6 Retail Opportunities for 2021
2021 is set to be a defining year for retail. Retailers and entrepreneurs are wondering how they can best position their businesses for a prosperous year. It’s a pragmatic moment for retail tenants to negotiate lower rents, renegotiate lease terms, find a new site, repurpose or downsize. Times may have been tough, but retail businesses should consider the massive new opportunities. What solutions aren’t people seeing, what are smart retailers doing?
As vaccine plans are rolled-out and Federal and State governments continue to spend big, growth, jobs, credit and liquidity are on the rise. Household spending jumped in November as Victoria came out of lockdown and Black Friday went ahead, with retail sales up 7.1% month-on-month. State-based COVID leasing negotiation rules have been extended — continuing to apply to commercial tenants & landlords across Australia in 2021.
Trends in experiential retail, digital marketing & eCommerce, and retail footprint rationalisation are still key (as explored in our 2018 article)! But there are also new prospects: fulfilment innovation; omnichannel retail hybridisation; downward rents pressure in key retail locations; and the emergence of successful ethical brands & products.
We’ll explore the 6 big retail opportunities for tenants below:
- Same-day delivery, Click-And-Collect & other fulfilment innovations
- Omnichannel retail: hybrid online-offline; experiential shopping
- Rationalisations and relocations
- eCommerce, digital marketing & new technologies
- Ethical, values-based brands & products on the up
- Downward pressure on rents in CBDs, shopping centres & more
Same-day delivery, Click-And-Collect & other fulfilment innovations
Post-pandemic, retailers big and small are creatively reimagining how they get their products & experiences to customers. Businesses in verticals from apparel, to food, to homewares, are prioritizing fulfillment and other operations innovations to fight rising costs and meet consumer expectations.
Delivery becomes the new normal
Cheap (if not free), same-day (if not faster) delivery is becoming increasingly widespread, as a 2020–21 trend in the logistics of retail. Delivery and courier services like Uber Eats, Deliveroo, Menulog and DoorDash ramped up exponentially during the pandemic, as well as eCommerce grocery platforms — but demand for delivery hasn’t just increased for food. According to Shopify, 64% of consumers globally expect any order shipped for free.
The challenge historically with same-day shipping is that it’s been difficult to arrange cost-efficiently — warehouse proximity to customers and inventory management being the main factors. This has led to different innovations, such as retailers partnering with ‘last-mile’ delivery companies to fulfill online orders. Other retailers have begun offering direct local delivery, which is faster than traditional shipping, provides more work to retail workers, and gives the business full control over the customer experience. In many cases improved package tracking solutions also mean that consumers can receive real time, last-minute notifications about their order.
Expanding delivery options are part of a broader ‘Consumer-to-Manufacturer (C2M)’ shift in retail, where customers are having products sent directly to their homes from warehouses, can click-and-collect from in-store, and retailers & eCommerce businesses are shipping from multiple locations, including brick-and-mortar storefronts and wholesalers.
Since retail tenants often already have the real estate that eCommerce or fulfilment providers need, brick-and-mortar businesses are uniquely positioned to facilitate delivery. As some leased storefronts underperform due to a lack of foot traffic, smart retailers have been looking to use them as fulfillment hubs. Large format or bulky goods retail in particular may be looking to move into shopping centres where vacancy rates have risen in order to make use of logistical advantages.
In Australia and elsewhere, there’s now evidence for the advantages of converting, or partly-repurposing, storefronts into mini-fulfillment locations and even mini-distribution centres — particularly when paired with last-mile delivery services. It’s a great way to leverage unused retail floorspace, offer a pickup point, and reduce online fulfillment costs and delivery times. Big retailers like Kmart pivoted to turn their stores into drive–through or click-and-collect centres, in order to fulfil online orders.
Peter Blade, Head of Industrial for Western Sydney at JLL noted that:
Many retailers are recognising the potential synergies between store and delivery/collection, and may be looking to relocate, downsize or repurpose their lease with this in mind — find out more.
