Proptech’s Brick-and-Mortar Retail Moment
Vendors big and small are turning to technology more than ever to navigate some kind of post-pandemic recovery
By Philip Russo May 16, 2023 8:15 amreprints
To paraphrase Mark Twain, reports of brick-and-mortar retail’s demise are greatly exaggerated.
At least that’s according to proptech experts who spy a continued opening in bolstering on-site retail real estate through technology. These proptech firms are providing everything from foot traffic data to fundamentals for new sites to software for building stronger retailer-customer relationships.
The closer relationship between proptech and stores is coming at a pivotal moment.
Online retail sales now represent 20 percent of all sales worldwide, with e-commerce purchases projected to grow to $6.3 trillion (yes, trillion) in 2023 from $5.7 trillion last year.
However, e-commerce sales alone are not the answer for retailers, said Ethan Chernofsky, senior vice president of marketing at Placer.ai, a Los Altos, Calif.-based consumer foot traffic proptech company.
“The Placer.ai perspective is seeing the value of brick and mortar,” said Chernofsky. “Online is an amazing, thriving, growing, evolving ecosystem, but there are fundamental limitations. The worst-kept secret in online-only is that it’s not profitable at scale.
“I think most brick-and-mortar retailers will tell you something very similar about digital: You can’t ignore it. You must have a digital strategy. We’ve entered into a phase where it was brick and mortar, then it was online, and now it’s online and brick and mortar being used together. The retailers that are going to thrive over the next decade are going to be those who master the pulling of the levers of those channels for their specific audience.”
As a data company, Placer.ai tries to aid retailers in their location decision-making, and contrary to the “exaggerated retail apocalypse narrative,” many of them want to expand their brick-and-mortar presence, Chernofsky said.
“So the retail apocalypse narrative was Sears, Kmart, these retailers that we know and have massive numbers of locations, they’re shutting down completely and online e-commerce is growing,” he said. “Put two and two together: Brick and mortar is dying. That narrative is fundamentally flawed, even though it’s based on kernels of truth.”
Advising retailers to understand the benefits and drawbacks of physical stores and online selling is a key to the sector’s health, said Lee Jackson, senior vice president of digital solution advisory at brokerage JLL.
“I think the power of a brick-and-mortar network is that it creates the opportunity for endpoints and you have the opportunity to have brand recognition,” said Jackson. “You can fulfill orders through stores and save money on shipping returns. This is an efficiency play. It’s rapidly becoming equal or cheaper to acquire customers through those physical touch points.”
Post-COVID population migration, mostly from cities to less urban areas, is a big part of the growing viability of brick-and-mortar retail, he added.
“You’re seeing people move from one side of the country to other parts,” Jackson said. “The Sun Belt states are certainly the beneficiary of some of that movement, and places in the Northeast and urban centers are facing the headwinds of that movement. As far as what proptech is doing to help, it’s helping people to understand that migration data at the most granular level, and, as you reach a stabilization of what those markets are going to look like long term, it’s helping to tell that story.
“For those groups that have a collection of vacancies, proptech is helping them in the marketing-tech space with respect to inventory management systems and being able to better list and push those out to the market. Proptech is enabling the next wave of retailers who are going to occupy those stores.”
Jackson pointed to a current inflection point in which e-commerce retailers are expanding into physical sites to enable better distribution and brand awareness.
Many proptech companies are addressing these hybrid e-commerce and physical store functions, said Jackson. Those companies include Adeptmind, a product discovery marketplace software; Cineplex Digital Media, which does retail media network enablement; Spacewise, management platform software for short-term leasing, pop-ups and activations; Guesst, which provides software for creative leasing structures; Leasecake, a provider of lease, location and deal management operating software; and Optimy, which does chat and clienteling software to establish more meaningful relationships between the retailer and the customer.
The Toronto-based Jackson also pointed out how a few Canada- and U.S.-located shopping center landlords have integrated e-commerce sites into their brick-and-mortar malls, including Centennial REC (MainPlace Mall in Santa Ana, Calif.), Oxford Properties Group (Yorkdale Shopping Centre in Toronto), and Triple Five Group (Mall of America in Bloomington, Minn.).
“Retailers are investing in the technologies that allow them to have better discoverability of their products, whether that’s through search engine optimization, marketing efforts, or through clienteling tools that allow them to take a visit that shows intent on a website and convert it to a visitor in the store,” said Jackson.
An example of an originally online-only company seeing the value of brick-and-mortar locations is Allbirds, said Placer.ai’s Chernofsky.
“The CEO of Allbirds said they had a 150 percent larger basket size when someone comes into a store and then buys online, as opposed to going online first,” said Chernofsky. “What we’re going to see is more focused brick-and-mortar retail with retailers asking, ‘Can I be more efficient? Do I need 200 stores or accomplish the same thing with 180?’ ”
These retailers also recognize the benefits of a physical store, he said, including finding the right product to begin with. “All those things are more effective offline in brick and mortar. And so it’s how do I maximize the values of brick and mortar while still maximizing the values of digital?”
The growing desire for physical locations is also strong in the U.K., said John Hoyle, CEO at Sook, a London-based proptech startup he founded in April 2022 to provide flexible modular digital buildouts for commercial real estate, including brick-and-mortar retail.
“We make it really easy for brands to occupy spaces and create a bespoke environment that serves whatever it is that they’re trying to achieve,” said Hoyle.
Although to date only operating in the U.K., sook in its brief history has seen a growing interest in physical locations from online retailers.
“We’ve seen big demand,” said Hoyle. “Forty percent of online brands that don’t have physical spaces are looking to open space in the next few years. There’s never been more retail in the world than there is today. It’s just not in physical spaces. We’re helping landlords engage with a massive spectrum of occupancy that they’ve not been able to reach because they’ve been chasing the same, let’s say, thousand brands that have the right covenant strength that is good in terms of signing a 10-year lease.”
Sook can open up what Hoyle describes as a “wider pool” to customers, one that’s — pardon the pun — virtually unlimited.
“We’re seeing demand also coming from traditional retailers who want to rationalize their estates,” he said. “If you’ve got a 200-site portfolio, 10 percent of those shops will be complete dogs, and you don’t want to be trapped in a 10-year lease. You want to be able to reach customers and other locations at a fraction of the price and at the right time. We facilitate that.”
Philip Russo can be reached at firstname.lastname@example.org.