Written by Clara Maguire
Lately landlords are growing ever reluctant to do turnover deals. From their point of view omnichannel retail means the store is generating sales not accounted for at the till. We can track the basics like in-store mobile payments, click and collect, and in-store returns (which are a definite loss to the landlord on a turnover lease). But there’s a massive distance to travel before we understand the value of retail square footage in an omnichannel world.
Imagine for a moment store leasing models that worked like google adwords. You can pay for:
- CPA (Cost Per Acquisition) which in a real world format relates to an in-store purchase (mobile included).
- CPC (Cost Per Click) the proxy measurement could be a social media follow, like or share created in store, or a product added to a wishlist and later fulfilled.
- CPM (Cost Per Impression) i.e. the size / frequency of the advert. In retail terms, our old favourite, square footage and duration.
Or imagine what we can dream up when we combine different data points – sensors to measure interaction with products, social graphs to measure interaction with brands, unique visitors, dwell / footfall, increase in social media followers. Exciting right? That’s before we’ve even started thinking about the dynamics of place, proximity of online orders to stores, the evolution of distribution logistics and spatial requirements in the city, the future of making.
“There’s a new value ecosystem being created and that means that all value points are in flux.”
Retail is going through a radical reorganisation. There’s a new value ecosystem being created and that means that all value points are in flux and leasing models are central to this. There’s a lot to think about and only a limited number of actors with the data to help support our initial assumptions. There are also some significant hurdles. Retailers are cautious about sharing data in case it results in increased property costs. Landlords can’t always get the retailer data they need (though those doing turnover deals are best placed to make a start). Other less obvious offline data partners like advertising, events, PR agencies are often overlooked.
In addition the infrastructure, software and analytical capabilities may not be in-house yet, that goes for all parties. There are data privacy concerns that will govern the design of such systems. Attempting to mimic real world leasing structures on dynamic online models is difficult to fathom given the different levels of capital exposure. Our asset model simply isn’t free enough to experiment – it’s over-leveraged and props up important parts of the economy like our pension funds.
“If our response is to fall back into traditional lease formats – we will sound the death knell for innovation.”
All that said, if we don’t take it on, if our response is to fall back into traditional lease formats – we will sound the death knell for innovation. Turnover leases are fundamentally important to shared risk, the notion of shared risk was developed by Joseph Stiglitz and he got the Nobel Peace Prize. So our challenge today is how to design dynamic leasing models, ones that maximise the opportunity for innovation, that support new ideas and give them equitable access to our cities to create jobs and places that matter. It will require us to think differently about value and we may find the results as challenging as the process. At The Dandy Lab we are planning on giving it a go – we’ll get further with great partners. If you’re interested in getting involved please drop me a line, I’d love to hear from you.
Clara is Head of Growth at The Dandy Lab. Her experience spans urban development, entrepreneurial ecosystems, future institutions, and tech start-ups. She has previously been COO of We Are Pop Up a venture backed tech startup, Co-founder of Architecture 00:/ an urban design practice, and has run entrepreneurship programmes on behalf of Richard Branson. She has been published several times by leading think tanks on subjects related to Future Cities.