Now More Than Ever, Retailers Need Data to Make Informed Retail Real Estate Decisions
COVID-19 has all companies scrambling to make sense of what the future will look like for their businesses. For retailers, brick-and-mortar real estate is perhaps the most integral part, leaving many to question the best path forward should the country face an even more prolonged lockdown. Do you shutter certain stores? What's the right balance between online and offline commerce? Will consumers eventually return to stores with the same regularity?
In fact, retailers had already been rethinking the physical space, exploring experiential commerce as a way to pique consumer interest. Restaurants, coffee shops, bars, gyms, and even spas are often found in corners of retail establishments to encourage people to linger longer and spend a bit more.
The pandemic is making retailers rethink these concepts again — not to mention the future of retail real estate investments as a whole. If consumers want to get in and out of a store as fast as possible, the shopping trip becomes more transactional than experiential. That coffee bar is no longer encouraging consumers to browse. It's just convenient.
So where should retail's decision makers turn?
Data and its Role in Retail Real Estate
Adding some calm to the storm is data. It should inform retail strategy even into the post-coronavirus world, particularly when it comes to commercial leases. No matter their size, retailers must take an organized approach to tracking the financial, legal and critical date information about commercial lease agreements.
A business owner, for example, should probably understand whether she or he has force majeure, termination, or act of God language in a commercial lease. These clauses are typically buried somewhere in the dense text of a PDF lease document, but you need this data organized to ensure you're staying ahead of events to identify opportunities that reduce risk — and to potentially negotiate better terms.
Leasing information shouldn't be your only focus when it comes to the future of retail real estate, however. You'll also want to weigh several other factors as you decide the next steps for your business. The following are often the best places to start:
1. Collaborate cross-departmentally on real estate decisions.
Location can impact every aspect of a retail business. The problem is, many retail real estate decisions are made in a vacuum, with various stakeholders entering into commercial lease agreements with little to no input from other departments.
On the other hand, employees closer to the shopping experience could provide much-needed insights into the customer journey that might influence brick-and-mortar real estate decisions. Institute a system that sits beneath all stakeholders; it can serve as the connective tissue between departments and help pinpoint your exact commercial real estate needs going forward.
2. Supplement with customer data.
Customers are more than willing to tell retailers what they want in a retail location. You just need to ask or examine their behavior. Take buy online, pick up in-store (BOPIS) as an example. Even before COVID-19, BOPIS had been growing in popularity over the last few years. (In fact, 83 percent of consumers had tested it out as of January 2019.)
If you've been hearing certain pieces of advice from customers — and their insights make sense — it might be wise to not only look into the technology that can help you achieve that, but also view brick-and-mortar real estate through this lens: Does a particular location or commercial lease allow for such an option?
The future of some retail real estate locations might also be moving toward something known as "dark stores," where select retail locations actually function like distribution centers whose sole purpose is the fulfillment and/or pickup of online orders. Many retailers have done something similar throughout this pandemic, turning their real estate spaces temporarily dark and using in-store stock to fulfill online orders.
3. Leverage digital tools.
At a time when a pandemic is colliding with major regulatory changes on how to account for lease expenditures, paper workflows just won't cut it. That means a single source of truth for retail real estate data is a necessity.
Whether you're evaluating a potential commercial lease or ensuring compliance with FASB ASC 842 and IFRS 16 lease accounting standards, having data available at a moment's notice is incredibly helpful. The right software can reduce this administrative burden, streamline processes, and provide immediate access to the information necessary to make timely commercial lease management decisions.
A host of questions about the retail industry have come about due to COVID-19, chief among them being what the future of retail real estate looks like. When you bring your organization together and leverage available data, however, you can make sound decisions around what to do with a physical space.
Matt Giffune is a co-founder at Occupier, a transaction and portfolio management software helping commercial tenants and brokers manage their real estate footprint.