Author: Andrew McVicker, 07 February 2018

A recent Royal Mail survey of 1500 online shoppers found they made, on average, 80% of their non-grocery purchases online. Whilst clearly a biased sample, it provides, if needed, further evidence of the shift away from making purchases in store by large portions of the population.

This is not to say the role of physical retailing is dead - FSP believes around 80% of transactions still touch a physical store. However, it highlights the need for both landlords and retailers to better understand the role of the physical store and how this can be valued going forward.

shopping centre

As well as a point of purchase, physical stores provide a multitude of opportunities for retailers; to generate purchase ideas, strengthen and display brand values in a way not possible online, provide a unique customer experience, provide face-to-face customer service, enable click-and-collect, returns, the list goes on. But the benefits are not just in the store itself – recently revealed a 40% uplift in online sales within a catchment when a new store is opened, whilst the 'halo effect' of increased sales when online shoppers come in store has been measured at around 9%.

Yet landlords are currently faced with a dismal picture - falling footfall and sales for physical stores, retailers citing squeezed margins as cost prices go up and a lack of understanding as to what is driving F&B performance leading to a lack of demand for physical space. To survive, landlords will not only have to diversify their offer to maintain their relevance – some centres are developing their service offer: doctors, hairdressers, libraries and nail bars - but find an agreeable measure of performance for physical stores with retailers that can be quantified and monetised. 

Options for this include:

  1. Turnover excluding returns - with retailer systems patchy at recording initial point of purchase, landlords could well look to insist on turnover calculations to exclude returns (other stores and online), even if having to accept a smaller initial percent. Whilst many landlords claim to have this in place already, how stringently is it checked?
  2. Turnover only leases - whilst a secure base rent provides a guarantee of income for landlords, it can often disincentivise a retailer from focusing on an underperforming store as the store often remains profitable off a low base rent. With estimated sales increasing by 51% between 2013 to and 2017 - 10 times the general rate of growth in full price retail sales – the outlet industry shows what can be achieved if landlord and retailer truly work together for the benefit of both
  3. Footfall as a measure - though requiring the installation of counters on all shop entrances, footfall has long been suggested as way of monetising traffic generated by the physical store, be it footfall that generates in-store sales, utilising click and collect, inspiring later online purchases or facilitating returns. However, the difference in retailer models would make a one size fits all approach unworkable – discounters need comparatively high amounts of footfall vs a jeweller that just requires one of the ‘right’ kind – never mind dealing with elements such as party size – why should retailers be ‘penalised’ if a shopper brings their children, thus upping the footfall count – and disputes on the accuracy of counting systems
  4. Proximity analysis - Some retailers allocate online sales to the nearest physical store, incentivising staff to treat online and in-store customers as one and the same. As with turnover leases, extending this policy to allow landlords a potential slice of online sales could see landlords and retailers working together for the benefit of both

Though the above ideas provide no 'one size fits all solution', a maintenance of the status quo serves neither landlord nor retailer particularly well. With customer remaining king, as ever, the industry needs to adapt or risk being left behind.

To discuss retailer models, online sales and maximising returns for your retail space, contact FSP

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