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The Retail Evolution: A Proactive Approach to Managing Property for the Modern Retailer

October 19, 2018 - By James Boreham

We’re not the first to write about the changes in the retail landscape and we definitely won’t be the last. However our unique position in the market gives us a very interesting perspective from which to comment on these changes. We’re seeing increasing demand from retailers and we continue to add more and more household names to our retail client list.

In this article we outline the current position of retail, suggest some adjustments that can be made to mitigate the impact of the changing climate and evaluate how using technology can help retailers manage their property portfolios proactively rather than seeing property as a burden or cause for concern.

Some of the trends we’re seeing in retail can be broadly categorised into the following:

1. Rise of online driving customers away from the high street: A recent EY report details that the number of profit warnings by FTSE-listed retailers has doubled over the past year, as the sector has been hit by rising costs and subdued spending. Whilst ONS statistics show the ever-increasing percentage of online sales as a ratio of total retail sales, see below:

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2. Brexit and fairly stagnant economic and wage growth impacting on demand: Retail sales are down 4.5% year to date in the UK by contrast retail sales in the US are up 5.5% year to date. Illustrating in part the differing stages that the US and UK economies are at in the economic cycle. I’ll leave you to forge your own opinions on whether Brexit is weighing on the UK retail sector.

3. Store closure and retail model evolving: New Look, Toys R Us, Jamie’s Italian and numerous other household brands are closing stores. We’re seeing the rise of dark kitchens in the restaurant market and online retail completely changing the operating model for those on the high street.

4. It’s not all bad news, given shorter lease terms, landlords are more aware then ever of tenants needs: we’re seeing landlords investing more and more into making sure their buildings are meeting the needs of tenants.

In today’s world, data is the currency by which many modern businesses are measured. AI gives retailers an open opportunity to revisit the data they have stored in documentation and make the most of it. Here, data is decision making power. It’s easy for retailers in this environment to feel a little helpless, but by being proactive about lease management, is one way for them to regain control.

We believe having lease data in a homogenous format will help retailers negotiate better terms, as they will have more comparable data to reference.

Examples of specific lease terms being renegotiated for competitive edge

As one simple example, if a retailer is under pressure to make store closures, knowing the full contractual obligations and options they have is invaluable information e.g. when break dates occur, can automatic renewal options be avoided etc. Decoration and repair obligations should also not be overlooked, we’ve spoken to many retailers who due to lack of information on this topic have not made optimal decisions on store closures. Another area that may be of particular interest is turnover rent, assessing how current and future rent is calculated is of significant value. There are many more examples we could give.

No discussion on retailers and corporates at the present time would be complete without a short mention of IFRS 16/ASC 842. Many of the corporates we’re supporting in the transition process are seeing these changes as an opportunity not a hindrance to their business. Lease data for retailers in our experience is often held on outdated legacy systems and is fraught with gaps and shortcomings. Using IFRS 16/ASC 842 as catalyst to revisit how corporates think about data, we’re enabling businesses to really be proactive in decision making, giving them the data, they need to make informed choices.

To summarise, although the climate for retailers is definitely changing, with change always comes opportunity. We would encourage retailers to invest in the data that informs their decision making and lowers the risk of any nasty surprises. Only with the right data can retailers be confident about making the right calls when it comes to navigating through this turbulent time.