Gary Burrows was invited to discuss digital retail innovation and the lasting effects COVID will have on the ecommerce sector on EuropaProperty.com’s 13th Annual CEE Retail Awards. EuropaProperty.com gathered five industry experts to discuss the huge bounce the ecommerce sector has seen during the crisis due to increased online shopping. Now, however, retail real estate is losing shoppers online. Connecting physical and digital is the only way to ensure the industry’s recovery and this panel brought their expertise and insights to share. Craig Smith, Publisher at EuropaProperty.com, led a lively discussion with Gary Burrows, Managing Director – Malls & Meeting Places at FitForCommerce, Malgorzata Dankowska, Partner – Head RE Advisory at TPA Poland, Kiril Dinov, Sales Development – CEE at VTEX, Thomas Mark, President at MK Illumination, and Preston Smith, CEO at CDDI each bring up different ways malls and meeting places can innovate to get ahead or stay ahead going forward. Below is a quick recap of the topics covered during the conversation!
What We See Happening & Changes to Come
The trend we’re seeing more and more is that people have had enough of the big corporates and are moving towards locally-unique, authentic brands. [They’re] also looking at bringing in digitally-native brands. [There are] so many void units with retailers closing down left, right, and center, [so] it provides an interesting opportunity to bring in digitally-native retailers to physical spaces.
Legal & General in the UK had a £4.5B portfolio and announced last year that all of their tenants would be offered turnover-only rents. With the advent of that, I think there’s going to be a change to lease structures and digitally-native brands will not accept the historic type of leas structures we’ve had. That is going to be a fundamental change.
With things becoming more diverse, there’s going to be more educational experiences, medical offerings, co-working spaces, etc. It’s no longer going to be the 40% fashion-led mall that we’re used to.
Big players have shopping centers on one side and then they also have tenants with a built-out marketplace. They’re combining online and offline and I think that’s the new goal. Sometimes, small shops can’t have their own online shop, so they need a big marketplace. I think there are a variety of companies offering this sort of solution. The ability to deliver things and not only sell through one [channel] is [important].
There are some digitally-native brands already doing well in the brick-and-mortar space. Smaller brands are trying their presence in offline modes by renting a pop-up shop, and some like it and some don’t.
Challenges & Getting Ahead
There are three areas: [we need to] ensure greater collaboration between landlord and tenant, merge the digital and physical, and personalize the customer journey.
25% of all malls in America are going to close their doors in the next 5 years. I’d suggest 3 years with the way things are going. On average, there’s been a 60% drop in valuations across malls in America. Some even as high as 88%.
Landlords and tenants have been talking about partnership approaches for eons. I’m not sure that there have been that many true partnership approaches other than discounted rents for anchor tenants, cap service charges, and a few other things. If you had a true partnership approach, turnover rents (which allow retailers to only pay what they can afford to pay) [would be more] prevalent. I think it’s happening more and more, but I’m not saying it’ll ever be 100% implemented.
I like that Gary said that this is a time for collaboration. This is a time for landlords and tenants to search for solutions that will help the tenants grow and develop their business. We see the drop in offline sales and the boost in online sales, but sometimes you can’t compensate offline sales with online sales. Collaboration, instead of tension, is crucial. Both sides have responsibility to find solutions. That’s why online platforms for shopping malls are such a good idea.
Shopping malls are already operating with a marketplace model, they just need to move from thinking about brick-and-mortar to expand their thinking to online as well.
One of VTEX’s clients combined the online experience with the offline experience. They’re a luxurious chocolate company that ended up having to close their location. They managed to take a 360-degree view of their shop where they’re building the chocolate and get it online so that the customer could [visit the online website], enter the shop, and explore the location. When [someone] places an order, they live stream how they make the chocolate and also the experience through packaging and delivering.
[There will be a] change from shopping center to ‘shoptainment’. Adidas is trying to have shops where they not only sell shoes, but also provide an experience. Perhaps they can 3D print your shoe with a special logo [or something like that].
