DECISION POINT

Data drives efficient retail real estate decision-making

Making the right decisions with the right data is obviously something retailers strive to do in all areas of their business. However, when it comes to real estate, “getting it right” is even more critical. Unproductive or poorly located stores, excessively long or expensive leases, and unnecessary square footage can all have a devastating effect on the bottom line.

Even though the economy is showing signs of gradual improvement, retailers still cannot afford to make a poor decision when it comes to real estate. Pressure from the growth of omnichannel retail, which places new demands on how retailers design and manage their real estate assets, further adds to the need for correct decisions at all times.

Fortunately, there are steps retailers can take to ensure they obtain the information they need to make the decisions their business requires. Several noted real estate experts offer the following advice on how to get it right when it counts the most.

Spring Cleaning

Retailers are getting their real estate houses in order this year, so to speak. Andy Graiser, co-president and CEO at A&G Realty Partners, said the most important thing is for retailers to seamlessly tie in the brick-and-mortar experience with the online experience and ensure they maximize the ROI of their existing portfolio while carefully managing their growth strategy.

“Retailers are focused on the need to get it right — the right location, the square footage, term and rent,” said Graiser. “Retailers have been cleansing their portfolios in the past year and will continue into 2016. They need to get their occupancy costs in line with sales and get rid of unproductive stores where a rent modification won’t help.”

A&G has been working with RadioShack on closing roughly 2,000 locations as part of the chain’s Chapter 11 bankruptcy, in addition to working with Pier 1, Bebe, Office Depot, CVS, Kenneth Cole, Wet Seal and many more. A&G has seen its share of troubled retailers — representing Cache, Delia*s, C. Wonder, Alco and Dots.

“In many non-Chapter 11 cases, it is about healthy housekeeping,” said Graiser. Graiser offered some practical advice for retailers in dealing with their landlords. “Understand your landlord and his needs, know your facts, your properties and your business plan,” he said. “Sell the plan and rationalize your ask. With most of our clients, we have changed their approach with landlords and have achieved very good results.”

Growing Pains

Despite the rash of bankruptcies, retailers are growing again, but there are several factors they must take into account.

“Some retailers are still struggling, but more of them have returned to a focus on growth,” said Andy Thomas, president of real estate management software/services provider CoStar Real Estate Manager. “Internationally and domestically, many are growing store count.”

As a new service, CoStar Real Estate Manager, formerly Virtual Premise, pulls real estate price and occupancy information from CoStar Property (a parent company product) and integrates it with each customer’s real estate data.

One issue CoStar Real Estate Manager helps retailers deal with is the expected changes to the lease accounting standard by the Financial Accounting Standards Board (FASB) in the second half of this year.

“Changes will require tenants to account for leases in a more stringent way,” explained Thomas.

Expected changes in FASB regulations will require retailers to account for real estate leases on their balance sheets. This will also impact how retailers account for leases on non-real estate assets, such as trucks, trailers and POS hardware. “Retailers need the right data about their leases and the right system with which to manage all that data,” said Thomas.

In addition, the rise of omnichannel retailing is affecting retailers’ real estate decisions. “Retailers need to make sure they have the right locations and mix of stores and distribution centers,” said Thomas. “The dynamics of online retailing directly impact the retailer’s logistics and management of its real estate locations.”

Thinking Small

Today’s retailers have the ability to appreciate some of the smaller things in life. According to Mark Dufton, CEO of DJM Real Estate, a Gordon Brothers company, this is especially true when it comes to store space.

“Retailers are finding the smallest possible footprint they can operate in,” said Dufton. “They want a smaller, better mousetrap. Funding is the biggest issue. Retailers are becoming more selective when choosing real estate because they cannot afford to make a mistake in site selection.”

Another trend Dufton is observing directly relates to the impact of technology on how consumers shop.

“Retailers are changing the design of stores to align their brick-and-mortar strategy with their e-commerce strategy,” said Dufton. “They are incorporating how they deliver products ordered online into store design.”

In addition, Dufton said pilots of physical stores by pure-play e-commerce retailers like Amazon.com and Google could lead to significant changes in retail.

In serving customers, DJM Real Estate specializes in occupancy savings for retailers. This includes such services as lease restructurings, renegotiations and renewals designed to drive down occupancy costs, as well as pruning the least productive portion of a retailer’s portfolio and auditing triple net charges.

“A store that is not generating significant revenue may have an intrinsic value where it makes more sense to sell it,” commented Dufton.