After a year during which brand spaces have shown their media value to businesses brave enough to innovate, will the ‘content hub’ continue to define retail?

Received wisdom would suggest that 2021 is not the year to be reinvesting in your physical retail presence. The last 12 months set new records for store closures (11,157) in the US according to real estate data analysts at CoStar Group. At time of writing the year-end totals aren’t yet out, but eMarketer’s last forecast had US e-commerce sales at $794.5 billion in 2020, up 32.4 per cent year-over-year. With many behavioural studies finding that consumers intend to keep up their online habits post-pandemic, now would surely be the time for brands to throw all their eggs in the digital basket?

That’s not quite true. If anything, for those who dared, 2020 was a true demonstration of the power of the ‘halo effect’: the idea that brick-and-mortar spaces contribute often-unaccounted-for sales and brand-building value across other channels.

US e-commerce sales at $794.5 are up 32.4 per cent year-over-year

With waves of lockdowns disrupting in-person business, finding ways to use otherwise mothballed physical spaces to support digital footprints became vital. Businesses as diverse as department store Selfridges, luxury label Gucci, hotel chain Marriott and countless bar and restaurants operators all found inventive ways to turn their locations into stage sets from which to broadcast a whole range of media. That helped keep them at top of consumers’s minds for when they can finally return, and to push new home-delivery and concierge services in the mean time.

The AMO-designed Off-White flagship anticipates a less transactional future for physical retail.

Beyond profitability

Alone, such experiments are not reason enough to support the capital costs of operating a physical outpost, but in a post-pandemic world where online and delivery have even greater presence, they reinforce the idea that analogue space can pay a digital dividend. Thinking of the store primarily as a media channel isn’t new, of course. Pre-pandemic it was one of the key reasons strategists cited when trying to convince brands that shifting to online-only storefronts wasn’t always the answer. Indeed a 2018 study by the International Council of Shopping Centers (ICSC) found that when a retailer closed a store in a market with balanced consumer demand, it lost 10 per cent in digital sales in the same market. On the flip side, established brands received an average of 37 per cent more web traffic with each additional store they opened.

Store intangibles go beyond the transaction toward the role that they might play in supporting communities

That uplift could be even greater once the world remerges. In a recent COVID-recovery white paper, management consultancy Ernst & Young urged clients not to focus on pure profitability when assessing which locations remained viable. ‘Store intangibles go beyond the transaction toward the role that they might play in supporting communities, generating employment and contributing more broadly to the goodwill and long-term value that a retailer seeks to generate,’ argues Louise Keely, a principal at the management consultant.

Mercedes’ Studio Odeonsplatz project is a 'content hub' that collates, displays and distributes a variety of different media.

We’ve already seen brands start to preempt that future, such as in the AMO-designed Miami flagship Off-White launched last summer, which flexes between fulfilment centre, store and event space. Even more anticipatory is Mercedes’s Studio Odeonsplatz venture in Munich. Billed as a ‘programmatic brand experience space’, the venue will act as a content hub for hosting projects by creative collaborators, with an in-location app that delivers bespoke digital media. It also offers by-now-obligatory hospitality and co-working services, while you might also bump into a car or two. Really, it’s a place for the brand’s digital content to materialize for a local audience, while also serving as a generator of new assets (and social posts) that can be broadcast across other channels.

Measuring up

Understanding the true value of the attention these hybrid spaces drive is the next hurdle. ‘The halo effect has been proven in isolation, but brands and retailers need more concrete evidence around its impact on customer lifetime value,’ Benjamin Laker, Professor of Leadership at Henley Business School, said in a recent Forbes column. ‘This can be empowered by a mix of customer-facing, experiential technologies, and behind the scenes analytical capture.’ The phase shift to e-commerce might eventually make the commercial imperative behind such content hubs pretty clear, as retail expert Doug Stephens pointed out when speaking to Retail Dive. ‘With digital-media costs bound to rise as retailers flood the market, and commercial real estate prices falling, rent will actually become a more economical form of customer acquisition,' he explained.

Brands need more concrete evidence around the halo effect's impact on customer lifetime value

Landlords are also struggling to account for the increasingly distributed value of their real estate. In the UK some food retailers might soon have to share the huge profits they’ve seen from the online shopping boom with building owners. Data specialists CACI have developed a new leasing model that accounts for the ‘online halo effect’ of a physical store as well as till receipts when calculating rent, combining footfall, boosts to online sales after a store opens, the value of items bought online and picked up in store and on-site sales. ‘It can feed into the Deliveroo aspect,’ CACI retail managing consultant Chris Lidington tells The Grocer. ‘Co-op, Waitrose, they do Deliveroo. That means the location is providing value through an additional sales channel.’ It’s not all bad news for commercial tenants; the trade-off is that they receive a significantly lower base rent. That seems like a compromise that could keep physical brand spaces not just afloat, but buoyant, well into the future.