Inside Outdoor Magazine - Fall 2018

Inside Outdoor | FALL 2018 6 No Business Like Showroom Business Martin Vilaboy Editor-in-Chief Gerald Baldino Managing Editor Percy Zamora Art Director Ernest Shiwanov Editor at Large Berge Kaprelian Group Publisher Rene Galan Associate Publisher Anthony Graffeo Associate Publisher Matt O’Brien Multimedia Specialist Beka Business Media Berge Kaprelian President and CEO Neil Ende General Counsel Jim Bankes Business Accounting The need for consumers to “touch it now take it home now” is deeply embedded in shoppers’ psyche and likely to persist for many years. That’s particular true for the more sensory retail categories such as outdoor and sporting goods, where specific fit and feel can be determining factors. At the same time, the advancements we are seeing in areas such as supply chain efficiency, localized and 3D production and Western hemisphere manufacturing, compounded by the rapid pace of development in technologies such as autonomous vehicles, virtual video and drone delivery, increasingly suggest that some aspects of every type of retail business becomes some form of showrooming. And it might not be far down the road. Mike Harris, managing director of CREModels, a provider of financial modeling, due diligence and technology consulting, already is seeing an interesting trend in the relationship between retail tenets and landlords. There exists shifts, he argues, that could lead to a different conception of the basic business contract between landlords and certain tenants. If present trends continue, observes Harris, retail rents might one day be based on traffic and customers rather than traditional metrics such as sales per square foot or percentage rent. “E-commerce is transforming retail real estate and yet the most drastic changes may still be ahead,” writes Harris. Large retail landlords such as Macerich and CBL Properties increasingly are culti- vating relationships with different verticals of digitally native retailers, including those that tend to open showrooms, such as Casper, Warby Parker, thredUP, Adore Me, Everlane and UNTUCKit. This type of retailer can have some very different priorities than traditional brick and mortar. Among the biggest is traffic, as the objective shifts from moving a unit to customer long-term acquisition. “Instead of thinking about real estate as ground zero for transactions, clicks-to- bricks operators are asking landlords for data on how physical stores can help them acquire customers,” says Harris. Given enough time, he contends, tenants’ marketing departments could start to regard the highest-traffic malls and shopping districts as key influencers in their own right. “We may now be in the first stages of this evolution,” he says. “In this world, marketers frequently pay a lot more for each new customer than they would have received from just a first sale alone,” explains Harris. “Applied to real estate, this type of pricing could upend the concept of a rent-to-sales ratio.” In other words, an operator may be willing to pay substantially more than the initial transaction in recognition of the value of the customer connection, Harris continues. Harris says CREModels is ramping up the customer and property data it collects and spearheading pilot programs to share this type of information with data-hungry tenants. Among its clients, productivity-related stats such as sales per square foot or percentage rent could soon give way to calculations focused on traffic and customers. “It is possible that certain leases could one day be priced based on the cost, ex- pressed as a calculated ratio, of persuading a customer to buy a product or service,” he explains. “Alternately, rent could be calculated on a price-per-lead basis in which some retailers literally pay just for the footsteps into their stores.” In the vision Harris presents, ecommerce and brick-and-mortar retailing could finally have their incentives fully aligned. For those physical retailers with plans to still be standing well into the 2020s, however, survival will require at least some re- evaluation of the things a store does really well. “It will be interesting to see whether contracts between landlords and tenants will one day closely mimic traditional marketing agreements,” Harris concludes. “With time, such a change could remake – and perhaps even renew – the retail landscape.” – MV From the Editor Corporate Headquarters 15560 N Frank Lloyd Wright Blvd Suite B4 – 5433 Scottsdale, AZ 85260 Voice: 480.503.0770 Fax: 480.503.0990 Email: © 2018 Beka Business Media, All rights reserved. Reproduction in whole or in any form or medium without express written permission of Beka Business Media, is prohibited. Inside Outdoor and the Inside Outdoor logo are trademarks of Beka Business Media