Insights

4 Ways Retail Leases Must Change
4 Ways Retail Leases Must Change 1440 428 ASG

Across virtually every industry, big data is being favored as the must-have to drive strategic company-wide initiatives. The retail industry, particularly in terms of real estate, must be willing to utilize critical information that can have a massive impact on decision-making related to marketing and location. Businesses must move in ways that are parallel to how consumers are moving, and there is only one way to effectively do so: big data.

The retail real estate evolution is here, and retail leases must change to reflect this. Ignoring the overwhelming change that is occurring will harm both landlords and retailers. Core functions of retail strategy, such as leasing, are historically conservative, but for retailers, innovation is essential, and lease language must reflect the changes retailers are making to meet the needs of their consumers. Retail leases must consider these four areas:


Smaller stores have more potential.

Retailers are no longer interested only in square footage. More space means higher fixed costs. Today’s savvy omnichannel retailer often needs less space; consumers do not need hundreds of aisles to roam when an iPad with overnight shipping is placed conveniently in a smaller setting filled with touchable displays. Smaller stores offering a more personal experience to the consumer who wants to be considered an individual – not a number – will thrive.


Pop-ups are popping up everywhere.

Retailers of all kinds are seeing the benefits of the pop-up store; neglecting to include this retail lease option leaves landlords unable to compete for new business. Long-term tenants used to mean security, but if you insist on a long-term lease, you may end up with space that simply sits empty. A pop-up lease offers benefits to both parties, as costs can be negotiated monthly. Perhaps a retailer simply wants to create a buzz about a new product but does not want a permanent store. Another could be considering a location but desires a test-run before signing a long-term lease. With clauses in place that protect the interests of everyone involved, the pop-up lease is likely to become more common.


In-store sales have less importance.

Traditionally, the cost of the retail lease is based in part on a percentage of profits. However, with the significant shift in the measurement of KPIs, basing lease costs on sales is no longer the most strategic approach. Some retailers are piloting stores with inventory for customer viewing only, directing consumers to make purchases online. Other retailers are offering a space for patrons to simply meet with other coworkers and are not demanding a sale. With the growing trend of delivering experiences, with purchases being made between multiple platforms, a lease based on profits per location is no longer applicable.


Usage is always fluctuating

The language of many leases includes specifics (like operating hours) and outlines the approved usages of the space. With the retail landscape shifting quickly, such language is outdated. An innovative retail lease should include language that allows the retailer to be flexible to meet the needs of the consumer.

Consumers are demanding an innovative approach from their retailers, and for retailers to deliver, landlords must adjust leases accordingly. A retailer’s efforts to retain and grow their customer base, improve brand loyalty, and remain profitable require nimble flexibility, and lease language needs to be drafted accordingly. The inability to be flexible with the lease language can result in empty space.

How Digital Engagement Drives In-Store Sales
How Digital Engagement Drives In-Store Sales 1440 428 ASG

For the third consecutive year, Deloitte has surveyed consumers to determine their level of digital engagement, and this year’s study has shown that shoppers are now “hunters” instead of “gatherers.” What does this mean for retail? Rather than leisurely perusing stores, consumers are now using digital platforms to determine exact items they desire, leaving more time to explore other aspects of the stores. This is resulting in higher sales, higher loyalty, and an entirely new method of doing business.


The “strategic strike” is the most common method of shopping

Consumers are browsing online more than ever, leaving fewer motives to wander a retail location aimlessly. Instead, consumers employ what is called the “strategic strike,” the referencing of a single item or items that are considered predetermined purchases. In other words, by the time a consumer walks into your store, they know what they came for, whether it is a pick-up or an in-store purchase, and that is their entire reason for coming into your store. If you lack a digital storefront, you lose out to another retailer that is able to reach the consumer digitally.


Digital technology promotes additional sales

Deloitte’s study of over 3,000 consumers found that 64 cents of every dollar spent in retail stores was influenced by digital interactions.

