May 29

Online Conundrum

Landlords and tenants grapple with how to calculate rents based on omni-channel sales

By Joel Groover

What would happen if a basic question in the shopping center business – exactly how much  money a store makes – became impossible to answer? Because of the rapid growth of omni-channel retailing, landlords need to start thinking about this disruptive scenario, some say. To understand why, consider the way the industry operated before the arrival of the Internet: While heavyweight chains sometimes negotiated do-not-report clauses, others dutifully divulged their sales according to the dictates of the lease. These numbers were straightforward and audible, because customers had only one way to buy things: they stood in line at the cash register and paid for their items in person. Landlords then used this sales data to calcite percentage rents, negotiate higher rents during lease renewals and pitch the productivity of their properties to prospective tenants and investors.

But today’s omni-channel realities threaten to overturn this decades-old paradigm, with potentially wide-ranging implications for the industry, experts say. “The entire purpose of the store is changing, and that means how we measure the productivity of a space – and ultimately, the productivity of real estate – needs to be very different as well,” said Melina Cordero, head of Americas retail research for CRBE. “It used to be simple – sales per square foot – but now it is much more complicated.”

Read the full article starting on issue page 129 here.