that legacy retailers’ offers can become
disjointed, with little or no connectivity between
channels. The successful retailers will remove the
boundaries, and create, from the consumer perspective
at least, one seamless offer. The view of our industry
experts is that Next leads the way, by presenting a
catalogue, online and store offer as one seamless
shopper experience.
clickbrickflick...
19
“Digital channels are
no longer a bolt-on.
They are a tool for
driving sales in-store
and out,” UK landlord.
2.Implications for the
store network
Smaller store networks on the horizon…
Stores play and will continue to play an important role
in marketing, developing customer loyalty, delivering
service and in selling products, but how many stores does
a retailer need in the multi-channel world?
There has been much speculation and research into the
perfect store network, and what the ideal number of
stores is to provide the optimum, profitable coverage
of the UK population. “The days of needing 200 stores
to cover the UK are clearly history,” according to Andy
Street, from John Lewis. A sentiment which is shared by
many in the industry and one that we are starting to see
playing out in terms of changing retailer requirements.
According to the 2012 BCSC online survey results, 81%
of respondents believe that there will be a negative
impact on the number of stores over the next 5 to 10
years, as a direct result of e-commerce. Neil Saunders,
from Conlumino, comments, “Previously, physical space
was the only mechanism to grow market share. There
are now competing channels for that market share, and
as a result we have seen significant changes to retailer
portfolios. Most high profile changes have been those
that have been in the most exposed categories.”
Not all retailers are downsizing, however. New retailers
are expanding, different formats are emerging (Next
are actively seeking space for their new 55,000 sq ft
home and garden format, in out-of-town locations,
and the food sector is continuing to focus on ‘in-town’
convenience) and most retailers are looking at both in
and out-of-town to create the optimum store portfolio.
In-town, out-of-town, high street or shopping centre
will all feature but which one is most appropriate will
vary by location across the UK. It is effectively about
‘right space, right place’. For most though, smaller store
networks are on the horizon. With the step change in
connectivity with customers through multi-channel, the
challenge is to ensure that the brand is never out of mind
– stores play an important part in this.
Some locations have the potential to compete by
performing a role more as ‘click and reserve’ locations,
or for showcasing the brand, rather than providing full
product ranges in physical format. If these stores were
analysed solely on store profitability, their future may be
uncertain. Multi-channel has given a purpose to stores
that may otherwise be marginalised.
…as is increased demand from online
only retailers…
There is also likely to be an element of increased
demand from pure play retailers taking physical space –
from ‘clicks’ to ‘bricks’. Here are some examples of
online retailers moving into the physical world;
–W
H Smith’s online brand, funkypigeon.com, is trialing
physical stores. This is done without fully retreating
from its roots of personalising cards, as there is a
terminal in-store to replicate the online experience.
–B
oden experimented with a few stores in affluent
suburbs, and has now taken a temporary lease in the
Bullring for 2012.
–e
Bay has trialed a pop-up store in Oxford Street, albeit
more as a marketing ploy than a long-term proposition.
– The direct mail retailer, N Brown, has recently taken
retail space for its online brand, Simply Be.
Multi-channel equals
greater connectivity.
–O
cado believes it has discovered the “future of retail”
according to Alex Everleigh, Business Project Manager.
The company has taken the shopfront of a vacant unit
in the Bullring, Birmingham and is trialing a digital
shopping wall concept (similar to the Tesco trial in
South Korea, and now at Gatwick airport in the UK).
– In a radical business model transformation aimed
at delivering £200 million sales by 2016, Kiddicare is
expanding its business into 55,000 sq ft standalone
warehouse stores. The foray into physical space has
been achieved quickly through the acquisition of 10
former BestBuy stores. If the store model is successful,
Kiddicare will target 20-25 stores in the UK.
For many of these retailers, online will remain at the
heart of their business strategies, but expect to see
more traditional pure play operators in our shopping
venues in the coming years as they seek to build their
brand awareness.
…but the age of the race for space is over
The net result of the above structural change will
undoubtedly be a reduction in physical retail space and
the space that remains will need to be made ‘fit for
purpose’. Bearing this in mind, it is instructive now to
examine what role physical space will perform going
forward in the multi-channel world, from a retailer’s
perspective.
3.Implications for the store
Mixed message for store sizes
According to the 2012 BCSC survey, there is a mixed
message in the industry with regards to the perceived
outlook for store sizes. Downsizing; 54% of respondents
believe there will be a negative impact on store sizes as
a direct result of e-commerce. Upsizing; 23% perceived
a much healthier outlook with a positive impact on store
sizes. No change; 10% of respondents commented that
there would be no impact on store sizes as a result of
multi-channel.
Certainly, large space users such as grocers, which
previously showcased all of their non-food lines in-store,
are now altering their models, with Tesco incorporating
Tesco Direct catalogue sections in-store for ordering and
pick up. Sainsbury’s comments that the role of non-food
in-store will shift with much more extensive ranges
being available online, and aspects of their ranges
showcased in the store. Food operators have also
started to focus on smaller in-town convenience stores.
The trend for department stores is also towards a
reduction in physical store size and entering new
markets through different formats.
clickbrickflick...
Experience and service to the fore
“Retail space plays an important part of retail and will
continue to have a leading role. Consumers, however,
now expect more from a physical store; it has gone
beyond the simple transactional box,” UK retailer.
As competition for consumer spend intensifies amidst
the tough economic conditions and with the growth of
online, the traditional style of ‘passive’ retailing is fast
becoming unsustainable.
Retailers need to turn their attention to proactive
service, and focus on creating an experience to lure in
shoppers. As Ron Johnson, Senior Vice President for Retail
at Apple, says, “A store has got to be much more than
a place to acquire merchandise. It’s got to help people
enrich their lives.” This is about ‘going beyond’ retail.
Retailers have and are responding. Even in the downturn,
the high street has been churning out trial stores, new
concepts and pop-ups in an attempt to capitalise on the
new, harsher, more competitive and dynamic trading
environment. Retailers are increasingly using the physical
space to build their brand image, and create a lifestyle
around the product. Here are some examples, which give
some pointers to the future:
–H
ollister is a great example of a store creating a
sensory experience. Lighting and aroma, together
with excellent customer service, all served up in
a surf hut environment. Perhaps not a conventional
retail environment as we knew it, but an experience
that cannot be mimicked online. Hollister brings
Southern California to the UK.
21
– Ted Baker has not created a showroom, but a village
within their store. The customer shops in ‘Tedbury’, and
takes in the atmosphere associated with the different
goods on offer, in a chocolate-box village environment.
–D
esigual has launched a store where you are unable
to actually buy anything in-store. The store stocks one
item for every line and size, but you cannot purchase
in-store in the traditional sense. It is solely a showroom
and fitting room, where you choose, try on and then
order online. The ultimate showroom.
