It is no secret that retail has been having a hard time. The perfect storm of online competition, business rates and changing consumer habits has conspired to make the high street a tough place to compete. Part of the issue has been the historic focus on three-dimensional physical space; part of the solution will be retail’s evolution into other dimensions.
The traditional retail model emphasised the need to find the right amount of space in the right place and to secure it with a lease of, for example, 15 or 20 years. If good tenants were secured, the asset would often largely look after itself and landlords would not have to get too closely involved in their occupiers’ businesses. As such, there was little pressure on stakeholders to consider retail beyond the three dimensions of the physical shop space.
One issue that is emerging with the traditional model is that it does not always allow retailers to adapt to keep pace with rapidly changing consumer demands and changing tastes. Instead, there is often a time lag between the change demanded by the market and the change that can be delivered within the traditional lease structure. This is where online retailers can have the advantage by rapidly changing their stock to meet demand, thereby harnessing the fourth dimension: time.
The current trend for shorter and more flexible leases is a reflection of the need for retailers to be able to change in as close to real time as possible. From a landlord perspective, while this approach requires a more hands-on approach it also generates the potential for a more fluid turnover of tenants and brand mix.
Working in the fourth dimension of time brings other advantages. There is a growing awareness that retail space can be made to work beyond the core shopping hours. At different times of the day, a shopping centre can be repurposed to provide different uses. For example, space can be used for retail promotions (such as pop-ups) or for family entertainment in the day and then be converted and used as an event/leisure space in the evening.
Retail success also often requires it to coexist with other uses. Our experience shows that where retail is used as part of a wider placemaking scheme it helps to reduce voids. Placemaking is the creation of a space where people both need and want to be. For example, if you take retail and add other dimensions such as food and beverage offerings, leisure, offices and residential, it becomes a place to shop, to eat, to meet, to work and to live – arguably a more robust and compelling proposition than retail alone.
The modern approach also brings a new dimension to the landlord and tenant relationship as parties recognise the benefits that can come from working together. This can take many forms. In terms of financial arrangements, the parties can agree, for example, turnover rent provisions or schemes for sharing the burden of business rates and service charges. Commercially, collaboration may involve sharing data to better track consumer demands and predict trends. This information can also be used in promotional and marketing materials not only to increase footfall and sales but also to understand how and when the physical space can be best utilised to the benefit of all.
While historically retail may have focused on three-dimensional space, it is clear that its future lies in embracing as many other dimensions as possible.
We will be discussing this at our one-off special event: ‘How to survive the retail apocalypse’ which takes place on 2 May at Boxpark, Wembley. Contact firstname.lastname@example.org if you are interested in attending.
Alex Coulter is partner, real estate, at Dentons UK & ME