Envisioning the New Normal: Real Estate + Technology: Part 4: Retail

The disruptive impact of the COVID-19 pandemic has taken a particularly severe toll on the brick and mortar retail industry, where the work-from-home solution that has helped many businesses survive is incompatible with an in-store or in-restaurant customer experience that justifies maintaining physical stores. While some “essential” retailers such as grocery and home improvement stores have been generally thriving over the past few months, many retailers have liquidated, scrambled to create an online presence to stay competitive, are aggressively downsizing or face a very uncertain future. Locally-based restaurants have been hit particularly hard; consequently, it has been predicted that up to one-third or more of local restaurants in the U.S. may never open again. Even with indoor and outdoor dining permitted in many jurisdictions, the return of customers to restaurants has been slow and generally disappointing to business owners. For retailers who have managed to maintain operations, questions abound:

1. What are the specific risks that need to be addressed by brick and mortar retailers?
2. How can these risks be mitigated with added safety practices for customers and employees?
3. Will any e-commerce or new technology initiatives help to improve the situation?

General Challenges for Brick and Mortar Retailers

For brick and mortar retailers, the risks presented by COVID-19 are heightened given that face-to-face interaction is intrinsic to this form of retail experience yet the frequency and duration of close interactions must now be limited. The behavioral tools and social distancing regimes implemented across different jurisdictions are now well-known (face coverings, social distancing, frequent disinfecting and hand washing, etc.). Despite all of the guidance and precautionary measures, fear prevails in the psyche of many shoppers and is dampening efforts to reopen the U.S. economy, particularly for retail stores and restaurants. In order to survive, in-store retailers will have to incentivize shoppers to return to their stores and should give top priority to maintaining a clean and spacious environment that makes customers feel safe and, even more importantly, communicating store cleanliness to customers who have yet to return to the physical marketplace.

Similarly, in the UK, foot traffic has slowly but steadily been increasing week over week as lockdown measures are tentatively eased with “non-essential” retail reopening. This suggests that consumers may be starting to adjust to the new retail experience, albeit a more challenging one in city centers where a large portion of the office workforce remains at home. Additionally, in order to combat this sluggish return, the UK Government is trying to assist brick and mortar retailers by mandating face masks, cutting VAT from 20% to 5% through January 12, 2021 on hospitality, accommodation and certain attractions, and launching an “Eat Out to Help Out” scheme whereby discounts of up to 50% off dining out from Mondays to Wednesdays (up to certain limits) can be offered and such discounts can be recouped by restaurant owners from the government. The impact that these measures and financial incentives will have in getting consumers out and spending in the economy remains to be seen.

Methods for Safer Shopping

To create a safer and more enticing shopping experience, solutions like touchless payment options, enhanced drive-through, take-out, curbside pickup and online or on-app ordering should be utilized as much as possible along with other technologies deployed to limit hand-to-surface contacts and personal proximity. Customer and employee temperature checks are increasingly common and are being used by large and small businesses alike. Some suggest that enhancing temperature checks to also include inquiring if customers are experiencing anosmia (the loss of sense of smell) may greatly increase the effectiveness of health screening of customers. Advance reservations and spaced floor markings should be encouraged to avoid crowded waiting areas, and physical barriers and partitions should be installed where customer-to-employee interaction is necessary.

E-Commerce

In addition to efforts made to attract customers back into stores, many brick and mortar businesses are turning to digital retail platforms to address the loss of foot traffic and new buyer purchasing patterns. The growth of online shopping is nothing new, with e-commerce steadily increasing worldwide over the past decade. However, faced with restrictions impeding physical interaction and some customer reluctance to enter stores as a result of the pandemic, businesses are finding it necessary to have an omnichannel model that includes e-commerce (i.e., website, mobile app and multi platform social media presence). With millions of people globally under some form of a stay-at-home order during the initial stages of the pandemic and with major supply chain disruptions across several sectors, online shopping has become a critical source for purchasing food, apparel and entertainment and has been a disruptive change, forcing even older generations to embrace technology and online shopping for the first time. Fitness operators have also moved to online classes and personal training sessions, and the medical industry has successfully pivoted to telehealth medical appointments.

