CANNES, France — Is it time to shift store rents to the marketing department? The question cropped up at the retail real estate show Mapic here, as digital commerce helps fill up shop floors vacated by flailing traditional retailers, redefining their use along the way.
Dipping into its marketing budget, U.K.-based home decor label Made.com has opened a series of showrooms around Europe, viewing them as a physical extension of the world it built online.
“The number-one objective is about engaging that audience that we already have on the site in the brand experience,” said chief executive officer Philippe Chainieux, explaining that foot traffic to showrooms is generated through digital channels.
“It’s not a retail channel, it’s not to generate revenue,” he added. Rather, it’s about surprising people with unexpected venues and building confidence in the label with real products. The company, which has seven showrooms in Europe, in one instance outfitted a temporary space at the Schiphol airport in Amsterdam with easy chairs and coffee tables; plans for 20 more in the next two years include a town house overlooking a canal in Amsterdam with a restaurant and a café.
Chainieux estimates competitors might spend around 40 percent of revenues on physical stores and staff to generate sales while Made.com showrooms are funded by the marketing department’s budget, which takes up half that proportion.
Property owners are also reconsidering the role of their spaces.
“The physical store is becoming more and more of an experience that sells the brand and not primarily a sales channel,” said Annelie Gullström, head of business development at the Swedish real estate company AMF Fastigheter, which runs a retail space in Stockholm it calls The Lobby. Gullström met Ilona Taillade, founder of a pop-up concept called FOMO Store in Sweden, at last year’s edition of Mapic and the two are now working together.
“We see The Lobby as a new type of media channel — it should also be from the media budget — media spending,” Gullström added.
“We’re actually looking at the store like a lifestyle magazine…but it’s a living, breathing thing, if they’re living and breathing, they have to activate the space,” chimed in Taillade. The pair said labels can no longer hang up a coat and wait for it to sell — they need to interact with potential customers.
For Appear Here, which connects brands to owners of retail space, the shift of online players into the physical world is drumming up business in pop-up store rentals.
“Right now everyone’s talking about the death of the high street, especially in the U.K., how there are all these stores closing; at Appear, we’ve actually launched more shops than shops that closed last year,” Ross Bailey, ceo of the young Internet company. The executive also noted how marketing efforts are an important force behind the shifts in retail real estate.
“What we’re seeing is direct-to-consumer brands, online pure-play retailers that are taking off-line space, technology companies that are taking off-line space, and seeing that when you turn physical retail from a fixed cost to a variable cost, it actually becomes, in many ways, one of the most cost-effective marketing channels,” said Bailey.
The executive cited a dating site that generated a surge in online traffic by holding an event in a store where women lined up to purchase three-dimensional figures of available men. In another case, Appear Here helped set up a Moroccan garden in a sprawling space in one of London’s busiest neighborhoods, Covent Garden, for Desmond & Dempsey, a label selling high-end pajamas primarily online.
“It’s an example of someone…not just taking a shop and filling it with boring product, but actually bringing their brand to life,” noted Bailey.
As online commerce offers an endless array of choices, brands need to find new ways to press their messages into imaginations.
“We sell pajamas, but actually we connect with customers with the idea of Sunday mornings — we’re selling them the idea of taking an everyday moment and making it extraordinary,” said Molly Goddard, who founded the pajama label.
Traditional retail operators, too, are forced to think hard about how to reach consumers.
Unibail-Rodamco-Westfield, a global shopping-center giant created by a merger last year, is not only betting on scale to tackle the challenging market.
While the group plans to leverage its leasing platform on a global level to manage large accounts like Apple Inc., Tesla Inc., Abercrombie & Fitch Co. and fast-fashion companies H&M and Inditex, as well as to match its European property holdings with American labels and real estate in the U.S. with brands from Europe, the company also sees its malls as a communications channel.
“We have the capacity to use our shopping centers as a form of media, so it can also be a platform for developing brand awareness, seeing as we’re set up in very dense catchment areas,” said Jean-Marie Tritant, head of the group’s U.S. operations. The real estate veteran, who recently moved from Paris to Los Angeles, is charged with merging the company’s American assets into the group and integrating operating procedures.
“When you look at Unibail-Rodamco-Westfield today, you have to consider it as a marketplace…we are a marketplace of the largest cities in the Western world…offering a platform for development,” asserted Tritant.
Expanding on the idea of shopping centers as communications channels, he added: “We have significant levels of traffic and, what’s more, we have the ability, through a content management system, to relay information through our digital screens.”
At the same time, the property company, along with other players including outlet centers, is pushing further into the digital realm.
“By creating a direct, digital link with the client, we can offer content and enlarge our digital imprint, and in the future we can become even more of a partner with retailers in the development of their sales online,” said Tritant. Loyalty programs serve as a point of access to consumers, who can be drawn in by perks like parking, access to higher speed Internet or events geared to specific interests like sports, he added.
As it builds a worldwide system to manage client data, the company plans to apply Europe’s privacy rules, General Data Protection regulation, known as GDPR, on a global level — a move that wards against stocking unusable information.
New West End Company, which represents retailers and property owners on Oxford Street, Bond Street and Regent Street in London, is investing $1 million a year in a data-tracking system developed with consultant firm PWC to collect and share information.
“We will be able to see every day, every week, what customers are doing across the West End and Mayfair,” said Jace Tyrrell, ceo of the organization. Data will be collective, not individual and comes from a range of sources including mobile phone usage, cameras and tax-free operators Global Blue and Premier Tax Free. The idea is to gain insight into traffic flows and travel data — including information about what nationals are booking trips to London over the next six months, which could be used by retailers to tailor their offers, he explained.
