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The rebirth of retail space

Emerging from the recession is a changed landscape; a more fluid customer base buying and comparing prices online.
dan sweeney ,
Partner, TLT

Retailers may feel uncertain about how to use stores as shopping increasingly migrates online and buying habits change, but there is also great potential.

The need to make more of physical space is producing innovative ideas. Many are around sharing square footage, even with rivals, and using technologies to attract customers through their smartphones.

It might at first glance seem otherwise. A raft of headline-grabbing store closures announced recently suggests difficulties. These closures are not the death of retail space, but its rebirth.

Emerging from the recession is a changed landscape; a more fluid customer base buying and comparing prices online. The once exotic concept of ‘omnichannel’ shopping is now standard, but crucially includes bricks and mortar.

Not every operator with a large space requirement is shrinking either. TJX, Aldi, Sports Direct, Poundland and regional heavyweights such as Matalan, Iceland, Home Bargain, B&M and TJ Hughes are still reporting an appetite for significant floorspace.

But for some retail landlords with upwards of 10,000 square feet to fill, an option now is to diversify that area, perhaps by splitting it into units for retailers doing well in shopping parks with smaller units. This has the added advantage of spreading risk and ending reliance on the fortunes of one retailer.

There are other evolutions. Petrol forecourt operator Euro Garages, for example, is growing rapidly and has a sophisticated franchise model attracting brands like Starbucks, Burger King, Spar and Subway to share space.

Tenants can expect flexibility in their leases these days to accommodate the changes. Most landlords will allow some of the space to be sub-let, for example to coffee shops.

Curiously, whilst shopping may be less of a formal event, shoppers want more from it; a trend illustrated by the ‘magic mirrors’ in Simply Be stores. These allow customers to upload photos of themselves in different outfits to email to someone, without leaving the changing area.

Elsewhere, Ted Baker and others are experimenting with an app-based technology triggered by chips within store mannequins. These send and seize information as the smartphone passes by allowing a direct engagement with the shopper, even when the store is closed.

With this drive to use smarter information-harvesting technology to keep customers engaged comes the issue of data protection. The rules are about to get tougher on what can be gathered and used in ways not yet fully clear, so there needs to be caution.

However, what customers seek is now clear: a full range of goods visible and available as quickly as possible. This presents logistical challenges for retailers struggling with an economic need for smaller premises.

This conundrum is also an opportunity. Multiples can increase storage capacity in poorer performing stores to act as a distribution hub for better ones nearby, an attractive option where massive distribution space is at a premium.

Even purely digital retailers see a need for physical space: Amazon Lockers are in Co-operative Food stores, which illustrates our omnichannel world: partnering online and off for mutual benefit to meet very rapidly changing customer expectations.

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