With the moratorium on unpaid commercial rents ending last month, both landlords and retailers will want to make up for lost time. Consequently, many will wonder if there been any progress in the way retailers measure physical store performance and whether this will have a positive impact on landlord rental income.
Savills has been tracking sentiment among store managers for the last five years and, between 2017 and 2019 (in other words, pre-Covid), only one in five stores (19 per cent) claimed to receive credit for an online sale in their local area.
However, in our latest sweep of approximately 3,000 store managers across our UK retail portfolio, it appears that the physical store still remains under-appreciated in terms of its contribution to ecommerce purchases.
Only 15 per cent of stores say they receive a credit for an online purchase in the store’s immediate area, compared with 19 per cent pre-Covid. Electricals stores have seen the biggest drop – 11 per cent credited for an online sale in their area vs 29 per cent pre-Covid. Conversely, opticians were most likely to receive credit for an online sale (30 per cent of stores versus 6 per cent pre-Covid) - an interesting statistic given this is a service that can’t be provided online.
However, despite this apparent lack of recognition in the omnichannel sale process, physical stores across all categories are being more protected from the impact of returns. Nearly a quarter of stores (23 per cent) have refunds for online purchases deducted from their store turnover, down from nearly two thirds of stores (63 per cent) pre-Covid. With product returns costing UK retailers around £60 billion a year, this will provide some much-needed relief.
Given the collaboration that was required for both landlords and retailers to survive the pandemic, it is surprising that the two sides have not developed more cohesion on this issue, especially given the move toward turnover rents (and the concessions).
It remains that landlords need to further interrogate retailer sales to ensure that turnover leases are capturing sales through the various channels as this can often be significant. Despite all that has happened within retail in the last two years, there still needs to be greater engagement between landlord and tenants and an acknowledgement of the role the physical store plays, as well as transparency on all sales generated from this.
With the rent moratorium having expired, the next few months will test relationships further and honest communication with landlord and tenants working together will be key. But as online retail becomes increasingly complex (as well as costly to maintain), some joined-up thinking around how to create a fairer system between landlords and retailers could solve some of the complexities facing both parties.
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