–B
rooklyn Denim Co. in New York has moved its sample
room to the shop floor to add more atmosphere.
– S weaty Betty has brought sport into the store,
with yoga classes and running clubs based in-store.
–H
arvey Nichols’ has launched a new concept
combining beauty services, champagne and cocktail
bars in prime retail space (recognising that beauty
services and cocktails are relatively resilient to multichannel retailing).
As the pressure builds on stores to become more service
orientated, experiential, inspiring and showroom in style,
the challenge is for retailers to justify the additional
capital expenditure needed to give consumers what
they crave.
Stores to drive click and collect
Physical stores still and will continue to dominate as a
distribution channel. Strategically located stores acting
as distribution points for online sales further reinforces
the need for retailers to be in good strategic locations
within shopping centres, on the high street and in out-oftown locations. The grocers have benefitted particularly
from their large store networks, and click and collect or
‘buy and collect’ has gone to market extremely quickly
as a result.
The challenge lies with the retailer to drive incremental
sales from these consumers as they utilise more than one
channel. According to multi-channel retail analyst firm
IDC Retail, the multi-channel shopper spends between
15% and 30% more than the equivalent single channel
user. While some retailers are behind the curve, there
are others that are leading the way on this front. (Please
see retailer case studies at the back of the report.)
For other retailers without such large store networks,
click and collect is more challenging, and more costly
to fulfil than traditional online orders. Items that are
individually picked at the warehouse have to be sent to
a store rather than the customer’s home. This can be a
more complicated process, however while it is common
for customers to pay a charge for delivery, click and
collect is typically offered free of charge.
Despite some of the challenges presented by click and
collect models, the speed of consumer take-up suggests
it is a channel that is here to stay. It is a perfect example
of combining the best of clicks and bricks, and should be
embraced by the retail industry.
Focus on intelligent stock management and
returns policy
Recent research by consumer research company Ipsos
MORI, highlighted that intelligent stock management,
and more synergy and collaboration with logistics
operations, are some of the major advancements
required by retailers in the multi-channel world.
Providing customers with the most convenient way to
receive and return parcels is integral to a successful
multi-channel retail strategy. It is difficult to put a value
on the cost of returns to the retailer however according
to a 2011 survey by Kelkoo, two-thirds of retailers
surveyed offer a free returns policy and as a result,
returns are costing retailers and consumers over £100
million each year due to shipping, postage and packaging
spending. The clothing sector is particularly impacted;
one retailer commented that in excess of 50% of all
dresses bought online were returned primarily due to
issues with lack of standard sizing.
There are various business models employed to deal
with the return of online sales. Some retailers refuse
to accept online returns in-store, which risks penalising
store turnover, while others embrace it, and offer a
seamless shopping experience with online returns. The
click and collect model across comprehensive store
networks has certainly helped to enable customers to
conveniently return items. These include the emergence
of parcel service hubs such as Collectplus (managed
by Paypoint, with a network of 4,900 distribution
points through corner shops and shopping centres) and
myHermes (which aims to have 1,000 distribution points
in convenience stores by the end of 2012).
What is certain is that logistics are at the heart of
multi-channel retail operations. Andy Harding, Director
of E-commerce at House of Fraser, points out that the
line between retailer and logistics provider has become
blurred. According to Harding, “Being able to service the
customers’ needs seamlessly and move stock smoothly
through the combination of the store, warehouses and
online store network can only be achieved through a
seamless logistics model”.
clickbrickflick...
Allocating sales to stores
Another key issue for retailers emerging from the
multi-channel world is whether online transactions
should be allocated to stores, and if so, how.
Effectively, how should retailers capture online
sales (and returns) through a physical asset; there is
currently no best practice for how retailers should
apportion sales to stores.
One option, suggested by a high street retailer, is to
focus on consumer profitability by geography rather than
store profitability. Certainly, more creative techniques
are required. In some instances stores are being
penalised for internet returns in-store in addition to the
cannibalisation of online sales. This can cause friction
within stores and some retailers are working hard to
attribute online sales to stores, in order to value the
contribution of physical stores to the retail business.
Perhaps a shake-up of the sales allocation model is
required, for department stores in particular, with
sales allocated to postcodes and then attributed to
catchments, so that stores can benefit from its sales
as well as capturing other channels sales within its
catchment. What is certain is that the model of store /
asset financial viability needs to be rewritten both for
the retailer and shopping centre owner. This is discussed
further in the report.
In summary, retailers are in the embryonic stage of
trading in a true multi-channel world. It is a challenging
time, as initially it is costing retailers more to satisfy
the same level of demand. Retailers are being forced
to look into the impact that multi-channel is having on
productivity. The view from a high street retailer is that
“as a result we will see potentially leaner store networks
that are fit for purpose. The speed of change however
is limited by the legacy of the store network and lease
agreements that were forged on old retailer models”.
When the changing role of the store and the increasing
complexity of customer fulfillment are factored in, the
challenge facing the retail industry is clear. The good
retailers, however, will not be daunted, but will see the
challenge as an opportunity for growth and increased
market share.
What is certain
is that logistics
are at the heart
of multi-channel
retail operations.
23
Implications for
retail space and
retail hierarchy
One of the most significant impacts of multi-channel on
our industry is the structural change in the quantum of
physical space required, the resultant obsolete space,
where this is likely to be located in the retail hierarchy,
and how the industry deals with this dead space.
1.Oversupply in the market
Currently, there is 747 million sq ft of retail space in the
UK, according to Experian GOAD (August 2012). What is
more relevant is the change in vacancy rates over the
last six years, with a dramatic increase in vacant space
to 14.2% from 7.7% in 2006 (Experian GOAD data), and in
excess of 23,000 vacant units within the top 650 towns.
The key drivers behind this are; a steady supply of new
optimum space, the 2007 global economic crisis, the
current economic climate, the impact of multi-channel
retailing and ultimately changing retailer requirements.
The view from retailers and landlords alike is that there
is no single retailer which is right-sized for the future;
all retailers will have to reassess and define future
requirements, and this will involve downsizing and in
some cases exiting. Unsurprisingly, sectors most at risk
include music, books and gaming, however almost all
sectors will be affected to some degree.
Forecasts for what percentage of retail sales will
ultimately go online vary by retailer, landlord and
industry expert. 25% of sales going online by 2020,
as identified previously, appears to be a reasonable
estimate but not all of this will be pure online, as
some will be a combination of click and collect.
There is no doubt that some retail space in the UK is
now surplus to modern day retailing requirements,
a view shared by retailers and landlords alike. Our view
is that it is not inconceivable that around 20% of current
retail space, or 150 million sq ft, will become surplus
to requirements as a direct result of multi-channel
retailing. This structural change is already underway and
the current vacancy rate is unlikely to fall significantly.
For the retail space that remains, flexibility and the
ability to reconfigure the space to the needs of modern
retailers, or new uses, will be of paramount importance.