Proprietary Shopify data reveals nearly 100,000 brands worldwide began offering roadside pickup during the pandemic. Despite being relatively small markets in global terms, Australia (7,828) and & New Zealand (2,037) are near the top of the list — nodding to the intensity of COVID restrictions and how much they have, and will continue to, shape retail practices. In the U.S., click-and-collect commerce, including roadside pickup, is forecast to top $64 billion in 2021.
Other fulfilment innovations
Crucially for smaller volume retailers, there’s been a proliferation of third-party services to whom businesses can outsource fulfillment operations to streamline processes and reduce hassle.
Investment in reverse logistics is another big one — due to spike in 2021 and forecast to hit $604 billion globally by 2025 — as retailers seek to alleviate a pain point in the shopping journey and minimize the costs of returns. Streamlining the return process — for instance by instantly giving customers store credit, pre-fill return labels and self-serve returns — makes business sense when 96% of consumers will shop with a retailer again based on an “easy” or “very easy” return experience. Ironically, returns are a great way to retain business!
Inventory management automation is another important lever to reduce wait times, expedite fulfillment, and reduce shipping costs.
2021 should also see increased use of autonomous deliveries, smart sensors, blockchain tracking, and digital twinning to increase delivery speeds and cost efficiency. Robotics technologies like self-driving and drone deliveries are no longer pure novelty (but remain shy of mainstream status — costs still need to come down).
— that’s the quote from Michelle Beeson, analyst of e-business and channel strategy at Forrester Research. Sometimes the hype makes it easy to forget just how bricks and mortar remains — online sales made up just 11% of total retail turnover in November.
Nonetheless, traditional shops and other retail businesses are changing the nature and uses of their property — from “experience centres’’ (where merchandise is sampled and ordered for later receipt) to mini-distribution centres, to models that integrate online and offline experiences more coherently. Melissa Gonzalez, a retail strategist and the CEO of U.S-based The Lionesque Group, believes brands and retailers will “take a more holistic look” at their physical stores and omnichannel options this year — with diversity & flexibility being key.
There’s a two-way process happening where online stores have been popping up in offline spaces — like Amazon moving to forms of traditional retail — and traditionally ‘offline’ businesses are going online (traditional retailers building presence in marketplaces to stay relevant in the digital age). But it’s more than just a trend of online going offline and visa versa.
As e-commerce grows, larger brick-and-mortar retailers are restructuring — capital allocation often now works on a tiered basis, where flagship destinations exist in prime locales and are complemented by smaller-format, specialty locations anchored around a specific purpose or localized effort. “Partnering with department stores will also continue to be reimagined as they restructure and reposition as collaborative marketplaces, and there will be a deeper dedication to pop-in-shop retail,” says Melissa Gonzalez.
Right now, retailers may be rightly concerned about their property footprint, but with so much change in consumer behaviours off the back of health-related regulations, businesses do have to take risks. One story that bucks the obvious retail trend is that of Ikea: despite a dip in full-year sales, the retailer opened 26 new locations globally to October 2020, and plans to open a total of 50. Part of the rationale for this is that most of their customers start their shopping journey online, but few are channel-specific. Furthermore, they gauged that consumers would use newfound spare time to make home improvements. Another story, out of the UK, is food-to-go chain Greggs, which rolled out its click-and-collect and home-delivery propositions faster than planned. The high street brand is also resuming its store opening programme — 20 new stores this financial year. For some retail businesses, right now is the time to expand.
Another response to COVID’s long-term impacts is combining reduced physical space and increasing product assortment to focus more on niche products and local suppliers that shorten their supply chains. Some retailers are partnering to increase product range or fill a demand exposed by the pandemic, like masks, partitions and other necessities.