Even with the lifting of stay-at-home orders and re-opening of brick and mortar stores, many consumers may likely continue to prefer at least a partial online experience as a safer alternative to dine-in service and visits to the mall, shopping center, gym or doctor’s office. Through websites and mobile apps, retailers can provide customers with the option for curbside pickup, “click and collect” at a physical location, and contactless ordering and payment. A digital platform can even be used as a means to encourage the customer’s return to a physical store or restaurant by advertising the specific measures taken by the retailer to minimize the risk of infection transmission.

Although e-commerce is a valuable tool that can provide a safer and more seamless purchasing experience in the wake of COVID-19, expanding into the e-commerce marketplace necessitates increased attention to ensuring the use of proper safeguards to protect customers’ personal information.

Over the longer term, even after the discovery of a vaccine, the behavioral changes that have been set into motion by the pandemic could have lasting impacts on the retail industry, further solidifying the importance of transitioning to an omnichannel model and maintaining and improving upon the e-commerce experience in retail business models.

New Technology: The Silver Bullet

Many are hoping that Proptech investments will help navigate and mitigate some of the challenges faced by brick and mortar stores and the adoption and implementation of e-commerce platforms. Retailers may leverage some of the same technologies that office tenants and owners will be deploying, including antimicrobial coverings, partitions, air quality sensors, UV light and upgraded filters in HVAC systems, robotic cleaning and increased ventilation.

While these measures may help ease the fear factor, the constant interaction involved in retail stores and restaurants will influence retailers to adopt additional technologies such as a mobile app with integrated menus and ordering, text alerts for table and food readiness, mobile wallet payments, a self-checkout app, chatbots, robotic inventory replenishment, magic mirrors, smart shopping carts and dispatch delivery systems for home deliveries. Essentially, Amazon’s checkout-free store model will be accelerated and duplicated. Until now, many retail technologies were geared towards urging and helping customers make online purchases, such as visual searches and virtual reality apps that allow clothes and furniture to be visualized on the person or in the home, but the COVID-19 health crisis is putting the pressure on more and more brick and mortar retailers to bring these technologies into the everyday store experience. Lowe’s, for example, uses “HoloRoom” to allow in-store customers to view their products in 3D and AR simulations, and “HoloRoom How To” to teach customers home improvement skills through virtual reality. Nike opened a flagship store in New York City that allows customers to arrive via a dedicated entrance to a reserved locker that can be unlocked via smartphone and try on shoes and other items already reserved online. Other retailers are seeking to enhance the online experience by providing real-time advice on the customer’s potential purchase in order to increase customer satisfaction and minimize return rates.

This new technological frontier is quickly evolving, with the nimblest of retailers adapting and surviving to cement their positions amongst market leaders. This will invariably be a challenge for some retailers as they grapple with increased costs to implement enhanced health and safety regimes and technology while also having the fixed costs associated with being a brick and mortar retailer. Landlords and tenants will also have to collaborate and think creatively about rent and other costs in order to help one another succeed in the post-pandemic world.

An Exit Strategy: Adaptive Reuse

If the post-COVID-19 business climate will mean that certain retailers simply cannot return to operating a profitable business, no amount of health safeguards or online shopping options will matter. For those situations where it is too late to restore the business and return to some semblance of normal operations, some retailers and other owners of retail properties will be in a position to consider a creative, adaptive reuse. Over the last few years, adaptive reuse has become increasingly common and COVID-19 will surely accelerate this trend.

Many stores that were struggling to survive the retail decline that predated and was accelerated by COVID-19 may evolve with the new retail, healthcare and industrial landscape and embrace new forms like grocery store warehouses, ghost kitchens, retail health centers or last mile distribution facilities. The possibilities for retail use repurposing are endless, and creative owners with a forward-looking attitude and willingness to adapt will be well-poised to capitalize on it.

Part 5 Preview: Student Housing

The next article in our Envisioning the New Normal: Real Estate + Technology series will focus on the student housing sector. The COVID-19 pandemic has been uniquely challenging for owners and operators of student housing assets. Initially faced by an onslaught of occupancy and leasing questions as COVID-19 forced schools across the country to close unexpectedly, managers of student housing are now faced with even more questions as the fall season approaches. How can living and common spaces be modified to bring students back safely? What can owners of student housing assets do to efficiently and effectively manage large portfolios in the context of everchanging local and federal reopening protocols? COVID-19 has forced all operators of student housing facilities to think through these tough questions, and many have used technology to help find solutions.