A downward adjustment in values for much vacant stock
and a more ‘friendly’ planning process, allowing change
of use where required, will be necessary.
2.Rise of convenience and experience
“It is not simply a case of keeping consumers going to
the shops, it is adapting the centres to give them a
reason to visit,” Lend Lease.
Redundant space is not all in one place, or within one
format or space hierarchy. Further it is not quite as
straightforward as stating that prime centres will thrive
in a multi-channel world, and secondary and in particular
tertiary centres, will struggle.
Schemes offering pure convenience will continue to
appeal to time constrained shoppers, wanting ‘needs’
based goods, there and then. One view from landlords
is that there is less of a threat to local, convenience
schemes from online, as opposed to the big regional
schemes. The rationale being that the main sectors
represented in convenience schemes (grocery, services,
discounters, discount fashion, coffee shops, cosmetics,
etc.) are less exposed to the online threat. CACI’s figures
on propensity to spend by Acorn group support this. Into
this convenience bracket, we place out-of-town schemes
which provide both convenience and comparison type
goods, but offer ease of parking and access, and are
well suited for click and collect for customers and
retailers alike.
The counter argument is that, while they may be more
exposed to the online threat, the big regional schemes
have scale to provide that ‘wow’ differentiator to attract
‘visitors’ from far and wide. These centres which offer
experience will continue to thrive, in some instances
getting bigger. Why? Because we are social animals,
we will always want to interact with others and to
experience retail and leisure ‘in the flesh’.
clickbrickflick...
3
3.8
5
6
16.7
16.6
16.4
16.2
31
45.7
31.4
45.2
31.1
44.8
31
44.3
7.1
8.1
9.3
10.5
11.7
16.5
16.3
16.3
16.4
16.4
31.5
42.8
31.5
12.9
25
13.7
Online
16.3
16.2
Neighbourhood
Out-of-town
31.5
42
41
31.5
39.9
31.3
31.2
31.2
39
38.3
37.7
Town centre
Source: Verdict 2012
‘UK Out-of-town Retailing’
2005
2006
2007
2008
2009
2010
2011
These schemes best showcase how physical space
can differentiate itself from the internet, enabling
customers to do things they simply cannot do online –
eat, socialise in person, engage face-to-face, and be
part of a physical society.
Success will therefore require true convenience,
experience or a combination; any scheme providing less
will come under increasing pressure. The real challenge
looking forward faces retail space that sits in the wake of
a competing centre that offers either better convenience
or experience, or both.
3.The challenge of obsolete space
In a local market with an excess supply of space, and
an offer without a clear and compelling raison d’être,
something will have to give.
Naturally, this space will often be secondary or tertiary
in nature, often on the periphery of core high street
locations or in poorer quality shopping centre schemes.
For this obsolete space, options are limited, although
subject to downward adjustment to rental values and
operators accessing finance, some secondary space
will be taken by start-up retailers. Landlords will
have to become re-focused through reconfiguration or
redevelopment and changes of use, to keep up with
changing consumer requirements. Rents and value will
simply have to fall further in some locations.
4.Online, in-town or out-of-town
The graph above illustrates that growth in online sales
has had the greatest impact on in-town retail, with the
proportion of sales going to neighbourhood and out-oftown schemes having remained (and forecast to continue
to remain) fairly constant. This data again points to
convenience being a contributing factor to success in
these locations. While no retail venue is immune to
the impact of online, town centres have been affected
to a greater degree, and face a challenge to mitigate
disproportionate impact going forward.
2012
2013
2014
2015
5.Online impacting industrial space
According to Jones Lang LaSalle data, retailers and pure
play retailers secured approximately 5.6 million sq ft of
Grade A logistics space in 2011, of which at least 25%
space was directly internet related. Tesco and Amazon
alone created 822,000 sq ft of dedicated new space.
There are cases where retailers take space and designate
some of the warehouse for internet uses, so this 25% is
likely to be higher.
In addition, Tesco has shifted its business model, as a
result of growing demand for online shopping, from pure
in-store picking, to combining this with ‘dark stores’
(stores not open to the public which service online
customers in a catchment). Tesco now operates 115,000
sq ft stores, based in strategic locations such as Enfield,
which services up to 1 million London households.
When logistics companies take new space it is not clear
exactly how much space is used to fulfil online orders.
Our research shows that logistic companies are either
adapting their current warehouse networks or looking to
improve their networks so that they can efficiently and
cost effectively meet retailers’ logistical requirements.
6.Implications for new retail space
Flexibility is key to enabling physical space to react to
the changing retail landscape. This has implications for
new space that is currently being developed. Schemes,
particularly out-of-town, may be less intensively
developed than before, with an element of flexibility
built in, enabling future reconfigurations. Future
schemes need to be developed with evolving occupier
space requirements in mind. Urban consolidation areas,
showroom space, click and collect infrastructure, for
instance, all need consideration, from the outset.
And future-proofing, by embedding technology in new
schemes is key, enabling consumers to shop across the
channels while in the shopping centre, via Wi-Fi,
for example.
Crucially, understanding the residual value of schemes
is just as important for landlords as understanding the
current value, so that future uses can be accommodated.
Strategic asset
management
“No landlord would have even anticipated how online
and thus the emergence of multi-channel would have
influenced the retail environment. Five years ago it
wouldn’t have been considered a threat and no one
would have been able to predict the speed of take up,”
UK landlord.
This section aims to explore some of the current and
potential challenges and opportunities facing owners,
investors and landlords of retail property (with a focus
on shopping centres), and how the industry has, thus
far, risen to the challenges presented by multi-channel
retailing. Starting with asset managers, in this market,
asset management has become vitally important as
a means of forging value and ensuring space meets
changed retailer requirements.
1.Create the right space
With many shopping centres exposed to obsolete space
(excess, older, smaller, sub-optimal units), investing
capital to create the right space in the right locations is
key. Albeit, one of the key challenges is that capital is
not necessarily readily available in today’s market.
The BHS store in The Parade in Swindon, for example,
developed in the 1970s, had excessive frontage and
inefficient trading space. Ignis and Shearer Property
Group reconfigured the space, creating 80,000 sq ft of
new retail space, and a more efficient 45,000 sq ft BHS
store, anchoring the shopping centre. Shearer Property
Group comments,“the emphasis on developing existing
centres is focused on creating relevant retail space
for today’s consumer and retailers’ evolving modern
requirements.”
Small, inefficient, highly rented units may be no
longer in demand but are in abundance in our legacy
retail marketplace. Many units need reconfiguring, or
significant downward rental adjustments in order to
attract new operators.
The approach to optimising obsolete or vacant space
is not new but has increased in importance. Shopping
centres under single ownership have an inherent
advantage over high street locations with multiple
ownerships, in being able to be more creative and
flexible with the space available and over time,
making it available if it does not exist.
