I recently attended an International Center of Shopping Centers (ICSC) conference that focused upon retail development and law. One of the subject matters was omni-channel – the integration of web/app-based sales with brick and mortar stores. Such a concept is driving many changes in the retail real estate industry.
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Retailing continues to evolve, with retailers modifying traditional sales approaches and marketing to keep pace with ever-changing technological advances, shopping center owners and developers preparing for the adjustment, and lawyers experiencing changes to lease language, POS register systems, and sales data reporting. Furthermore, significant changes in customer expectations will continue.
With rent valuations traditionally based on the perceived value of location to sales origination, and the calculation of gross sales and ensuing percentage rental stream to landlords, there is a question of how online sales would change this structure.
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The recession had a tremendous effect on retail. It weeded out the weak performers and forced brands to focus on their core merchandise and listen to the customer. The retailers that learned this lesson quickly, who rapidly shed underperforming locations, shelved obsolete concepts, and shrank real estate footprints are still alive and well. And for the consumer, he is reluctant to part with his money for something unless it delivers, at a bare minimum either true value or a transcending experience. And the smart retailer understands that.
Online shopping continues to grow exponentially, fueled by mobile apps and morphing technology, and the looming threat to render certain physical establishments irrelevant is not being diminished. What survives and thrives is the retailer that embraces our new omni-channel universe and incorporates the reality of today into its strategic business planning.
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The interplay between internet and storefront sales, when properly crafted, creates a synergy that results in a sum greater than its separate parts. The roaring success of Apple Stores demonstrates that an interactive open environment without register sheriffs and long lines results in increased sales. Instant gratification and paperless tracking are now expected.
In fact, omni-channel is starting a feedback loop to brick and mortar. Warby Parker began as a fresh way for consumers to order products online, with trendy, accessible, and customized eyewear, but have moved to brick and mortar establishments by understanding the customers’ need for real space to try on and experiment. We are living in a universe that is a convergence of internet media and actual physical presence.
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Retail executives and lawyers must now confront and grapple with such issues as when and where the sale is recognized, where the revenue is recorded, what are the best return policies and procedures, and who gets credit for the sale. These issues are evidence that wise companies are aware not only that omni-channel sales are necessary to survival, but that omni-channel sales strategies change the economics of retail. Whether brick and mortar is a store or showroom may be irrelevant when four-wall profit is no longer the barometer of success and percentage rent calculations are rendered moot with new business modeling.