Within the online-offline mix, recent years have seen ‘experiential retail’ becoming more relevant as part of ‘the broader reconceptualisation of traditional ‘bricks and mortar’ retail (as we wrote in 2018). Historically, research has shown the desirability of experience-oriented tenants — like movie theatres, gyms and restaurants — however these were severely impacted by COVID in some cases. Non-discretionary spend tenancies — like supermarkets and healthcare centres — have been very resilient. Grocery and healthcare-related tenants bring a necessarily experiential & non-discretionary offering to retail precincts — with the COVID only exaggerating these strong fundamentals.
Beyond the particular verticals in retail that have been able to provide a valuable bricks & mortar offering, the blurring of lines between online and offline commerce means retailers have more opportunities to create blended in-store experiences. 82% of smartphone users now use their phone while inside a store to make purchase decisions — showing the importance of online channel experiences to success in traditional retail spaces.
Examples of similar digital-enabled retail experiences include London-based furniture retailer Made.com, who offer barcode scanning in showrooms and enable online customers to video chat with in-store assistants to find out more about how a product looks and feels. In IKEA’s new “small footprint” stores, which launched in spring of 2019 in Australia, and are planned for the U.S., customers can book appointments in private rooms for design and planning sessions, and then order goods to be delivered, rather than hauling them home from the warehouse themselves.
These omnichannel approaches are not only richer in terms of the experience afforded the consumer — they represent a necessary evolution in response to cost-efficiency and health-restriction pressures on retailers. Considering lease strategy, fit-out options, and overall retail property footprint is definitely important this year.
Rationalisations and relocations
For years now, retailers have been adapting to structural changes facing the industry — including rental cost pressures and the growth of eCommerce. The growth of alternatives to CBD-area retail — like new commercial-residential precincts in cities and regions across Australia — is becoming ever-more pronounced.
The story of Green Square in Sydney — anticipated to be the most densely populated region in Australia after an $8 billion investment in urban renewal — continues as an example of locations offering new retail options with lower occupancy costs. Green Square offers retailers proximity to public transport, major road networks and the airport. But Green Square is just one of many new growing, connected urban hubs, including Parramatta, Liverpool, Macquarie Park, Rhodes, Campbelltown and Penrith — and that’s just around Sydney. Lower costs, better connectivity, and new worker-consumer hubs mean relocating, or rationalising retail portfolio footprints, is attractive to many retailers.
The relocation of commercial real estate zones within and between cities around Australia predates COVID, but the process has been accelerated, with implications for retail.
Commercial real estate in regional areas is set to see high demand in 2021, with the June quarter of last year showing the biggest movement out of capital cities and into regional areas ever recorded.
Whether it is a shared workplace building in Byron Bay, a new distribution facility on the Gold Coast, or office complexes around Melbourne or Sydney’s 3 Cities, all these city fringe, suburban and semi-regional locations are increasingly relevant.
Companies are downsizing and rationalising their commercial real estate footprints to weather tough economic conditions, and also because they need to have a way to continue operating even with CBD-shutdowns. Commercial property industry participant Grant Atchison asks, “If you have a large workforce, can you separate them into different buildings and continue to operate during a shutdown? That’s going to be a risk management element [for corporates]” — and this is something for retailers (especially food & beverage and other immediate goods & service providers) to consider. Again, this is a pre-COVID trend — corporates have been disaggregating their office portfolios and relocating components of their business to the “Parramattas of the world” — with long-term implications for retail businesses.
Previously secondary urban and regional centres are now prospects for new retail sites.
Office disaggregation and the relocation of other commercial activities has been complimented by the COVID-shift to working from home (WFH). Consumer and remote-worker relocations away from city centres — to suburbs and coastal and regional cities — compound implications for retail demand.
And this isn’t just a phase: in The Deloitte Global Millennial Survey 2020, more than 60% of respondents said they want the option to work remotely more frequently, even after the pandemic fades.
Additionally, towns in NSW like Orange, Dubbo, Wagga, Tamworth, Bathurst have prospered from local tourism whilst international borders are shut. This enhances their development as regional centres, and likely destinations for ongoing migrations of remote workers and other consumers from major cities in the coming months and years.
eCommerce, digital marketing & new technologies
The importance of eCommerce, digital marketing channels and new tech adoption can’t be understated for many retail businesses.
