Thinking about investing in a retailer? Implement a strategic real estate plan first
May 20, 2016
PitchBook Dealmakers Column
E-commerce retail sales continue to grow, but only about 7% of all U.S. retail sales occur online—a stat that's a bit counterintuitive with the booming mobile economy but also underscores the importance of brick-and-mortar store fronts for all types of retail. With that in mind, the need for investors to develop a strategic real estate plan is imperative before an investment in a retail concept is signed. A well-thought-out plan of action helps determine the viability of an investment and also sets in motion real estate changes that will ultimately spur the growth for the retailer.
Often missed in the due diligence process is the opportunity to develop a blueprint for growth through the acquisition or elimination of retail space and leases. A “runway” needs to be designed to ensure enough new space is available for the concept to work in any area, whether that be in primary or secondary markets. Timely analysis of the existing portfolio of stores can immediately impact sales, with a boost coming from relocation even within the same retail complex. For portfolio optimization to truly take place, underperforming stores will also need their lease to be restructured, or eliminated altogether, especially as asking rents stay high among economic uncertainties.
Once an acquisition has been completed, the strategic real estate plan is likely to yield growth faster for both the retailer and investors.