March 20, 2020

Double down on global digital experiences in the face of uncertain times

Double down on global digital experiences in the face of uncertain times

By Gary Burrows, MD of Malls & Meeting Places, and Bernardine Wu, CEO, FitForCommerce

An already embattled retail sector has now entered a phase of unprecedented challenge. Many retailers have struggled to keep pace with technology that has been embraced by everyone from Generation Z to the baby boomers and beyond. “On-demand” retailing has evolved at such a rate that brands and retailers have found it difficult to keep up with such revolutionary change.

The emergence and strength of online shopping has taken a large bite out of traditional bricks-and-mortar stores. With 5.11 billion digital devices in the world today, its easy to see how access is fuelling on-line trend. In many countries the penetration of digitally-influenced sales exceed 20 percent as a proportion of gross sales in mature markets.

Add to the mix: a difficult global economy, unstable oil prices, geopolitics, several conflicts, the unknown impact of Brexit to Europe and the interconnected economies that the EU supports. It can only be described as complex and an uphill battle, leading to the failure of many household name retailers.

The effect on malls and meeting places is increased vacancies, a downturn in rents, lack of expansion appetite, higher capex requirements made of landlords as retailers de-risk their businesses. Turnover-only rents, capped service charges, higher demands of services, increased leisure and entertainment, which provide less income-per-sq-ft than traditional line tenants. *McKinsey recently announced that worldwide, more capital is needed to generate the same amount of revenue, which generates lower profit, which is particularly pronounced in Asia.

It is fair to say that the retail sector is embattled and the impact to malls and meeting places is significant, perhaps not even known yet. Valuations are dropping, new developments are stalled and finance is drying up. We only have to look at the recently announced position of UK mall owner/operator INTU, who have some of the most iconic malls in the country. This is a major landlord facing bankruptcy unless they can secure a 1 billion pound rescue package. The private sector has demonstrated its reluctance; therefore, a government bailout is increasingly likely. The industry is indeed facing an uphill struggle, as it is forced to evolve at a speed that it has never experienced in the history of the mall.

Enter the unknown factor, a pandemic of potentially biblical proportions in the Covid-19 outbreak. We are witnessing the enforced closure of major events, meeting places and malls in many countries from Lebanon to Italy. Non-grocery and pharmacy retail stores are closed in Italy as are bars and restaurants. Physical retail in the US has reported a 9 percent drop in footfall and luxury stores a 14% reduction, according to Morgan Stanley, as the viral spread trails across Europe and Asia. The full impact is unknown how this will affect malls and meeting places, brands and retailers. Some malls in the GCC region are fighting back with their own thermal scanners for customers in malls such as the Majid Al Futtaim and Mall of the Emirates. Major daily disinfection of all surfaces in the Arabian Centres across the KSA is providing much needed customer confidence.

Many consumers are turning to online shopping to replace store shopping, although industry analysts Wedbush and Morgan Stanley doubt that ecommerce can fully mitigate the retail losses during the Covid-19 outbreak. Still, online shopping is one area of retail and or sales that has not closed. Now seems to be a perfect opportunity for those with an online presence and the operations to meet demands to win out or leapfrog those that do not. In a recent article by Chain store age, it was noted that data analysis from predictive retail analytics platform Quantum Metric, coronavirus is driving U.S. consumers online. E-commerce retailers based in the U.S. experienced a 52 percent growth rate in online spending during the fifth to eighth weeks of 2020 (the time period when the virus began rapidly spreading outside of Asia) compared to the same weeks of 2019. These weeks span Jan. 27 – Feb. 23, 2020. When we consider that many companies are forcing their staff to stay at home, or take fixed month long holidays, the amount of online activity starts to make sense. Even universities and schools are being closed and e-learning will be a way of life for at least the Spring term.

Those brands, retailers and malls that did not double down on their digital investment, when income was stable, are probably now regretting it. The time for change has long since passed and we suspect that embracing innovative operating models, lease structures, big data sharing, last-mile logistics and other smart technology that merges brands, retailers and smart malls will make the biggest difference in survival and growth.

The next few months will be extremely tough for everyone, especially retail, however not all is dark and gloomy. It has been suggested that the virus does not like heat and cannot exist beyond 27 degrees, so the many parts of the world such as the Middle East should recover more quickly. Whilst nothing is certain, and assuming each region takes drastic measures to contain infection, we should see the inevitable bounce back hopefully by summer. As the outbreak subsides we will venture back into old familiar habits to gather and interact, in our established meeting places. Perhaps there will even be pent up demand resulting in a surge in retail spending, rather than the panic buying than we have observed in recent weeks.

This surge will need to be serviced and one way to meet that demand, beyond the physical store capacity, is to be digitally prepared - have systems in place to create a great customer experience and fulfill the customers need at the point of expectation. It is not just the fact that orders from China will likely be delayed, manufacturing has slowed, or logistics cannot service demand. We are suggesting that you should gear up for a new future and merge the physical and digital into one retail singularity, as demanded by Gen Z. Embrace it and double down on the investment in that Smart App and turn by turn navigation, install that frictionless parking system, buy that operating system that enhances the customer journey, upgrade to the CAFM system that reduces costs. Invest in booster units, upgrade your WiFi and buy that touch-screen interactive directory system.

The new meeting place will be a different customer landscape, based on the community, social and cultural needs of the catchment area; however, the smart space will resonate with a known and familiar feel. This is similar to why we like the indoor rainforest at Changi Airport in Singapore, something organic, natural, inside/outside green space, water features and nature. We don’t know why we like it, we just do and it resonates with us. What is more measurable and tangible in its application are the leisure and entertainment themes such as the snow park in Mall of the Emirates, the DreamWorks water park at American Dream, and many others. All of this is designed to create emotional fulfillment, as the new meeting place connects the digital and physical interface.

The future will be driven by technology, assisted and artificial; ignoring its potential is no longer an option. We at FitForCommerce have a long history of working with over 600 international brands, retailers, malls and meeting places, developing digital roadmaps and omni-channel businesses. For the past two decades we have supported retail business and now as a result of market demand and a global appetite a merged digital and physical into a retail singularity. FitForCommerce have developed the first industry standard 120-point Digital Mall Assessment and performance model. This provides the owner/operator with a powerful independent analysis, looking at everything from tenants, services, facilities, marketing, advertising, ecommerce and mobile, through to systems and operations – resulting in understanding the gaps and opportunities to enhance the meeting place, improve the customer experience and increase spend, turnover, income and valuation, in a virus-free environment.

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