News Tomorrow's City | December 13, 2018

Suzanne Gill’s comments are mentioned in CoStar Column – 19/11/2018

The article was originally published by CoStar on November 19, 2018.

CoStar Column: The medicine for the retail revolution

There are plenty of opportunities in retail despite the difficulties the sector is facing.

Retailers such as IKEA are continuing to expand and innovate

The retail economy is facing an unprecedented wave of disruption. However, while short term pains continue for some, for others who respond innovatively to changing consumer dynamics there are real gains on the horizon.

Seemingly not a week goes by at the moment without another story of retailer woe, financial distress or prospective collapse. According to recent figures from PwC, the gap between store closures and store openings reached a record level in the first half of 2018, with fashion shops, pubs and electrical shops hardest hit.

This challenging climate, and associated store closures, is now translating into difficult trading conditions for investors and landlords.

LandSec have recently reported a decline in the value of its retail holdings in its H1 2018 results, while British Land reported H1 losses at least partly due to a 4.5% drop in the value of the company’s retail properties.

But retail has always been about winners and losers. What we are seeing right now is a nexus of profound changes and looming pitfalls – from the gig economy and business rates, to big data and eCommerce – and for some, the disruption is too much too fast. But retail is not dead, and some retailers are continuing to expand and successfully innovate – including Ikea who have announced a new €5.8bn expansion plan in major cities.

What this means in practice is that retail is increasingly becoming integrated with the lives and lifestyles of consumers. This includes online and through connected devices, but experience isn’t all about digital; the clicks to bricks phenomenon has shown that what actually matters is a multichannel experience. Physical retail destinations – shopping centres, showrooms and high streets – that are great places to be are key to this as is just plain, decent customer service!

One of the key trends we have begun to see in this landscape is the role that lifestyle and wellness plays for retail brands and destinations seeking to create consumer loyalty, generate interest and drive multichannel sales. Indeed, this was the topic of discussion at a recent Tomorrow’s City, Today’s Challenge debate contributed to by John Lewis (JLabs), Grosvenor, New West End Company and Retail Reflections.

To take one example, the sports retailer Lululemon runs yoga classes at many of its stores. The customers can experience the yoga class and may, or may not, buy some sportswear afterwards. The transaction becomes a longer term, almost incidental, addition to the overall experience. On a larger scale, Westfield’s Destination 2028 strategy puts wellness at its heart with a ‘betterment zone’ and ‘pick-your-own’ experiences in order to resonate with a more discerning and demanding customer demographic.

This kind of approach, though, throws out significant legal and commercial challenges which will need to be faced. For instance, traditional lease structures – including turnover-leases – are starting to look out of date: in a retail landscape where fewer transactions happen in store, new rental models may need to be developed. Or, to take another much-debated legal issue, as technology becomes ever more embedded into the consumer journey, both on and offline, data protection will rise in importance. Walmart, for instance, are exploring capturing heart rate data from their shopping carts – potentially sensitive personal data which must be managed carefully. As consumers demand a more personalised approach both retailers and landlords will have questions to answer around just who owns any data that is collected, and the extent to which shoppers are willing to hand over that data for a ‘better’ shopping experience.

Retailers, landlords, developers and the public sector must be mindful of this, and curate spaces which encourage retail footfall by building in wellness, lifestyle and leisure through good placemaking techniques and increasing overall dwell time and customer satisfaction. For the likes of British Land and LandSec this is already manifesting as a reduction in exposure to ‘traditional’ retail assets in the near term, and a replacement with a more holistic approach which builds flexible-office spaces, build-to-rent and other emerging and alternative asset classes into portfolios. These sorts of products can complement retail offerings by cultivating rich and interesting places, driving footfall and generating community ‘buzz’.

At the centre of this, though, remains experience(s). The successful retailers of tomorrow will be those who recognise this, and create integrated digital and physical experiences with shoppers and their lifestyles, front of mind.

Suzanne Gill is a partner in the commercial property team at law firm Wedlake Bell. She chaired the Tomorrow’s City, Today’s Challenge debate ‘ Retail Therapy: The Future of Retail & Wellness in Tomorrow’s City’ on November 6 2018. The debate included contributions from John Lewis Ventures (JLabs), New West End Company, Grosvenor and Retail Reflections.