Initial purchase decisions are typically made by consumers before they have even stepped foot inside a brick-and-mortar location. Yet, when consumers arrive, that is rarely the only purchase they make. Without digital engagement, consumers spend more time in-store making decisions. With digital technology, the decision has already been made, leaving consumers more time to browse other items and accessories, ultimately making more purchases.


Apps are essential to digital engagement

Although not every consumer will download your store app, this technology is still a critical component to digital engagement. Many of your loyal customers will want the rewards connected to using your app, and the support of this omnichannel experience will allow digital to drive in-store exclusives. An app can notify consumers when there is a one-day sale at their preferred location, and with a special code, they may also get an additional ten percent off. The consumer may not have considered shopping at all, but with such an incentive, they are more likely to make a detour.

Apps also drive digital engagement by focusing on customized, individual attention, such as alerting consumers that a favorited item is now on sale in-store. Like other methods of digital engagement, a lot of browsing has already been done through an app. Online purchases can still be made, but in-store sales will also be higher because the digital touchpoints drive consumers through the door.

Consumers no longer rely on one method of shopping. It is all about convenience and personalization, experience and customization, which digital engagement helps every retailer capitalize on. Data obtained through the digital engagement with consumers can then be used to influence foot traffic at brick-and-mortar locations, especially by providing more opportunity for personalized in-person engagement. However, it all starts with the right digital engagement strategy that meets consumers where they are.

If you want to drive in-store sales, you must adapt.

Repositioning Retail Real Estate Strategy
Repositioning Retail Real Estate Strategy 1440 428 ASG

If you look back on the history of retail real estate, the department has typically been managed by an EVP-level executive that reported directly to the CEO of an organization. The retail real estate department was the primary source of strategic market knowledge critical to positioning new brick-and-mortar locations to promote growth. Even for third-party exchanges developed to generate strategic market plans, such as site selection models or sales projects, retail real estate executives were the main point of contact. Although real estate executives remain the experts, the dynamics have shifted drastically and changed the roles of all involved.


Retail real estate has been downshifted within organizations

Data analytics are now considered an elevated resource, as the tasks delegated to the real estate department have expanded from new store growth to portfolio renewals. Therefore, real estate strategy has downshifted from an EVP C-suite role that was primarily strategic in favor of a director-level role responsible for the execution. Such tasks are then reported to the CFO, resulting in a complete disconnect between real estate executives, an effective marketing strategy, and the CEO. Rather than a focus on the long-term strategic vision, retailers are focused on short-term rent reduction tactics, such as rent relief. Unfortunately, in a changing retail industry that exists in a multi-channel world, retailers should be focused on the number of their stores and how location impacts their overall success and ROI.


Real estate requires a specific investment

The real estate executive must implement a sophisticated planning process to re-position their role within an organization, which is why it is so important to demand a seat at the executive table. A successful real estate strategy requires both store capital and an investment in technology, data, and analytics specific to the nuances of real estate. Current trends demonstrate that revenue generating initiatives, such as reducing rent, are preferred over improving long-term brick-and-mortar performance. This hardly considers a more in-depth analysis of why ROI is floundering, such as marginal and declining real estate locations. There is no quick-fix within real estate, and strategic planning requires executional strategies that support long-term goals.


The real estate landscape is transforming rapidly

Organizations must understand that the initial drive of brick-and-mortar locations is no longer the current trend of consumers. Shopping centers that were once dominant are now struggling to stay afloat, and it is projected that their numbers will halve within the next few years. However, this is not to say brick-and-mortar locations do not have the potential for success. The landscape is changing, and real estate executives must rely on strategy to capitalize on the needs of the new generation of shoppers. Analytics are impacting location strategy, as well as the experience that a brick-and-mortar store can offer combined with omnichannel metrics. Traditional retailers are losing ground, demanding that real estate executives understand and communicate market trends. Real estate departments need to direct the analytics of retail marketing, not be the recipient of the latest decisions.

Type your search here
Skip to content