10 November, the day that retail in Auckland opened its doors to customers for the first time since 17 August. On the same day, it was also announced that all schools in locked down areas would reopen on 17 November, exactly three months after they were last in the classroom. Many parents were no doubt jumping for joy at this long anticipated news, me included, but this article is about retail. What is the future of retail following this lockdown and how has the retail landscape changed forever?
Lara Weaver, General Manager at DABS Consultants, a property investment company which provides asset management services for syndicated properties, believes the path is likely to be bumpy – just like the uncertain nature of the delta outbreak in New Zealand. Retail is notably the worst hit, along with restaurants and leisure venues. The social interaction of these businesses makes them particularly vulnerable due to the higher probability of an outbreak on their premises.
"Real estate in all sectors, and in particular retail, has become more operationally intensive not just for retailers but also landlords. It requires strong asset management expertise,” she advises.
However, not all retail sectors are suffering during this crisis. Supermarkets, for example, have reported record sales, while e-commerce continues to grow as many customers have migrated online. Such trends are likely to continue. Many businesses will have responded well and have a well-integrated online platform for browsing, chat rooms and processing transactions. However, many will still require a lot of work to create a seamless experience. Retailers who are not already in the omni-channel arena – which integrates the different methods of shopping available to customers including physical stores, online, and click and collect – need to reconsider quickly. There will have been many years of advancement in this area by businesses forced to act due to the lockdowns. Physical retail stores and online purchases can co-exist; it is about providing customers with choice. However, the online experience for many businesses needs to improve to meet global standards.
In the UK approximately 24% of retail sales took place online pre-Covid and at its height this rose to almost 30% during lockdowns. New Zealand is still an emerging market when it comes to online sales, which represent approximately 8%. This is partly due to the supply chain behind the online platforms. It isn’t easy to achieve, so businesses will need to invest more in their systems and supply chains so that customers have an improved experience. Covid has effectively highlighted companies that are robust and have put processes in place to pivot in this challenging retail environment.
“Businesses have been forced to pivot and adapt in order to bring in sales to survive.”
During lockdown I purchased several items online, although generally the experience was poor. Even telephone sales were difficult as there was no one available to pick up the phone. Why weren’t land lines diverted to mobile phones? I would have thought this was an easy fix. Sometimes people just need to talk to someone to make them feel comfortable to proceed with an online purchase. In most cases, I am still waiting for delivery 14 days after purchase and in a few cases only part of my order has arrived with several items missing. Many of the online purchases that I did make I would have preferred to touch, have the opinion of an expert salesperson or see the quality and colour of the products. For this reason, physical stores will have a future. But as online experiences improve, physical stores will need to reinvent themselves if people are to leave the comfort of their armchairs.
There was an acceptance of online before the lockdown and this will accelerate. Businesses have been forced to pivot and adapt in order to bring in sales to survive. Many of us have supported our local restaurants. Some of those eateries did not have a takeaway or online menu before lockdowns. This has provided a new income stream which can continue to be offered, alongside a dine-in experience, while not necessarily requiring additional physical space. However, this will mean landlords will be considering how leases work going forward and if turnover rent provisions form part of the lease, we can expect that online sales will also be a request from landlords. Although not immediate, I expect we will see the shopping centre model of turnover leases also start to impact other sectors, such as supermarkets, cafés, restaurants and high street shops.
“Physical retail stores and online purchases can co-exist - it is about providing customers with choice.”
Physical retailing has a future, although it may involve less physical space than in the traditional sense. Many retailers will be reviewing their physical stores and deciding whether they need so many. I expect we will see fewer retail stores and those that remain will have investment put into them to improve customer experience. Consideration will be given to store navigation, product demonstrations, fitout materials and lighting – all necessary to entice customers to visit. These stores will be more aligned with showrooms allowing a customer to purchase in-store, through the retailer's app, or online. Many global retail businesses now run their physical stores through their marketing budgets as they are no longer considered property costs.
In response to e-commerce we have seen investment in warehousing outperform all other property sectors in terms of rental growth and investment performance. Physical stores will continue to complement the real estate landscape. We want our office buildings to be in close proximity to a quality coffee offer, childcare provision, accessibility to a gym and other amenities. Retail certainly has a future and I believe when leasing space landlords will give more consideration to the tenant covenant, strength of the product offer, and the omni-channel strategy to provide optimum customer experience.
“Covid has effectively highlighted companies that are robust and have put processes in place to pivot in this challenging retail environment.”
Property in all sectors and in particular retail has become more operationally intensive not just for retailers but also landlords. It requires strong asset management expertise. You need specialists who can really work the property and have strong relationships with their occupiers, while mitigating risk for their investors.
Our latest investment offer is an example of resilient retail. Enable is a healthcare provider showcasing products to allow people with disabilities to live the life they want to lead. Healthcare is a growing sector and with DHB support, during lockdown this occupier has continued to meet their full obligations under the lease.
For further information or to discuss our current investor offer please contact:
Lara Weaver, General Manager
m. 021 230 5989
145 Kitchener Road, Milford