Desperation breeds innovation, so we are in very innovative times right now.
Customer Wants & Needs
We all want mass market appeal, but we want it on a personalized basis. Everyone is afraid of GDPR, but we can work within that using a digital key.
You don’t want to go to a mall and be bombarded with 300 different offers, discounts, and sales from multiple brands. In reality, you’re probably only interested in 10 or so of those brands. It needs to be personalized. [This is similar to] the Facebook algorithms that only give you content you’re interested in looking at.
We’re all social animals. We want to go back and socialize/gather together in our destinations, experiential spaces, malls, etc., but we want to do so in a locally-unique and authentic space that is the heart of the community in a social, cultural, and community hub.
Providing a digital mall where you can be “open” 24/7 and provide resonance with your customer is critically important. It’s a requirement now to interface with the smart tech everyone has in their hands in order to have a 24/7, on-demand experience. The longer you can resonate with your customer, the more loyal they will be.
Everything needs to be gamified. Taking some learnings from Facebook, we need to be triggered by things. Creating this gamified experience whenever they want, wherever they want, however they want is how to generate loyalty.
It’s about the personalized journey and customer experience. I want to be welcomed. I want them to know who I am, what my shopping behaviors are, and what brands I’m interested in. Then, they can [try to] upsell me on the things I’m interested in, not on the stuff I’m not interested in.
I’m a fan of platforms because you have different data accessible in real time. How they move, what their journey is, what they were searching for, what they were typing on the website, what they actually bought, why things were returned, etc. This is the hard knowledge you can use to build loyalty.
If you look at Amazon, the reason they’re killing it is because entrepreneurs come up with an interesting business idea and bring it to Amazon. Amazon has a group of people to assess vitality & viability of the business. They help them find finances, manufacturing, websites, ecommerce platforms, last-mile logistics, etc. They can offer these end-to-end solutions to these businesses. Imagine if a landlord in a mall offered that kind of incubator solution to local entrepreneurs and locally-authentic brands in some of the void spaces? That would be a game changer.
Amazon is such a game changer in this region (Poland). In the fall, we saw the Allegro IPO. Their equity went up in 1 day to 66B zł. There’s been talk about Amazon coming to that market too late. Allegro was able to bolster their equity and prepare. There are aspects of the physical and the virtual where Allegro, for example, now has this pick-up parcel system. There are a couple of questions that are raised just by the presence of Amazon because they have so much muscle, power, and ingenuity.
Final Thoughts & Advice
GDPR. Everyone can’t be paranoid, but also don’t be naive. Best practices will keep you out of [trouble]. Also, the gorilla in the room is Amazon. Everyone need to keep an eye on [them].
We are observing the market and waiting to see what happens with Amazon. We cannot wait, though, because the train is going to go without us. There are still a lot of businesses making their first steps. Let’s go, otherwise it’s going to be too late.
There’s no doubt that the online environment is essential. However, we are humans and social creatures. We need to be able to connect, engage, and share emotions face-to-face. That’s why shopping centers will survive. There will be changes, but they will survive. We need to learn a lot and be fast. A good example is IKEA. I never thought they’d say that they no longer have a [print] catalog. It helps us to think in new ways and move forward with more speed than before.
The concept of collaborative commerce is the future. That is the nature of innovation for the big players. We have to think in that direction and act now.
I love quoting futurist William Gibson who said “The future is already here, it’s just unevenly distributed.” Amazon is now the best grocery retailer in America. Look at all the contactless Amazon Go stores. They’re now growing in Europe. [Look at the] autonomous electric vehicles for deliveries and last-mile logistics. We’re going to see them all over the place. I go back to what I said earlier. We are all social animals. We want to feel connected to something and each other. Providing that assisted intelligence to make things easier for us within an environment we enjoy physically is the direction we’re going in. We’re going to see a lot more automation and technology. That’s the direction I [see us going in].
Gary enjoyed being a part of this year’s Jury for the awards. He says it was hard because there were so many great nominations. Looking forward to next year!
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