'Online Retailers Opening Shops Is Actually An Admission Of Defeat'

If you’ve been of the view that physical retail is on its way out, it may be time to reconsider. Panellists at Bisnow’s Dublin Retail & E-Commerce Revolution event on 29 November were pretty bullish about the current state of and future for brick-and-mortar — when it is done right.

Harvey Norman Ireland CEO Blaine Callard said Black Friday (23 November) had been his company’s busiest trading day in 15 years. “It’s been good since summer,” he said. “Something’s changed — people are out shopping, footfall is up and that’s very positive. I think it’s going to be a good Christmas for Irish retail.”

Sigma Retail Partners Managing Director Marcus Wren said tenants in his company’s portfolio of eight retail parks and six shopping centres across the country are generally very happy in terms of turnover. “We have one occupier whose prediction for the year was €4M — they’re up at €6.7M for the year at the moment,” Wren said. “If you’ve got the right retailer with the right product, physical space is where it’s at.”

‘The pure online model is dead’
Not one to mince his words, Callard told delegates that he believes the pure online model is dead. “It’s been disrupted by brick-and-mortar,” he said, adding that his favourite topic at the moment is around pure-play e-tailers opening physical stores.

“Online retailers opening shops is actually an admission of defeat. After two decades of Amazon, only 10% of retail in the U.S. is done online. So you can play in the kiddies’ pool of 10% or you can get in the adults’ pool of 90%.”

In Callard’s opinion, physical stores have lots of advantages over online. “They bring presence, they bring brand awareness, they reduce refunds, they reduce the cost of processing refunds and mostly they reduce customer acquisition costs.”

He noted that Amazon now owns 495 stores in the U.S., Alibaba has a grocery chain, an online electrical retail chain and its own shopping malls, and Tencent has 800 stores. “Make no mistake — they’re all omnichannel retailers and increasingly so every year.”

The cream is rising
That isn't to say that brick-and-mortar retail is always winning out. Hines Director Derek Rossel said e-commerce is hurting retailers who don’t offer great experiences for customers — both online and offline.

“Some retailers are going backwards and stores are closing,” he said. “But if you look at those retailers, they typically don’t have a great offer for the customer. There are plenty of great retailers out there that are expanding, that have absolutely nailed the experience and the brand.”

Developers need to think like retailers
Developers must adopt a retailer's mindset in order to deliver the right stock and enhance the customer experience, according to Callard. “If you’ve worked in other markets, you’ll know there’s so much bad retail in Ireland,” he said. “Many developments are very poor. Access is very poor. Look at Nutgrove: You can’t get in and out of the place and the parking is terrible. Look at somewhere like Beacon South Quarter. That is a disaster.

“If the developers aren’t thinking like a retailer in terms of the shopping experience, the journey from beginning to end, and putting the customer at the heart of that, then parks and centres and malls won’t be designed properly. If they’re not, then they’re not friendly for progressive retailers.”

Mapping the customer journey
One developer with the opportunity to get it all right from the outset is Hines with its Cherrywood scheme, a huge mixed-use development that will include a significant retail element, which is due to open in 2021. Rossel said the main focus is on what customers in south Dublin want and giving retailers the quality space they need now and in the future.

“Online is all about convenience and physical retail needs to do convenience way, way better than it’s been done previously,” he said. “We’re very focused on mapping the customer experience for different types of uses.”

Hines intends the scheme to have a strong food and beverage offering that will attract people in its own right. “We’re trying to create a real night time economy in the town centre. We’ll have roof-top bars with views over the mountains and the sea. We’ll have probably the first food hall in south Dublin and a very large precinct.”

These elements will all be accessible without having to travel through the mall. “You’ll land straight in the evening experience you want, connected to the cinemas, connected to the leisure, the parking and the rail.”

Every aspect of the customer experience is being considered and planned for from the outset, including elements like drop-offs at the scheme. “People just want to get to the front door,” Rossel said. “So, parking’s important, but so are drop-offs and the locker services so that when you leave the centre, it’s one seamless experience.

“It won’t be a case of retrofitting click and collect on level three because we couldn’t lease that. We’re putting things in the right spot on the customer journey so it makes for a much better experience.”

Shorter leases and greater transparency around sales are on their way
In general, leases need to be shorter to reflect the fact that trends are changing faster because of Instagram and other social media platforms, Rossel said. The concept of signing a lease for 10 or 15 years is failing badly and is not going to continue, he said.

“There’s going to be a better sharing of the risk between the landlord and the tenant to make sure that consolidated retail landlords can bring in the brands on a regular basis to keep the product refreshed and relevant at all times.”

Wren noted that his company favours reciprocal break options where possible on 10 year leases to ensure the tenant mix remains interesting for customers. “It keeps everybody on their toes as well. If you have a tenant you want to keep and he’s got a break coming up in a year, you want to start engaging to agree a new deal. Equally, if a tenant is bringing nothing to your scheme you want to move them out.”

Going forward, Rossel believes there needs to be greater transparency of retailers’ sales data. He said developers and asset managers need this information to effectively manage their tenant mix, get the right tenants in the right locations and understand how assets are performing on a monthly basis.

“I realise there are local dynamics but this is the broader trend,” he said. “Everybody needs to embrace it to be successful and it definitely works very well in other markets. I think it’s a direction Ireland will be taking.”