Willie Sutton, the bankrobber, was reputed to have answered a reporter who asked him why he robbed banks with the words “because that’s where the money is.” Sutton later denied ever having said this, but the attribution stuck and so did the quote. It has a strong resonance with modern retailing. That’s because some of the more innovative retailers are relying less on waiting for their customers to come to them and instead are increasingly adopting the strategy of going where their custom
mers are. This doesn’t mean that traditional “fixed” retail property is being replaced. However, its main limitation – that it may not be where the customer is – has been recognised and retailers are actively experimenting with ways of compensating for it.
In other words, retail property itself is now on the move. Retailers are taking the battleground for market share beyond the boundaries of traditional retail and online formats. This has implications for the demand and pricing of traditional retail real estate.
A vivid example of the flexible real estate strategy is Tesco’s virtual stores in South Korean subway stations. The subway stores imitate the layout of a typical Tesco store, except that the product displays are photos with each product bearing a unique QR code (short for “Quick Response” code, a form of barcode) that can be scanned with a smart phone. When a consumer scans the QR code, the item drops into the virtual shopping cart. Orders are delivered to the consumer on the same day.
Tesco says its virtual subway stores have increased its online sales in Korea by 130 per cent.
But it is not just mobile phones that are untethering retail transactions from traditional forms of property.
High end vending machines have experienced a huge growth in popularity, particularly among retailers of beauty products and digital products.
Sephora in the cosmetics sector and Best Buy and Apple in consumer electronics are retailers with heavy investments in this mobile form of real estate, which can be placed in airports, hotel lobbies, or wherever there is a heavy footfall.
That includes conventional shopping centres. For example, Guthy-Renker’s Proactiv, an acne treatment, is available from vending machines in many US mall common areas.
Another retailer tactic is to be where people are bored and captive – on long flights for example.
Inflight wi-fi is becoming increasingly available, particularly in the US where internet access at 10,000 metres is now offered for as little as US$12.95 for a long-haul flight.
Do these unconventional shopping channels have implications for retail property?
Clearly the answer is yes, but the impact is nuanced and not uniformly negative in terms of demand for space.
By using vending machines to deliver products, shopping centre-based retailers can cut operating expenses without necessarily reducing their demand for floorspace.
For example, the US department store chain JC Penney uses Sephora vending machines inside its own stores. The Sephora brand helps drive traffic to the JC Penney store without either party incurring the same operating expenses as a staffed space. Moreover, Sephora is able to market its product in places where a full size conventional mall store may not be supportable.
Other effects are not so positive from a property standpoint. By bringing products to where people are, as in the Tesco and Best Buy airport examples, retailers are directly transferring market share away from shopping centres and conventional retail strips.
Tesco’s own marketing spiel for the Korean subway stores spells it out. After lamenting that a smaller number of store locations had prevented Tesco from challenging its main competitor, E-mart, for number one market ranking, the narrator asks: “Mission: Could we become No. 1 without increasing the number of stores?”
The question is yet to be answered if it turns out to be yes, then it has significant implications for real estate demand in Korea and beyond.
* Michael Baker is a retail and property analyst and consultant. He can be contacted at Michael@mbaker-retail.com or www.mbaker-retail.com