Landlords are creating bespoke space for retailers.
In creating a bespoke store for Forever 21 in Bluewater,
Lend Lease incorporated several smaller unit shops,
and Aviva reconfigured the Bentall Centre in Kingston
to provide a brand pavilion for the new Superdry
store. Space re-engineering initiatives are even evident
in new schemes. Westfield London, for example,
has reconfigured space recently to incorporate
Banana Republic and has adjusted the ex-Habitat
store to accommodate Urban Outfitter’s iconic
store requirements.
2.Mix it up – make space and room
for leisure and catering
Outside the major regional schemes, there is evidence
of proactive asset management revitalising schemes
sitting further down the retail rankings, adding value
and creating efficiencies for retailers.
It would be inaccurate to suggest that catering has not
played a role in shopping centres since their inception,
but the nature of the offer has evolved. Jones Lang
LaSalle research shows that, in 2004, only 117 of the top
500 schemes incorporated food courts.
Landlords are waking up to the value of leisure. Five
years ago, leisure was not at the forefront of landlords’
minds however they now better understand how leisure
can help to increase dwell time and drive spend. Gondola
Group Property Director, Kieran Pitcher comments, “the
restaurant market is very acquisitive at the moment and
we are an answer to the golden question in terms of how
to fill vacant space.”
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27
Investing capital to
create the right space
in the right locations
is key.
Catering within shopping centres is undergoing a
period of change, with aspirational casual dining being
represented by several formats. On the one hand,
restaurant operators are taking units within what
was a traditional food court environment, such as at
Meadowhall. On the other, landlords are maintaining
the communal dining feel, while reinventing the food
offer and ambience, taking on elements of street food
and theatre.
4.Focus on community engagement
This is best evidenced in the Westfield schemes, and
the revamped foodhalls such as The Exchange in Ilford.
Bluewater has increased its leisure element from 6%
when it opened, to 10% currently. The main focus has
been on increasing the casual and family dining offer
in order to drive dwell time.
Shopping centres are focal points for the community, and
the closer a centre gets to the heart of the community,
the greater the mutual benefit for both consumer
and owner. We have seen recently a shifting emphasis
towards shopping centre managers taking on a more
local view, and developing deeper relationships with
the community, for example by dedicating obsolete
space to community projects, market halls and festivals.
Exhibitions may raise revenue, however leasing to
colleges for events raise awareness and reaffirm the
shopping space in the mind of the community. Such
shopping centre-led localism initiatives can alter the
positioning of a centre, and are an excellent example
of the innovative use of obsolete space.
However, there is a much greater challenge for existing
schemes and those in more secondary locations, to
differentiate through leisure, as values often have to
take a hit to incorporate the traditionally lower rents
associated with A3. Reworking of space to incorporate
the A3 specifications has capital implications, which
landlords (where possible) are bearing the brunt of in an
attempt to reposition schemes. If a short-term view is
taken, this approach to investment often does not
stack up.
Shopping centres can also be a place to nurture new
businesses, provide training and educate the community.
There are a number of government-led initiatives
(with available funding), supported by shopping centre
managers that have been successful in encouraging
local people to set up businesses in schemes. BCSC’s
community engagement report Shopping Centres: At
the Heart of the Community 2 gives more details on the
benefits and details of how shopping centres can embed
themselves at the heart of a community.
It is a balancing act between taking a hit on value in
the short-term to reposition a scheme, drive dwell time
and establish a differentiated experience that is more
conducive to sustaining long-term values.
Freshney Place in Grimsby delivered an exciting solution
to engage with the community, and use obsolete space
with an ’Out of the Dark’ art exhibition. As a result
of the exhibition, there was a year-on-year increase
of 70,087 visitors to the centre, with car park usage
increasing by 28% over the duration of the exhibition.
Most importantly, retailers saw year-on-year sales uplifts,
including Bank (up 50%), Bonmarche (up 22%), Costa
(up 20%) and Jane Norman (up 11.5%). Exhibitions such
as this represent a tiny proportion of marketing budgets
which can generate substantial community awareness
for a centre.
3.Join the digital revolution
As a start, providing free Wi-Fi in shopping centres is
becoming a must. You do, as one landlord put it, “invite
the enemy into the house”, but landlords should focus
on the positives. These include; valuable data capture,
marketing, increasing dwell times, driving retail sales
through click and collect and internet browsing and
engaging the customer with the scheme brands while
they are in the venue. Most importantly, if you do not
provide customers with Wi-Fi access, someone else will.
2
CSC Shopping Centres: At the Heart of the Community
B
http://www.bcsc.org.uk/research
Challenges for
retail leasing
“Shopping is a leisure pursuit, consequently it is about
social interaction and reward, as much as it is buying
products. Those landlords and retailers that understand
this, and use technology as a facilitator to the wider
experience, will thrive in the multi-channel world,”
Lend Lease.
The challenges and opportunities facing leasing agents in
the multi-channel world centre on creating a sustainable
tenant mix, reassessing the notion of secure income and
reappraising the role and nature of scheme anchors.
Increased focus on flexibility
Flexibility is key to enable physical retail space to react
to the innovation and excitement that can be generated
online. Underlying value is the crux of a commercially
viable scheme, however, and until a level of secure
income is in place, a centre is often not in a position to
be able to offer flexibility that may be the differentiator.
As a result, although there is much talk of this in the
market place, only landlords who can afford to have
strategically dedicated areas to provide temporary
space, will benefit long term from the flexibility it
provides. Economic uncertainty has, in many centres,
forced flexibility, and temporary lets mask the vacant
space. Moving forward, more flexibility will simply have
to be built into schemes to allow for a more dynamic and
responsive tenant mix strategy.
Evidence suggests that there has thus far been a
reluctance amongst landlords to support, for example,
publicity stunts from online pure play retailers in
the physical store realm. The strong preference is to
collaborate with them to create a more sustainable
offer that is mutually beneficial. While looking for a
more sustainable model is perhaps understandable from
a landlord perspective, those with a more dynamic
outlook views this trend as an opportunity to add a new
dimension to a scheme, rather than as a threat to longterm income. Online retail moves fast, physical space
needs to keep up.
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29
Online retail
moves fast,
physical
space needs
to keep up.
Reappraisal of anchors and income security
Development of online resilient retail mixes
Landlords should consider placing some income ‘at risk’
for the greater good of the offer and therefore the
appeal of their centres. The mindset of most landlords
is still the department store and major space users
(MSU) model, but are leisure and catering now becoming
feasible alternative anchors?
Consumer propensity to shop online varies geographically
by consumer group (explained in more detail in the next
section), and also unsurprisingly by retail category type.
As we mentioned earlier, catering and leisure are perhaps
the most resilient to the threat of online.