IBM’s 2020 U.S. Retail Index reports that COVID-19 has accelerated the shift to digital shopping by roughly five years.
The question is how do retailers ensure their lease arrangements are best-suited to complement their digital sales mechanics, and vice versa?
Growth of eCommerce
With seismic shifts brought about by COVID-19, online hit 12% of total retail for the month of March, according to the Australia Post 2020 eCommerce report. They anticipate online to now hold approximately 15% of the total retail market. According to Leighton Hunziker of Savills Australia, this shift to online sales may have been equivalent to 4 years of historic growth (and while some will revert, some will remain sticky to online channels, which should continue putting downward pressure on retail rents overall).
Specific industry beneficiaries of this growth in online retail have been wine and liquor (sales reaching over 160% YOY in March-April); fashion (reaching highs of 100% YOY), entertainment, self-improvement and DIY.
Whether it is streamlining the online user experience, improving the supply chain or adding more tech-minded people to your team, ecommerce must be a priority for the year ahead. This is reflected in the growing share of digital ad spend.
Estimated percentage change in 2020 ad spend versus 2019 (Source: Shopify)
What does this mean for smaller, or fast-growing retailers? Getting the eCommerce side of your business up to scratch can be daunting, but 2020’s proliferation of self-service online commerce platforms (fast to setup; don’t require developers & consultants) has shown us how quickly small businesses and entrepreneurs can digitally pivot their businesses. There are affordable options for your first eCommerce store worth considering.
Social commerce generally refers to ‘native’ shopping experiences on social media platforms. Instead of clicking through to a third-party website, users can make purchases seamlessly from inside the social media app or site. This sales channel is growing, with 2020 yielding a partnership between TikTok and Shopify, an expansion of Snapchat’s Native Stores for brands, and the introduction of Facebook Shops.
Technavio recently reported that the social commerce market is poised to grow by $2,051 billion during 2020–2024, progressing at a compound annual growth rate of almost 31 percent. And regardless of where sales take place, social media will continue to introduce many customers to brands. For many retailers, it’s an important one to look at.
Other giant digital marketplaces — like Amazon — also continue to grow in importance.
Half of all global ecommerce sales occur on marketplaces, compelling brands to participate.
And this is getting easier, with Amazon just having introduced more tools for brands to build unique brand identities — so you can present to your customers in the way you want.
According to Influencer Marketing Hub, the influencer marketing industry was expected to reach $9.7B in 2020.
Many retailers have a content problem — they’re unable to create enough content at scale to support their marketing efforts. “In 2021, a trend we will see is brands looking to influencers as content creators to support the content creation process in lieu of a content agency,” according to Jordie Black of ZINE. But what does influencer marketing mean for fast-growing or non-eCommerce-based retailers?
Influencer marketing used to mean ‘manicured selfies, carefully-crafted captions, and heavily-edited product shots’ but we’re now shifting towards more authentic, raw expression: ads that aren’t over-produced; ads that prioritise entertainment, education and more.
And the new ‘non-fancy’ of a lot of influencer marketing does mean lower production costs!
Even if their audience is relatively small, campaigns with ‘micro-influencers’ who authentically align with the values and beliefs of both your brand and your customers can yield results.
So, how can retailers implement some influencer marketing of their own to boost sales? Digital agency CoreDNA advise the following:
- Make a list of local or micro influencers that share your brand value.
- Build a relationship with them by helping them to grow their audience first and/or providing free merchandise.
- Give them the freedom to create the way they want to create.
- Pro tip: Take advantage of NEW features on social media platforms since the algorithm rewards the adoption of these new features. For example, Reels on Instagram get more organic reach than regular posts or stories. So, every time there’s a new feature, get on the bandwagon and experiment.
