Retail Real Estate: Rekindle Demand with a Strategy Refresh – QuickLook Blog | Deloitte US has been added to your bookmarks.
Retail real estate: Rekindle demand with a strategy refresh
In the first half of 2018, the retail real estate sector saw two large transactions. GGP Inc., the second largest US retail real estate owner, was acquired by Brookfield Property Partners. The deal came on the heels of another large acquisition when French retail real estate owner, Unibail-Rodamco, acquired Australia's largest mall operator, Westfield Corp. Both deals were valued at nearly $15 billion.
So, what do the deals foretell for retail real estate owners?
Well, it is not surprising that retail real estate M&A deals continue to swell as traditional retailers continue to find the balance between investment in the ecommerce ecosystem and brick and mortar operations. As digitalization, future of mobility, and emphasis on last-mile delivery continue to change the retail landscape at a rapid pace, the question to be answered is what this will ultimately mean for the real estate owners catering to this space.
Opportunities are around the corner
As someone who has tracked this space for many years, I believe it is not the end of the road for retail real estate owners. Based on a news scan over the past six months, the following examples stood out for me:
- Some retailers are developing smaller stores within their existing large space. The smaller stores offer a wide variety of items, ranging from basic grocery to quick bites.1
- Experimentation with "inventory-less" stores is occurring. As an example, some of the stores that are considered "experiential locations" provide a variety of personal grooming services and collect merchandise from other large stores.2
- Another interesting development is the growth of retail incubators or even co-sharing work spaces in empty retail spaces in large malls.3
- Another trend is that among traditional retailers, off-price sellers are one of the very few that continue to grow their store footprint and remain immune to ecommerce retailers.4
- There is a growing trend of repurposing existing vacant store spaces into "dark" stores, which are essentially fulfillment centers that stock products for delivery.5
- Several ecommerce retailers are opening brick and mortar stores.6
These examples indicate a significant and diverse transformation of retail spaces. With retail spaces being reused in a variety of new forms, each retail real estate owner will need to craft its own roadmap to adapt to the evolving trends. A one-size fit all approach will not yield the desired results in today’s dynamic world.
How can retail real estate owners seize new growth opportunities?
Real estate companies will want to consider this three-step process to evolve and grow:
- Reimagine the value proposition: Retail real estate companies will benefit from rethinking their physical space as a "service" rather than an "asset." They will have to redefine their existing strategy. Essentially, this approach requires retail real estate companies to create a relatively higher tenant/end-customer centricity and to look at their physical stores as one—not the only—channel in the retail value chain.
- Embrace uncertainty: Companies need to prepare for an environment of constant uncertainty. They may want to consider using demographic data, predictive analytics, and cognitive technologies such as natural language generation and natural language processing, and then run sophisticated scenario planning models to pre-empt changes in business models. A proactive approach towards planning and execution will hold retail real estate owners in good stead.
- Be creative and innovative: Retail real estate companies need to be prepared to experiment with store formats, tenant engagement, and lease structures. They should raise awareness about the importance of harnessing creativity and innovation within their organization. Companies may wish to develop a robust governance framework to guide employees on their innovation philosophy, offer platforms to ideate and collaborate, and reward and recognize both failures and successes.
The bottom line is that it's time for retail real estate players to change their mindset. There are several opportunities to reinvent their product as a service. While retail real estate boards cannot predict the future, they can be strategic and proactive about shaping their organization in tandem with the evolution of the industry.
As Jeff Bezos, founder and CEO of Amazon says, "What we need to do is always lean into the future; when the world changes around you and when it changes against you—what used to be a tailwind is now a headwind—you have to lean into that and figure out what to do, because complaining isn't a strategy."7
What we need to do is always lean into the future; when the world changes around you and when it changes against you—what used to be a tailwind is now a headwind—you have to lean into that and figure out what to do, because complaining isn’t a strategy.
– Jeff Bezos, founder and CEO of Amazon
1 Liz Wolf, "Big-Box Retailers Come Up with Small Concepts to Grow in a Changed Landscape," National Real Estate Investor, August 9, 2018.
3 Rob Smith, "Mall Operators Turning to Retail Incubators to Fill Empty Space," Costar, August 8, 2018.
4 Nathaniel Meyersohn, "Why Amazon can't touch Ross and TJMaxx", CNN Money, July 30, 2018.
5 Bankwest Future of Business: Focus on Supermarkets, 2018.
6 Ann-Marie Alcántara, “Ecommerce Brands Are Opening Up Stores—and Showing That Retail Still Has Life”, Adweek, March 1, 2018.
7 "Strategies for Success You Can Learn From Amazon’s Jeff Bezos”, Go Banking Rates, July 29, 2017.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.