Retail Real Estate – Asset or Liability?

retail store-1.jpgFaced with ominous headlines about store closings and relentless pressure from online sales, traditional retailers face the fundamental dilemma of what to do with their physical assets.  Should the storefront be considered a burdensome anachronism to be shed at the first opportunity? Or should a digital strategy aim for co-existence between online sales and traditional retail locations?

For both questions, the answer is “no.”  Eliminating physical space to go 100 percent online is simply not an option for established retailers (unless the endgame is liquidation and subsequent bankruptcy). Nor is limping along with the expectation that the traditional retail model will somehow survive the competitive cauldron.  For most retailers, the reality is that they are at the beginning of a long and painful journey to find the right balance between physical and digital.

The key word when considering retail real estate is “traditional” – and traditional notions are what need to be discarded. Retailers must undertake a fundamental and creative re-think of what physical store locations can be used for.  That includes exploring the possibility of getting into other lines of business. Retailer as landlord? Possible. Retail space as design studio for students? It’s being explored by a major national retailer that has an acknowledged surplus of floor space. Rather than offering a stale assortment of commoditized products, how about focusing store associates on delivering unique services and experiences (through a digital channel of course) and providing convenience and variety? As demonstrated by the Uber driver who earned $250K in a year by turning his vehicle into a showroom for his jewelry, “disruption” in today’s retail environment means that new threats and opportunities must be anticipated from every conceivable direction.

Another imperative is new approaches and fresh thinking on how to integrate online sales with the in-store experience. As such, the question is not one of black and white or digital vs. physical, but how to formulate a digital strategy that places physical assets at its core. One option is simply to invest in upscaling existing store locations to create a luxury experience.  Another is to use the store to mitigate the costs of free online shipping and returns by requiring customers to bring purchases to a store. The inconvenience can be offset by incentives and the opportunity to upsell – via properly trained staff – and create a positive experience. And while headlines focus on how retailers are shedding real estate, some native on-line retailers – particularly in the apparel space – are going in the other direction and investing in store locations to enable customers to touch and feel their purchases.

But retailers and their technology partners must avoid implementing the latest technologies simply for the sake of deploying fancy gadgets like “beacons” or “tablets.” And while consumer confidence is rising, most retailers cannot afford the luxury of investing vast amounts into their physical infrastructure. Which is why the time is ripe for retailers to fundamentally disrupt themselves and aim towards creating a memorable retail experience that defines raison d’ệtre in the customer’s mind.

The fact remains that close to 90 percent of sales still take place in stores. While the traditional storefront may be a thing of the past, real estate remains a critical asset for retailers and represents a significant potential competitive advantage. Some retailers are moving forward with strategies to unlock this potential along with real estate partners and other stakeholders in commercial areas across North America. Others will focus on the double-digit growth of online sales, but will lose sight of the basics of blocking and tackling. Still others will continue to plod along in the hopes that things will rebound, and that consumers will start spending like the good old days. And some – likely a small subset in the industry – will truly reinvent themselves, and in the process become the envy of the digital natives that have over the past decade been eating their lunch.

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