We are seeing evidence that anchors are changing;
James Waugh, Retail Manager at Bluewater comments
“Bluewater now has three levels of anchor: the retail,
the dining and the leisure. The latter includes Glow
(55,000 sq ft), which forms part of an integrated
events strategy to bring Bluewater to life for guests.
This strategy also includes the lakes and parkland and
external attractions including the Pirate Cove.”
Event space, embedded in the heart of the retail offer,
is increasingly being built into shopping centre models.
There are examples of ski slopes, children’s education
centres and more, acting as alternative anchors in
schemes across continental Europe and beyond.
Leisure also certainly appears to be one of the most
resilient sectors when it comes to the impact from eand m-commerce. Rental income may be lower than
for some other retail users however tenant mix appeal,
longevity and security of income are also crucial to
enable landlords to sustain a model that can provide the
necessary flexibility.
All of this starts to question the notion of what is secure
income. A landlord requires a mixture of secure longterm rents with short-term flexibility, based not only on
physical store performance, but on affordability based on
combined store and online sales. Anchors and MSUs are
attractive for long term security and strong covenants,
and want to be in the shopping centres, however the
terms they demand may not be conducive to value
creation for owners in the new world.
Landlords need to have an eye on the propensity to buy
online by category, together with the profile of their
occupiers and demographic make-up of their catchment,
in order to create a relevant and balanced tenant mix.
Tenant mix strategy should embrace online, while
mitigating the risk of competition from online sales, in
order to ultimately deliver a sustainable income stream.
The key ingredients of tenant mix need to include the
right combination of product, service, convenience and
experience. In this respect nothing has changed; the
importance of getting the appropriate mix has.
Marketing
innovation
for retail
real estate
One of the landlord / owner skillsets most impacted
by multi-channel is likely to be marketing and
communication. This area is arguably where much of the
opportunity lies in this new era of technology. Here are
some of the key challenges and opportunities facing the
marketing team in the multi-channel world.
1.Focus on connectivity and
collaboration
There has to be a win-win mentality whereby landlords
and occupiers outsmart competing centres, not each
other. There should be no division between getting
people to the centre and getting them into stores;
the combined focus has to be on driving sales.
One of the broadest themes to emerge from our
interviews is this link between the key players in the
retail chain, and how they are becoming stronger.
Landlords and owners need to develop better
connectivity with their retailers, with their communities
and above all with their customers, by being savvy with
customer data and social platforms, and, as mentioned
previously, by connecting with the consumer in the
shopping centre via Wi-Fi.
As Duncan Bower, Director Development and Asset
Management at Westfield puts it “Westfield very much
embraces the changing multi-channel environment
and its social function to help drive footfall and sales.
Connecting with our customers has always been one of
our top priorities and collaborating with retailers in
this changing environment is one of the key ways of
achieving that objective”.
As an example of owners connecting directly with their
customers, in 2006 we could not have predicted that
landlords would start developing or acquiring online
retail sites, and becoming transactional in their own
right. Westfield has developed a transactional website
in Australia, enabling consumers to buy from Westfield
hosted retailers via a Westfield branded portal. Further,
French shopping centre owner Alterea has developed
a click and mortar model through the acquisition of
RueduCommerce, a leading French online marketplace
retailer. These two are early adopter examples of
complete connectivity between landlords (cum retailers
and shoppers).
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31
2.Get to grips with social media
4.Know your customer
Social media is a vital weapon in the shopping centre
marketer’s armoury. The aim is to get the shopping
centre at the heart of the online community as well as
the physical community. If a centre does not have an
app, or a Facebook or Twitter account, it is likely to
be out of touch and may be losing ground. This is often
where hearts and minds can be won or lost.
Much has been said about the role of physical space from
a retailer perspective however for a landlord, the role of
their centre within the catchment is becoming ever more
important. As research by CACI demonstrates, the UK
population is not uniform in terms of propensity to
spend online.
It is no surprise that across all demographic groups,
certain product categories have high proportion of spend
going online. The propensity of shoppers to buy online
however differs significantly by lifestyle group,
as highlighted in the chart above.
This is just the start. Shopping centre marketers will
need to get to grips with location-based technology.
For example, as mentioned previously, Shopkick
(www.shopkick.com) is a new location-based app that
incorporates location-based technology; and pushes
appropriate offers to you, incentivising and rewarding
the shopper to enter a store. Pushing discounts to
customers based on their location is not a new concept
where previously you had to let the app or website know
you were there first. Some social and location-based
technologies will come, some will go, but the concept is
here to stay and it is having a growing influence on how
we communicate and shop.
Broadly speaking, the more affluent lifestyle groups and
perhaps some of the more time constrained, IT savvy
younger age groups have a greater propensity to shop
online compared to some of the more hard-pressed
consumer groups.
Detailed geo-demographic analysis of catchments
will show where risks lie, or conversely where centres
are perhaps more resilient to online, due to a lower
propensity to shop online amongst catchment residents.
This emphasises how important it is for landlords to
take a ‘back to basics’ approach and fully understand
the fundamentals of their shopper profile, versus
that of their catchment, in order to manage their
asset effectively.
3.Profit from commercialisation
The multi-channel world and the smartphone in
particular, presents shopping centre marketers with a
myriad of opportunities for commercialisation income.
Interactive poster sites, shopping walls, walls of QR
or bar codes for ordering groceries or train tickets,
a vending machine selling t-shirts, vending that delivers
to your home. All facilitated through a smartphone, all
potential additional and new sources of income. Science
fiction? No, most of this already exists and is in place in
various parts of the world.
Propensity to shop online by product category (% of total spend online)
40
Wealthy achievers
35
Urban prosperity
30
Comfortably off
25
Moderate means
20
Hard-pressed
15
10
5
0
Source: CACI, 2012
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Rethinking
retail real estate
operations
The challenges and opportunities facing shopping centre
operations in the multi-channel world centre around the
demands of click and collect, and balancing ‘back office’
space versus front of shop.
1.Click and collect and beyond?
We have already covered some of the issues around click
and collect from a retailer perspective. Yet shopping
centres also have a role to play in responding to the
increasing customer, and retailer, demand for click and
collect services.
Shopping centres have started to accommodate
collection points for online retailers, (Amazon lockers),
however do shopping centres need to go further and
provide one centralised collection point? British Land’s
partnership with Collectplus which enables shoppers
to drop off and pick up parcels, allows the landlord to
reinforce its role in the community and in the customer’s
shopping journey, by fulfilling online orders and
generating footfall. In addition, as previously mentioned,
logistics operators are, through the likes of myHermes
and Collectplus, taking space within the convenience
chain network. But could they soon be taking retail
space for ‘post boxes,’ further expanding the Amazon
locker concept?
Collection points need to be easy to deliver to, and not
restricted by delivery regulations so often associated
with town centres. Otherwise, town centre schemes will
lose out, as out-of-town retail parks and shopping centres
with ease of access and ample parking will welcome
standalone collection points.
