Retail Trends & Valuation, Part 1 of 2

Two Recent Trends
1) Multi-channeling: the concept of selling products and services through numerous methods of customer contact and experience. The old way of advertising to get the customer in the store will be improved and expanded, most notably by mobile apps from numerous sources including social media. Once in the store, mobile apps will point and inform the customer to products, along with in-store kiosks, roving product coaches, and vending operations.

2) Asymmetric Competition: Charles Darwin said: “It is not the strongest species that will survive, or the most intelligent, but the ones most responsive to change.” For retail, this means that creativity and adaptability trump size (and the brute force size brings to buying power). Like-sized and formatted retailers are finding their competitors are no longer just each other. Adaptive retailers will become cross cultural.

What These Trends Mean for Valuation
How will the rapid changes in retailing alter the way retail “bricks and mortar” facilities are valued? An example: a chain with national store presence can leverage their real estate into a local distribution network if they can effectively process the sales, inventory, and delivery data. Those that can will maximize “product to customer” logistics, whether that is delivery to a customer home or an in-store pick up. In February, 2013 a large nationally known department store company announced a new multi-channel effort; expanding online fulfillment from just under 300 stores to 500 stores by the end of 2013. While this will be daunting to pull off effectively at first, it is only a matter of time until this concept is done well by someone and is replicated throughout the bricks and mortar retail world.

But what will happen to bricks and mortar?

• Reduction of the ratio of sales floor space to back room space… displays will be adjusted to accommodate online ordering and back rooms will be order pickup centers. Result: less total interior finish cost and possible conversion of some areas for lease to other retail tenants.
• Realignment of store sales per square foot…with many successful retailers paying percentage rent (overage rent) in excess of base rent, the allocations for what the bricks and mortar “earn” will be important. Was the sale procurement partly (or mostly) online? Or did the customer walk in the door and leave with the purchase? This could well change the rental structures we now know.
• Location of some stores may shift… a location previously regarded as secondary (not next to the newest life-style center) might soon be regarded more positively for its convenient highway access, or proximity to mass transit by online customers.

Source: http://goo.gl/L0v0v