The advent of e-commerce has undoubtedly changed the way consumers shop . In a post-recession world where the majority of consumers are more price-sensitive , shopping online offers them the ideal way to compare prices and find the best deals online , irrespective of how and where they make their final purchase . That ’ s great news for the shopper – but what about retailers and landlords ?
Retailers are also mostly set to benefit from the scenario too by the look of it – if they play their cards right . Those who create both a physical and online presence can offer shoppers multiple ways to view , order , purchase and collect items . They might offer slightly lower prices online in order to compete with the generally cheaper prices that come with this channel , but then have multiple fulfilment options to make the lives of shoppers easier . Omni-channel and multi-channel options are increasing all the time , including online orders , click-and-collect , click-anddrive , and more .
Although the percentage of actual sales conducted online relative to those in physical stores is still fairly low ( typically below around 10 % on average , depending on the country or region ), there is one way in which they are starting to pose a threat to physical retail – and that is when it comes to the rentals that landlords receive from retailers . Shopping centre owners are starting to express concerns about the impact that online purchases are having on turnover figures in stores , and what it means for their bottom lines .
Do retail lease agreements need rethinking ? Although models vary slightly , retail lease agreements around the world are structured either on a base rental agreement , a turnover rental agreement , or a combination of the two . In Central and Eastern Europe , for example , retail lease agreements tend to be structured under an arrangement whereby the retailer pays the higher of either a base rent or a turnover rent , based on an agreed percentage of store turnover . “ As such , it is becoming an increasingly contentious issue as to whether retail purchases made online through a brick-and-mortar store should be included in the calculation of the gross turnover of that store and ultimately , the rent paid to the landlord ,” says a Colliers International Research & Forecast Report on CEE Retail for Q2 2015 . “ It seems logical that purchases completed online and delivered to the customer without including the physical store in the supply-chain should not be included ,” it notes .
The difficulty arises in trying to define the source of the sale . As the report states : “... With the advent of multi-channel and omni-channel retailing , online purchases can now be made through a myriad of retail channels . Examples include using a smartphone application or technology kiosk while in-store with goods subsequently delivered to the customer or collected in-store at a later time . There ’ s also the option to use click-and-collect , whereby the order is placed virtually online , not physically within the store itself , but it is later collected physically from the store . Additionally , there are retailers that allow online purchases to be returned in-store . What about goods that are advertised online , but acquired in-store ?”
How does one define which sales to attribute to a specific store and which not ? Should sales made from other store channels and not directly over the counter form part of the store ’ s turnover ? What about goods purchased by means of click-and-collect ? Even more confusing is the question of what to do when a retailer accepts a return of a product ( accompanied by a refund ) that was bought online and not in that store .
Coming back to rental models , one of the most common reasons for using turnover rental is that it allows landlord and tenant to share both the risks and the rewards in good times and bad . “ In other words , the use of turnover rents creates a situation of shared benefit to the landlord and tenant to operate under a common objective , which is to maximise retail sales turnover ,” says the Colliers study . In today ’ s more risky business environment , this has worked well for both parties to a large extent .
What does omni-channel retailing mean for the status quo ?
It then raises the point that the growing multichannel environment is complicating matters in this regard , creating a tenuous position for leases based on turnover rents . How does one account for sales which started online but are closed in store ? Or the other way around ? How does one determine whether a sale is in any way reliant on , or driven by , the online versus in-store component ? How does one deal with the question of returned goods purchased online , which reduce turnover figures ?
Despite the many benefits of using the turnover rental model – from both the perspective of landlords and retailers – questions are being asked about whether this needs revisiting in light of the impact of omni-channel shopping . While anchor tenants have typically benefited from no or low base rentals ( for many reasons , including their power to draw customers into the centre ), line shops typically come in for higher base rentals .
“ For owners / investors , the income generated by a shopping centre is derived primarily from a percentage of retail sales generated by anchor tenants , plus the rent paid by smaller in-line tenants . In CEE , anchor
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