One of the main formats influencers engage with their audiences through is live-streaming: Interactive Advertising Bureau recently reported that
From a media mix perspective, video will be 2021’s most important medium for influencer partnerships. With changes to brick-and-mortar footfall, there’s a growing place for customers watching others try on apparel or test out gadgets through video.
Video, AR and VR
In a global survey from 2019, 51% of consumers said they’d be willing to use Augmented and Virtual Reality (‘AR’ and ‘VR’ respectively) technology to assess products. And while AR in retail isn’t new (Facebook bet big on it in 2018), it’s gone from a nice-to-have to a more central part of some retailers’ ecommerce offerings — especially post-COVID.
And this isn’t just for big brands:
Shopify AR for example is an easy-to-use toolkit for businesses to create their own AR experiences to showcase their products to customers. And it works: Shopify reports that interactions with products having AR content showed a 94% higher conversion rate than products without AR.
A prime example of AR experiences are virtual fitting rooms. Head of Products & Resources at US-based services company Cognizant Technology Solutions VP, Rohit Gupta, explains
“Since AR, AI and VR innovations can address some customer concerns around health and hygiene, we will likely see an increase in the adoption of such technologies”. Apparel brand Knix worked quickly post-COVID to develop a low-fi version of a virtual fitting, so shoppers could still find their proper size without a store to visit. Customers select a date and time for their 20-minute consultation, an appointment is set, and on the day of the virtual fitting the customer receives a reminder message introducing them to their “Knixpert” (in-store associates who had been redeployed to digital). 97% of all time slots to date have been booked by customers.
Beyond apparel, there are other AR-enabled ways to ‘try before you buy’, which are increasingly practical for retailers to implement, and increasingly demanded by consumers. For instance, sales can happen in a virtual environment — Knix hosted a virtual warehouse sale that was hugely successful. They created a distinct, branded virtual storefront with Shopify Plus. And just as their physical warehouse sales focused on the experience of hunting for and finding great products, the virtual site was designed to recreate this excitement. They used 100% unpaid social and email promotional tactics to let customers know about the virtual warehouse sale 48 hours in advance, and achieved the following:
- 35,000 people shopping at once within 10 minutes of the sale going live
- Handled 5,000 customers in checkout simultaneously
Knix still know the value of their retail space (including warehouse and other larger-format retail environments) — and they’ve added VR eCommerce to support it.
Other retailers are also seeing the value of video consultations as a sales tool: whether a consumer is buying a car, furniture or upscale clothing, it’s an intimate way to start a conversation that may end in-store. AR & VR are increasingly going to be part of omnichannel offerings in the ‘new normal’ for retail.
Smart Speaker shopping
As of 2018, 27% of the global online population was using voice search on mobile. Around 20% of smart speaker owners now use them for shopping activities, such as ordering products, conducting product research, or tracking deliveries. This figure is expected to jump to 52% within the next four years. Alexa, Google Home and other smart home assistants are increasingly relevant for retailers when considering search and fulfilment.
Chatbots are projected to save the retail, banking and healthcare sectors over $11 billion by 2023. 24/7 availability, proactive assistance (with the ability to pre-program responses, apply machine learning) and the ability to transfer customers to real-people, are some of the benefits offered by chatbots. Other solutions designed to pull answers on-demand and share information proactively are FAQ pages, knowledge centers and Visual IVR technology.
AfterPay and other payments innovations
More payments options and ‘buy-now-pay-later’ services like Afterpay, Klarna and Splitit, are another aspect of retail innovation maximising sales in-store and online. Now instead of being restricted to debit and credit cards, you can pay using mobile options like Apple Pay, Google Pay, Venmo, PayPal, and even cryptocurrencies. Biometrics is coming to remote payments as well, with Juniper Research predicting that mobile biometrics will authenticate over $2 trillion of sales by 2023, 57% of biometric transactions will be remote by then.