Could centralised click and collect collection points
be a first step towards the venue of the future, where
retailers collaborate together, firstly in a ‘food court
style’ model, eventually progressing to a full department
store concept? Imagine one payment system, joint click
and collect services, overarching transactional websites,
fitting rooms and customer service points servicing
all retailers within the centre, and home delivery
services run by the centre. Some pioneering landlords
are moving towards this by providing a transactional
online offer – but who will be next? The approach where
landlord becomes retailer is not exclusive to the global
players, but something that could be offered to any
shopper catchment, as it provides a one-stop shop and a
convenient service.
2.Rebalancing space
There will be significant space and storage implications
for shopping centres as a result of multi-channel. Where
there is click and collect, there is also the matter of
storage requirements, for goods to be collected and
returned. The urban consolidation centre concept which
provides shared user facilities, is already operational
in Meadowhall, Bristol Broadmead, Regent Street and
Westfield Stratford. However, could these centres take
on a more prominent role, as landlords look to provide
the architecture enabling retailers to provide a seamless
retail offer? One landlord-owned central delivery hub,
where deliveries for e-fulfillment or standard retailing
can be streamlined, all paid for via the service charge.
This concept may also be fuelled by the green agenda,
which seeks to reduce vehicle movements and CO2
emissions in town centres, creating more sustainable
assets. One to watch…
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33
Implications for
retail planning
1.Proactive retail planning –
a new era?
Retail planning has traditionally sought to protect
the status quo rather than immediately embrace
new opportunities. Issues that evolve as a result of a
changing retail environment stimulate a discussion and
challenge some of the policies that may be hindering a
new direction of retail progress. The current planning
process does enable issues to be identified and solutions
to be determined but there is significant lag in the
time taken for this to manifest as policy. Even where
policy may provide scope and flexibility, it is subject to
interpretation and the willingness of decision makers
to embrace change. With an increasing focus on
asset management, landlords are forcing centres to
evolve, however the timescales to deliver change for
consumers and retailers for a physical asset are often
not compatible with planning policy timescales.
Recommendations from the 2011 Mary Portas Review,
seek to promote high street innovation, challenging some
of the more established town centre policies.
2.The changing role of stores
As we have laid out, there has been a fundamental shift
in the way in which retail manifests itself as physical
space. At the heart of retail planning is the drive to
create places that are relevant, usable and viable, while
continuing to protect established town centre retail
destinations from negative impacts. For planning policy
to maintain this ethos, it needs to acknowledge how the
role of physical retail space is evolving.
Under the National Planning Policy Framework, local
planning authorities have an obligation to co-operate
with neighbouring authorities, which provides an
opportunity to consider retail provision over a broad
area. Conversely, the Localism Act 2011 brings a very
local focus to retail provision with the introduction of
Neighbourhood Plans. The town centre first principle
of retail planning effectively transcends each of these
levels of planning, prioritising and protecting town
centre retail investment. Yet it is the retail policies that
seek to govern the mix of uses within a town centre, on a
high street or within a particular boundary that will need
to be flexible enough in order to enable these spaces to
effectively evolve to meet future consumer needs. The
shopping experience has gone beyond shopping; retail
policy needs to accommodate this.
3.New retail spaces –
but are they retail?
Change is happening and new retail spaces are emerging;
it is vital that the current Use Class Order does not
inadvertently resist these changes, which could lead to
an improvement in the vitality and viability of our town
centres. Retail showrooms, standalone click and collect
points, spaces dedicated to online ordering order, or
even walls where you can purchase from a QR code will
all become more prevalent. While in many cases these
uses would be ancillary to the main use, as part of a
multi-channel store, there is likely to be confusion over
the Use Class Order, which should be anticipated and
avoided if possible.
Financial
implications
Finally, but most importantly to investors, we now
explore how multi-channel is impacting the financial
viability of schemes, with a particular focus on rents
and values.
1.Impact on leases and rental levels
As a result of changing retailer requirements, there are
various schools of thought in the industry at the moment
as to the optimum rental model, and in particular the
appropriateness and longevity of turnover rents.
Greater variety and flexibility required
One thing is for certain; lease lengths are generally
becoming shorter (the exception being food and leisure
operators, which are seeing little change in the structure
of their rental agreements), and there is pressure
from retailers for more flexible lease lengths. 85% of
respondents to the BCSC survey felt that there will be
a greater variety of lease types as a direct result of
e-commerce. Lenders, investors and valuers need to
understand that 10 year terms are no longer an accurate
measure of income security.
In addition, covenant strength is a red herring, as it
does not translate into performance, or the location
requirements of a retailer at a local level. Some retailers
are downsizing or rationalising portfolios despite strong
covenant strength, to ensure they have the right space
in the right place in this new multi-channel era. Despite
strong company covenants, some stores will be surplus
to requirements going forward. Strong covenant does not
mean for life, where changes to covenant often lag.
By comparison, the covenants of start-ups and pure
play retailers (the brands that arguably provide a point
of difference, vibrancy, experience and footfall drivers
to a centre) are often weak or non-existent. How the
industry values the contribution these operators provide
to our retail spaces needs to change, and we need to
be prepared to put more income at risk in favour of
‘riskier’ occupiers.
The existing rental model which is based on covenant and
lease length, is being challenged. In the multi-channel
world, these two fundamentals are becoming less
relevant, unless you are dealing with a single let store
on a long lease. New models may include rents linked to
footfall or index linked rents. Above all, it is clear that
one model no longer fits all; going forward, models are
likely to vary according to centre type, asset hierarchy
and perhaps retailer category.
Attributing sales to stores and
turnover leases?
As mentioned previously, one big issue in the multichannel world is how online sales are attributed to
stores. The issue centres on the lack of transparency for
retailers and landlords around what ‘true’ store sales
are, as opposed to those associated with other channels
and the reported decline in store sales.
From our research and interviews, retailers do not have a
clear view on how sales are currently attributed to stores
and how they will be going forward. There are many
different models, depending on the sophistication of the
online offer, the category of retailer and the role that
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35
What is clear is that retailers
themselves are challenged by the
definition of ‘store turnover’ and
there is no sign of this resolving
itself in the short term.
the store plays in the customer’s transactional journey.
What is clear is that retailers themselves are challenged
by the definition of ‘store turnover’ and there is no sign
of this resolving itself in the short term.
This is all highly relevant when examining rental
affordability, and the future of turnover rents. There is
no easy answer to this; turnover rents in the UK outside
of factory outlet centres have not really taken off as we
had expected. Recent turnover deals have been done
primarily as a deal of last resort. Against the backdrop
of ‘unknown’ or ‘attributable’ online sales, and the
expected growth of ‘click and collect’, we question
whether investors and landlords will favour rack rents
going forward.
