October 31, 2017
The Business of Fashion
Measuring Retail Beyond Sales Per Square Foot
BOSTON, United States — On Saturday morning at the Boston Seaport’s grassy common space, a group of people gathered for a free boxing bootcamp class taught by Edwin Frias, a local boxing coach and Lululemon ambassador. The athletic brand’s new store location in the Seaport’s evolving $600 million retail and residential space, One Seaport, isn’t opening until next month, but Lululemon is already forming bonds with a community of people, over 600 of whom have shared their experiences on Instagram with the hashtag #SeaportSweat.
“How do you quantify what that means on ROI?” asks Samantha David, chief operating officer of Boston-area development company WS Development, that is heavily invested in the Seaport. “On a very local level, you’re seeing it convert to business. You’re seeing it convert to people walking in and out, and that traffic and conversation rate is a really important metric. It doesn’t have to go to overall sales.”
Indeed, as the industry reconsiders and reimagines the role of physical stores in a digital world, how retailers and retail-real estate owners measure the value of these stores is starting to shift. Traditionally, the primary measure of retail performance has been sales per square foot. Lease agreements, typically 5 to 10 years in length, take a percentage of sales revenue after a certain threshold of sales is reached.
But the internet has completely rewired the purchase journey: if a consumer comes into a store, tries something on and then buys it online months later, does that count as a store purchase? If an in-store event involves sharing personal data with the brand instead of sales, does that not bring value to the brand’s marketing strategy?
The model does not work anymore, to assess the value of this store investment solely based on this old pro forma Excel sheet that we have.
“Brands are probably already starting to think that way and say to themselves — the model does not work anymore, to assess the value of this store investment solely based on this old pro forma Excel sheet that we have,” says Jeremy Bergstein, president and chief executive of brand retail innovation agency The Science Project, which works with brands such as Uniqlo, Nike, Simon Malls and Estée Lauder.
Retailers must measure multiple points of the customer journey, he says — such as store visits, online sales, social media content volume, how many times an item was picked up off a store shelf, how often an associate was asked a question about a product, if the experience was positive or negative — instead of just one. “The journey is the big unlock, and having marketers and designers interpret the data so it is usable is really the only way to do it,” he says. And how that data comes together is unique to each brand’s individual goals, whether that be regional sales impact, data collection, marketing or fulfillment.
“It’s embryonic, but we are absolutely thinking about it,” says Skye Fisher, general manager of strategy and product development at Australia’s QIC Global Real Estate. She says sales per square foot will still be the key metric for the next three to five years. While the company has always tracked traffic and visitation (logged through WiFi), it now sees where customers are spending the most time through heat mapping and conducts “ethnographic qualitative research” by, for example, asking consumers about their sentiments about the shopping spaces.
“In the past we’ve measured the draw of our assets by visitation,” Fisher says. “Now we are talking about it as a network.” Data from the Australia Post and DHL, which control the delivery market in the country, helps QIC evaluate where those store networks overlap.
Even with all these data points, Bergstein says there is currently no standardised system to evaluate the disparate points of data. “All the data is there, it’s just how you present it… That’s one of the places where design has its biggest task. The first generation of infographics didn’t really fulfill how to show a path of attribution for a customer’s journey. A lot of it is storytelling.”
Increased burden is also falling on retail-real estate owners, who are more incentivised than before to design compelling mixed-use shopping destinations that draw people in for food and dining, exercise or leisure, in addition to shopping. “It’s rare for shopping centres to be able to access this level of detailed information because so many of them are inheriting store leases,” says Frédérique Jungman, project manager at UK property developer Argent, which is redeveloping London’s King’s Cross to include 500,000 square feet of retail and leisure.
Retail leases for the development, which is scheduled to open at Coal Drops Yard in October 2018, mandate that brands report net sales each week, which will be used for internal performance tracking and also anonymised and shared with other brands to hopefully incentivise them to sell more. In the UK, retail leases include periodic rent reviews at which point the rent is adjusted to the market rate, and oftentimes, both parties have the option to end the lease early. “Sales alone are not a sufficient metric for tracking performance,” says Jungman. “The rents are actually going to be a better metric as demand starts to increase.”
Globally, retail leasing and rental models remain largely unchanged despite the shifting functions of stores, according to a 2015 report from the International Council of Shopping Centers (ICSC), in which retailers and real estate owners described the system as “working, but creaking.”
The report proposes leasing solutions including a fixed rent model, a base rent with no additional performance metric; a base rent with an expanded performance metric that includes percentages of different kinds of sales that, for example, are in-store e-commerce orders or placed in a certain geographical region; an expanded use of the European outlet store model, which has a lower base rate and a higher sales percentage and involves more risk sharing between real estate owners and brands; or a new performance metric based on “operational management” performance, including customer service.
Leases could also include “virtual square footage,” which, as Bergstein explains, could allow a real estate owner to sell spaces at a higher price by including an “incredible CRM system that has customers that we know are going to come to your store because we market to them.”
All of these proposed solutions have inherent challenges, the most significant one being that retailers are “reluctant to provide non-store sales data” to real estate owners, according to the report. Fisher says data sharing has increased in recent years. “That transparency is growing for us,” she says. “We are very conscious of developing these spaces together. We are no longer tenant and landlord — we haven’t been speaking about it with that vernacular.”
We are not going to get so bogged down in this one four wall [space]. It’s about overall health of the property.
“It is something that we talk to our retailers about a lot, and I don’t think that anyone is going to get to a point where, if someone walks into a store and sees something they like and go home and buys it, no one’s ever going to know about that,” says David, adding that data sharing at WS’s properties is also becoming more normalised. “We are not going to get so bogged down in this one four wall [space]. It’s about overall health of the property. Are people coming? Are people spending time? Are people coming back?”
“Some of this stuff is and always will be a balance between quantitative and qualitative,” says Bergstein. “New models of value are being built with digital in mind, but it is requiring cooperation and integration from everybody, from data to marketing to real estate, to really understand how this is all coming together… The [sales] metric is broken, you can certainly start with that.”
Editor’s Note: This article was revised on 25th October 2017 to clarify that the retail and residential development at the Seaport is a subsection of the neighbourhood called One Seaport.