“We’re not-for-profit, independent, so we are a perfect platform to bring all these data sets together in a commercial way that works on both sides,” said Tyrrell, referring to retailers and property owners.
Illustrating the challenge of obtaining information, Unibail-Rodamco-Westfield ceo Christophe Cuvillier launched an appeal to retailers to share more business data.
“As landlords…we miss one crucial [piece of] information, and that’s the transaction,” he said, speaking to a packed room at the fair. “More and more, our business is not only about leasing square meters at the highest level possible — yes, that’s still our job — but above all, understanding the business model of the retailers, trying to adapt the mix of our shopping center with what’s happening in the industry.”
The executive said outlet centers tend to be ahead of the game in terms of working with retailers: “It’s an inspiration, we still have a long way to go.”
Outlet operators took notice of the shout-out from Cuvillier, but were quick to explain how they, too, are scrambling to adapt to the shifting landscape.
Digital data is key, agreed Otto Ambagtsheer, coo of Via Outlets, a four-year-old company that has 11 centers in Europe, including Lisbon, Seville and Prague.
The outlet owner last year rolled out a loyalty program called “Fashion Club,” which serves a dual purpose: getting customers to buy more — executives estimated members spend between 30 and 40 percent more than nonmembers — as well as obtain data to share with brands occupying the centers. The company designed the system it calls “earn and burn,” whereby clients earn discounts on future purchases.
Speaking from the sofa of a temporary beach lounge outside of the trade center halls, McArthurGlen ceo Julia Calabrese suggested regularly renewing the offer was a strong point for the company, which has a development pipeline of 1 billion euros.
“We don’t feel old and stodgy,” she said, pointing to the company’s practice of mixing short-term and long-term leases, which range from temporary pop-up stores to three-, five- or 10–year leases to keep shopping centers fresh.
“There’s a lot of testing and learning in terms of what’s going on, within our marketing project, within our digital department,” added Calabrese.
“Are we a real estate company, are we an entertainment company? You know, we’re entertainers, I mean, we’re all about the experience now, to tell you the truth, but brands are as well,” she said.
Entertainment was also a key theme running through discussions at Mapic.
Triple Five executives working on American Dream, a sprawling mall project facing Manhattan, have bulked up their planned entertainment offer, which has swelled to 55 percent of the 3.1 million-square-foot space, and includes a snow park, according to senior vice president of leasing, Dimitri Lalagos. In the Middle East, the snow park at Reem mall in Abu Dhabi, due to open in 2020, will include theme park characters, thought up by Los Angeles-based firm Thinkwell.
“There will be music, there will be a show, there will be a parade and it will actually snow inside the space,” said Shane Eldstrom, ceo of Al Farwaniya Property Developments, developer of the project. Tim Earnest, ceo of the real estate arm of Al-Futtaim Group, based in the United Arab Emirates, noted a shift in his company’s approach to entertainment.
“It used to be more the family entertainment where there’s rides, or sort of physical experiences, and now it’s changing into a more multiplatform [approach] where there’s virtual reality, we’re getting into what I call the sensory stuff — you’re probably familiar with the museum of ice creams,” he said. “Moments to capture and put on social media.” Alongside attractions geared to the international tourist flows in Dubai, like Chinese New Year or Christmas decorations, the executive has also pushed for more local food, crafted goods and pop-up markets in mall space.
Saudi Arabian-based Fawaz Alhokair Group’s Falcon Malls is building retail space into a mixed-use retail project on the outskirts of Milan in a former steel plant. The MilanoSesto project is emphasizing dining with a broad food court called Piazza Pompei.
Finland’s first outlet center opens this month, located strategically on the border with Russia, where 2.5 million crossings were logged last year, according to Mikko Salmivuori, founder and board member of Zsar, the Helsinki-based company behind the project.
“We jokingly say that we’re doing something that we don’t know anything about,” said the former software executive, who thought up the project after Russian friends told him of their wait at the border — with no place to buy even a coffee. The village will count Armani, Adidas and Guess among tenants, along with restaurants and coffee shops.
Bispevika, a mixed-use development project on a former industrial site on the waterfront of Oslo, signed a lease with Michelin-starred restaurant Maaemo to anchor its retail space, which will include a research and development kitchen where people can watch cooks devise new dishes. When it came to securing an anchor tenant in the past, it was more “fashion first and others after,” noted Remi Olsen, head of retailing for commercial real estate company Akershus Eiendom, which manages the project.
Olsen said the area expects to draw around six million visitors a year, thanks in part to the new opera house and the transfer of the Munch Museum to the waterfront. Direct flights between Oslo and Beijing, expected next year, will add to incoming visitor flows, he predicted.
A luxury gym and high-end cinema theaters are expected to serve as a draw to Islington Square, a mixed-use development site in London that has 170,000 square feet of retail and leisure space, said Neil Barber, leasing director at Cain International. Built around a former Royal Mail sorting center, the space targets wealthy urbanites and opens next year.
While fairgoers conveyed a sense of urgency to their rush to find the right formulas for reaching consumers, Melina Cordero, global head of retail research for CBRE offered a measured dose optimism for the property market.
“I think the headlines were really dark last year and things have started to kind of turn around this year,” she said.
As retailers hurried to move everything online, closing stores in some cases, “they realized ‘Oh, actually we kind of need the store,’” she added.
“Not just because consumers want it, but also because profit margins are so low online that they’re trying to come back to the store, bring consumers back to the store to protect profit margins,” Cordero concluded, pointing to the cost of logistics.