Retailers should, however, be prepared to disclose
turnover information, so that landlords can track retail
performance to steer shopping centre asset management
and marketing initiatives. We cannot foresee retailers
having to provide turnover information legally unless
it is written into leases, so with legacy leases without
a turnover provision clause, this would require an
appreciation of mutual benefit and a good deal of trust
between both parties. Equally, retailers will require
valuable information from the landlord in return.
Our survey suggests that turnover rents are here to stay,
with only 25% of respondents feeling that there will
be no change or a reduction in the amount of turnover
leases in the market going forward.
That being said, one burgeoning view is that turnover
leases are perhaps more of a legacy of a retail market
dominated by shopping as we knew it.
Reassessing affordability and rental growth
Perhaps the most important impact of e-commerce will
be on the prospects for rental growth, particularly for
new developments, as the financial viability of any future
development scheme is reliant upon rental growth.
On a positive note, if e-commerce makes retailers
themselves more profitable, as they have reduced
portfolios and more streamlined distribution,
affordability of rent, if anything, increases as a result,
which could lead to rental growth. Stores will always
be needed to showcase and generate sales, so there
is an argument that the impact on rental growth, and
therefore capital values, does not necessarily have to be
negative in the multi-channel world. Rental growth will
return for the right space in the right locations.
From the online survey, the perception is that the larger
the scheme, the more resilient to the impact of online
retailing rents will be. According to the survey, small and
medium sized schemes are perceived to be most at risk
from rental decline as a result of e-commerce, while
the outlook is more promising for very large shopping
centres. Factory outlets are perceived to be the most
resilient sector, and relatively safe from the impact of
online, with 42% believing there will be no impact –
until of course outlet retailing goes online.
% of respondants who perceive a negative impact
on rental value by centre type
80
60
40
•Retail intelligence – Landlords need to continually
develop a deeper understanding of customer, retailer
and retail behaviour, to ensure the longevity of a
shopping centre and therefore the value. Footfall
generation alone is not enough, either; ultimately
it all comes down to driving trading performance or
contribution by a store to the wider performance of
the business.
•Tenant mix – landlords need to ensure that in order
to protect the viability / popularity of a centre (and
their long-term cash flow) they must not try to simply
achieve the highest rents, but to deliver the right
tenant mix.
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So what can landlords do to reverse this decline?
2.Impact on values
As we enter a world of realignment, adjustment and
reduced store portfolios, the implication of too much
space is oversupply, and higher levels of vacancy in
shopping centres. The best schemes will continue to
remain fairly immune, however some secondary and
tertiary assets will be hit the hardest. In value terms,
these assets will be adversely impacted, as they have
lower income levels, lower rental values, higher vacancy,
a bleaker outlook and higher yields.
This is borne out by our survey results. With the
exception of very large shopping centres, the industry
survey reveals that over 50% of respondents believe
there will be a negative impact on values as a result of
e-commerce. The brunt of this impact will be felt in
the small and medium sized centres, with 71% and 75%
of respondents respectively responding negatively. At
the other end, 27% believe that very large centres will
experience a negative impact on values.
•New anchors – as the consumer demands different
experiences now from a shopping trip, landlords
need to adjust their assets accordingly, resulting in
a balance shift towards leisure offers. Lease terms
associated with leisure, due to capital expenditure,
have greater longevity and can have a long-term
positive impact on values.
•New flexible rental model – institutional rents,
upward only rent reviews, 25 years lease length,
all provide an environment where landlords could
become lethargic to the detriment of the consumer.
•Maintain momentum – landlord inertia (or inability
to act due to lack of finance) will certainly lead to
declining values. Those landlords that are able to
change and to embed a level of flexibility within a
centre will be at a significant advantage, as they
can actively asset manage and can respond to the
changing market.
The challenge and opportunity for the industry is to
create an environment that is more beneficial to the
customer, a much more dynamic retail environment
where owners engage with customers, and asset
management, and commercial activity goes into
overdrive. None of the above is revolutionary but its
importance is becoming critical to make profit in this
dynamic retail environment.
clickbrickflick...
More flexibility will
simply have to be built
into schemes, to allow
for a more dynamic
and responsive tenant
mix strategy.
37
Conclusion
‘Shopping as we knew it is dead’
As we mentioned at the beginning of this report,
retailing remains the same, but ‘shopping as we knew
it is dead’. E-commerce, m-commerce and s-commerce
are major drivers of this change, and with an estimated
(and perhaps conservative) 25% of retail sales likely to
go through these new channels over the coming years,
a response in the physical retail space is required. While
perhaps an over-used term nevertheless appropriate, we
have passed a tipping point in retail as we know it.
The race for space ends
Inevitably, some existing stock will be surplus to new
world requirements – if the last 10 years were about
a race for space, the next 10 will be about effective
and relevant use of space. Comparison goods retailing
space as we know it is under threat; experience is fast
increasing in importance in order to compete with
online. Shoppers are becoming visitors and their needs
are changing.
In order for the industry to meet the challenges
presented by the new reality of multiple distribution
channels and to keep up with the fast-paced consumer
revolution, we believe four key attributes for success
are required, both from retailers and retail property
owners alike:
Pragmatism – change is happening and we have to adapt.
Change is likely to be fundamental for the retail offer at
the periphery – core retail that differentiates, in terms of
offer or convenience, will thrive.
Flexibility – change is happening, and thanks to
technology, the pace of change has accelerated. Nobody
can accurately predict the future, however those
who are responsive to change, and crucially who have
positioned themselves to enable flexibility, will thrive.
Diversification – peer outside your silo, partner with
expertise and bring in new talent from outside real
estate. Property companies: buy department stores,
buy online retailers, turn retailer. And explore the
unchartered – entrepreneurialism will count for more.
Dynamism – new technologies are emerging fast,
information flows freely and fast; consumers live in a
dynamic, fast-paced world. They expect retailers and
shopping venues to keep up – increased pace of change
will lead to increased need to respond. The pace of
chance has accelerated.
One interviewee joked “If this is the future, I want out;”
rest assured, this is the future. Landlords and retailers
need to wave goodbye to their old comfort zones –
embrace change, try something relevant and new.
Put simply, change or be changed!
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Case studies
Aurora Fashions
John Lewis
Multi-channel is at the heart of the Aurora Fashions
chain. The role of the store network has evolved,
with a clear strategy for each store. In order to embed
multi-channel within the strategy, the following steps
are being taken:
“For customers it isn’t about which channel they shop,
it’s about shopping one brand,” John Lewis.
•Currently repositioning its portfolio, with fewer larger
stores in prime locations and medium sized stores in
secondary locations. A move towards a hub and spoke
approach to portfolio planning is likely to prevail
amongst many UK retailers.
•Prime location stores are effectively becoming brand
pavilions; the new technology focused Coast Oxford
Street store, for example, has a complete focus on
experience, which heralds a change in the raison
d’être of the store.
•Investing in its logistics capabilities, ultimately to
enable precision delivery with a decentralised stock
management system to fulfil orders from any of its
stores.
