Academic journal article Journal of Real Estate Portfolio Management

Retail Leasing in the Web Enabled World

Academic journal article Journal of Real Estate Portfolio Management

Retail Leasing in the Web Enabled World

Article excerpt

Executive Summary. As retail marketing through the Internet expands, traditional retail showrooms will take on new roles in the collection of data for use in direct marketing efforts. How will successful property managers take advantage of total connectivity to assist tenants with the new modes of marketing? In addition, how will leasing agents and owners value physical space when many sales are redirected through other modes of marketing and distribution? These questions are addressed in this article with some speculation on how real estate owners will measure and capture the true value of physical retail space.

Introduction

As of 1999, the retail real estate industry is doing well with strong leasing activity and increasing rents. So why is everyone concerned about Internet-based sales? The reason is that none of us knows very well how fast this neophyte segment of the market can grow or to what depth the market share might reach in long-term equilibrium. Any retail property owner that is not concerned about the impact of web-based marketing is kidding themselves.

Internet-based marketing has become known as "e-commerce," one of many new words invented in recent years. Another recent term for e-commerce is "e-tailing." Those of us paying attention to the new media in the last few years know that previously optimistic e-commerce growth expectations have started to become reality. Firms like Amazon.com are proving that consumer demand can be supplied entirely through cyberspace media. Before Amazon.com existed, direct marketing accounted for some 12% of all consumer sales, mostly through catalogs and television based home shopping shows. Firms like J. C. Penny and Sears led the way in terms of direct marketing through catalog sales several decades ago to help capture demand from the geographically under-served and smaller markets. Others followed with more specialized product lines and today, The Gap, L. L. Bean, Lands End, Victoria's Secret and others are starting to transform some of their catalog sales into web-based sales.l Even traditional retailers like Nordstroms, Macy's and others are now starting to take orders via the web. Web-based marketing will continue to grow as a natural outreach for larger retailers leveraging off of their traditional instant gratification showrooms.2 Internet-based sales could easily reach 25% to 30% of the total retail market over the next few decades.3 So what is the problem?

The Problem for Physical Retail Space Owners and Managers

The multiple ways to disseminate product and pricing information presents a dilemma for the providers of physical space. Rent is a function of productivity, and productivity has typically been measured through sales per square foot. But the true productivity of a retail location will no longer be a function of only sales within leased physical space per unit of time. In the future, productivity and value must be a function of how that site enables the retailer to be more successful in serving customers independent of where and how they are served. Unless real estate owners can envision a process to measure retail site value in a world of both physical and virtual retail space, they will have no basis upon which to levy profit maximizing rental rates.

What Types of Products and Services Are Most Susceptible to Web-Based Marketing?

This question can be addressed from two directions, from the demand side or the supply side. Both perspectives are essential in order to fully comprehend the potential for web based retail marketing.

The Consumer Side. "In the not too distant future, we believe the fourth quarter shopping season of 1998 will be remembered as the time online shopping reached critical mass," stated Zona, a subsidiary of IntelliQuest. Zona research indicated percapita spending by the 50-54 age block grew a stunning 545%, jumping to $626 from $97 last year.4

There are several sources of demand that are uniquely suited to e-commerce. …

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