The Impact of Online Shopping on Cities
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-and-drive, 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.