Omni-channel retailing and retail real estate

Managing the risks that e-commerce poses to bricks-and-mortar stores

Online retail continues to gain market share by growing faster than store-based retail. And as e-commerce continues to grow, many store-based retailers have entered the online arena. But this presents a paradox: by launching a webshop to cater to the growing segment of online shoppers, the retailers are actually fuelling the further growth of e-commerce. The result: floor productivity in physical stores is under increasing pressure, with a potentially negative impact on rental income for the owner of retail real estate.

Therefore, CBRE Global Investors – a leading global real estate investment manager and the largest private manager of retail in Continental Europe – have started a journey to assess the risk of growing online retail on its European real estate portfolio. The company has joined forces with Prof Gino van Ossel of Vlerick Business School to co-author a CBRE white paper that presents a methodology for assessing the impact of the growth of e-commerce on retail real estate.

In addition, their collaboration has produced a proprietary tool called e-RISC (e-commerce Rental Impact Simulator and Calculator). Bringing the asset and retailer risk together, the tool works towards practical and proactive ways to incorporate the impact of online retailing into successful property and tenant strategies.

The rise of ‘omni-channel retailing’

Today’s challenge for retailers is to integrate all online and offline channels and move from a store-centric to a customer-centric view of retailing. This is called omni-channel retailing, as it encompasses all available shopping channels: computers, mobile internet devices such as tablets and smart phones, bricks-and-mortar stores, and so on.

The physical stores will not lose importance within this omni-channel world. However, retailers will shift to decreased footprints and new concepts, with technology being a key driver for change.

Assessing e-commerce impact on retail real estate

Given this evolution, CBRE wants to systematically assess the potential impact of e-commerce growth on individual assets. The risk is partly asset-specific, and partly based on the tenant mix:

  • The asset-specific risk: Dominant shopping centres are well-placed for facing online challenges. As they will actually benefit from a potential shake-out, while other assets will suffer from the shift to online, these centres will reaffirm their role as the preferred locations for key retailers and shoppers alike.
  • The tenant-based risk: The performance of a commercial centre is also based on the tenants’ well-being. There are likely to be future winners among retailers, while some will not survive the digital retail revolution. For instance, retailers who offer an integrated shopping experience in any place (online and offline) and at any time are considered to be a lower risk.

Using e-RISC and the underlying assessment methodology, CBRE will follow their tenants’ performance – including their omni-channel strategies – and opt for the best retailers so as to protect their retail assets from losing their attractiveness.

New book on omni-channel retailing

To provide a thorough examination of the omni-channel phenomenon, Prof van Ossel has written a book – called Omni-Channel in Retail – that will be published in Dutch in April and in French in June. The English edition is currently in the planning stage.

Source: “CBRE Global Investors portfolio E-RISC tool – Omni-Channel Retail”. A white paper by Marije Braam-Mesken Msc, CBRE Global Investors, and Prof Gino van Ossel, Vlerick Business School.

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