•Innovating – pioneered with Shutl cutting-edge
‘90 minute delivery’ service, available across 90% of
the Aurora UK portfolio in over 200 stores.
•Entering new markets and growing market share
without the need for physical stores, through
www.andotherbrands.com.
This strategy is particularily beneficial to struggling
high street stores which fall into a spiral of decline as
sales fall and stock lines are reduced, leading to further
sales decline. The answer is to provide full, top of the
range stock which would drive sales up. The excess
stock is then used to fulfil online orders acting as a mini
distribution centre.
John Lewis now generates in excess of £600 million
annually online, representing the most significant store
in the portfolio. John Lewis customers are using channels
interchangeably, with 89% of JohnLewis.com customers
also buying from a store, 51% researching online before
buying in-store and 40% using their phones to interact
with the brand when in the store. (IDC Research 2012)
John Lewis’ multi-channel shoppers can spend three
times more than those customers using a single channel.
There is therefore a strong emphasis to engage customers
with all channels, including by the use of loyalty schemes
such as myjohnlewis.
Within the operating model, new types of retail
property formats have emerged to incorporate the
multi-channel strategies.
•Ahead of a store opening in Exeter town centre,
John Lewis opened a pop-up 1,200 sq ft store to
preview the main store opening, but also as a click
and collect hub to choose, order and collect.
•John Lewis has launched a new ‘flexible format’
sitting between a full size store and home store.
In the Exeter store there are specially designed
interactive information screens which will take
customers through a number of questions to help find
the best product to match their needs. Digital store
guides have also been introduced to ensure customers
can navigate the shop easily, and larger screens fitted
on walls throughout the shop will provide information
on products available not only in the shop but from the
entire John Lewis assortment.
clickbrickflick...
41
House of Fraser
Marks & Spencer
“Our physical stores have a powerful purpose of brand
engagement and inspiration, and by combining that
with the convenience of stock management, range and
convenience delivered through our online store, the
sum of the two is greater than the sum of the parts”.
“The store is integrated within the new retail offer. We’ve
worked hard at bringing online and in-store together,”
Laura Wade-Gery, E-commerce Director.
House of Fraser has moved from a bricks and mortar
business to become a truly modern retailer in a relatively
short space of time, with the largest store by value in its
estate being the online store, built up in only four or five
years. The retailer has embraced multi-channel in the
following ways:
•New formats – the move from full-range department
stores to 1,500 sq ft, stockless ‘.com stores’ is
revolutionary, and highlights the fact that physical
property is being forced to adapt. “The online market
has moved much faster than physical property can
cope with and many stores and high streets will need
to adapt; we are moving in a direction to embrace the
changing environment,” Peter Hearsey, Director of
Legal Services.
•Mobile commerce – House of Fraser was a relatively
early adopter of mobile optimised websites. The mobile
site now drives 25% of traffic to the online site, and
represents 15% of total online sales, which have grown
from £22 million in 2009 to over £100 million in 2011.
•Buy and collect – the click and collect model has been
successful for House of Fraser. “The role of physical
space is to engage, inspire and provide theatre for
the customer. Combine this with the convenience of
being able to ensure the right product is in store for
you to try on having browsed a comprehensive range
online – this brings together the perfect model of buy
and collect,” according to Andy Harding, Director of
E-commerce.
•Driving footfall – 35% of House of Fraser’s online sales,
at the request of the consumer are delivered into a
physical store, with one in four shoppers spending
additionally in-store when they collect ordered items.
Marks & Spencer (M&S) has been trading since 1884 and
now has over 730 of stores, 20 million weekly store visits
and 3.4 million online visitors per week. Technology has
been the enabler for M&S to integrate its multi-channel
shopping operations with their store network. Specific
initiatives include:
•M&S was the first retailer to launch a mobile optimised
site and subsequently has developed apps which enable
consumers to have ‘the whole store in your pocket’.
•Its popular ‘shop your way’ concept gives consumers
different options for delivery and collection. Over 40%
of online orders are collected in store, which is helping
to drive further sales from footfall.
•M&S has installed 112 Browse & Order hubs in over 40
stores enabling customers to access and shop its entire
product catalogue. Over 160 digital inspiration screens
also help showcase the latest looks.
•QR codes are displayed in stores encouraging customers
to discover more about its product range. This has been
complemented by the roll out of free Wi-Fi to its stores.
•M&S has rolled out a new e-boutique concept called
‘Style Online’. This ‘sell by sample’ concept injects
fashion inspiration into smaller format stores where
whole ranges are not available.
•M&S has invested in over 1,500 iPads for its customer
assistants in order to offer a more personalised service
in store.
•The use of new stores to showcase their latest
technology. The 150,000 sq ft store at Cheshire
Oaks, the second largest store in the portfolio,
is a good example of retail space truly embracing
multi-channel.
clickbrickflick...
HMV
Home Retail Group – Argos
HMV has had to be innovative and transform its
store model as it trades in one of the categories
most vulnerable to online, primarily due to the
download market.
Argos is a UK leading multi-channel retailer which
is currently evolving from a catalogue to a digitalled business.
HMV has acknowledged that the way in which
customers explore and consume entertainment has
changed forever. The latest store format is in essence
experimental, and aims to enable customers to access
and purchase music and entertainment across the
channels. Features of the new store include;
• click and collect service within store
•café, with the emphasis on increasing browse time,
and providing a sense of community
• free Wi-Fi, enabling browsing and purchasing online
•mobile charging area, acknowledging the importance
of smartphones in the customer lifestyle
•flexible space for artist performances, and
•rebalancing of stock, with 25% of the store
dedicated to high profile technology.
42
•Argos is the second most visited internet retailer
in the UK, with over 440 million site visits in the
last 12 months.
•Half year results for 2012 show that multi-channel
sales increased to 51% of total sales.
•Online ‘Check & Reserve’ represents 30% of total
sales and is the fastest growing channel, primarily
driven by the growth in mobile transactions.
•Mobile shopping at Argos represented 7% of total
sales, contributing in excess of £100 million of sales
in the period.
•Stores remain an important strategic priority for
Argos as they enable immediate pick up of products
for customers.
A strategic review to transform the business into a
digitally-led retailer signposts some clear changes to
Argos’ retail property strategy:
•The role of the store and the catalogue offer at
Argos will change, primarily to enable both channels
to support the digitally-led business.
•While digital channels will be the primary focus for
Argos it will also innovate within stores to enable,
for example, fast track store collection and web
based browsers – making the whole journey easier
for customers.
•Over the next five years, Argos has around 235
store lease renewals or break clauses due. This will
provide the flexibility to enable Argos to focus on
improving its store network. As part of this 50 stores
will close and another 25 will be relocated in the
next five years.
clickbrickflick
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The Rise and Rise of Multi-Channel Retailing

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