Importance of retention over acquisition
Rising competition for online attention has reinforced the value of keeping existing customers. Retention has overtaken acquisition and conversion as a top priority for many businesses. Subscriptions are one way to achieve this — and though just 15% of online shoppers receive products on a recurring basis today, 75% of B2C businesses will offer subscriptions by 2023. Also, launching a rewards program increases second-purchase likelihood by 47%. This can be enhanced by using limited-time points, discount codes, or even a countdown clock, and brand loyalists should then be turned into a sales force through referral programs.
Ethical and Values-Based Brands & Products on the Rise
Offering genuine transparency, or taking a stance on particular ethical issues, can be risky for brands, but when done right, it can build lasting customer loyalty, and most importantly, drive the bottom line. Retail brand’s support for the Black Lives Matter movement for example, however dubious in some cases, shows how political stances can be taken that fit-with and add-to brands.
According to the 2020 Edelman Trust Barometer Special Report, 58% of US consumers want brands to educate the public or advocate for racial equality and 60% want them to invest in addressing the root causes of inequality. Customers, particularly those of younger generations, appear to be more belief-driven and conscientious in their consumption decisions, preferring brands they consider supportive of social issues such as gender equality, climate change and more. Purpose-driven consumers — approximately 40% of all consumers — want products and brands that align with their beliefs, and are willing to pay a premium. Gen Z, now the largest consumer group, leads the trend.
In line with pandemic restrictions on movement, the ‘shop local’, ‘shop small’ and ‘shop sustainable’ movements have been given huge boosts across the board. And growth in the number of commercial retailers building sustainability and transparency in their business models is a trend that pre-dates COVID and will continue into the future. For food & beverage retail this may mean offering varied dietary offerings, from vegan and plant-based food to gluten-free options (likely to increase next year in the food retail industry). 72% of global consumers want brands to use sustainable packaging (many will pay a premium for it — with a focus on zero-waste, reused and recycled packaging, as well as reduced package sizes, and redesigned shipping cases.) Other trends include ReCommerce (second-hand) markets growing. It’s well-worth thinking about how you can build ethical impact into your retail business.
Downward pressure on rents in shopping centres, CBDs and elsewhere
Across all CBD property types, including office, retail and residential, there has been growth in vacancy rates in 2020.
There’s no doubt that CBDs were severely impacted by COVID-19. Business and consumer relocations away from city centres — to suburbs and coastal and regional cities have had implications for vacancy rates and rents. CBD and Shopping Centre vacancy levels increased marginally in WA for example, due to reduced customer foot traffic and subsequent reductions in turnover. And this presents opportunities for retailers who may benefit from CBD or shopping centre exposure.
This is even more relevant at the present moment when office workers are returning to CBDs — there is a buzz coming back to the cities again, even if it’s moving in fits and starts to some degree — and office and retail space high on the agenda. Ultimately many businesses and employees did miss the office, and that’s why for many, offices will retain a central role in corporate life — along with the retailers who service them. In mid-December, the public health order requiring employers to allow employees to work from home was repealed in NSW, while Victoria is slowly easing restrictions. In other states, most restrictions have been pulled back for some time.
Suburban shopping centres have generally recovered well, particularly smaller neighbourhood centres, which proved resilient throughout the pandemic period due to their strong reliance on everyday grocery and convenience. 2021 promises to stabilise sales and rents (and at a lower and more sustainable rental level).
Some of the rents for retail tenants in shopping centres are the lowest they’ve been for decades — there’s plenty of opportunity for aspirational retailers.
Better conditions for retail tenants generally can be expected in 2021 as office workers, students and visitors slowly return.
We hope this has been an instructive read for Aussie retail businesses looking at what to do for the year ahead. If you have questions about how to optimise your leasing situation, win rent reductions, or relocate (in order to help your bottom-line!) — don’t hesitate to get in touch.
Director, Tenant Leasing Group
Phil has 25+ years experience advising and representing tenants on retail, office, industrial, large format retail, healthcare and other commercial property leasing.
A trusted veteran, Phil knows how to work negotiations in the tenant’s favour. He builds relationships directly with founders, business owners and senior executives to help optimise their business property situation.