Retail in 2017 - the year offline and online merge

Gustave Courbet - Bonjour Monsieur Courbet - Musée Fabre 1854

On the 2nd March 2011 Steve Jobs was on stage launching the iPad2. During his presentation he made the case for why Apple was not just another computer company. “It is in Apple’s DNA that technology alone is not enough — it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing.”

In 2017 you could transpose this quotation to read “It is in the Retail Markets DNA that the liberal arts, married with the humanities is not enough - it's by adding technology and data that yields us the results that make our heart sing.”

Yes the product is still of primary importance, and it is artistic and intensely human skills that are required to create goods people want to buy, but these alone are no longer enough. All of us need to know our customers better; who they are, what they like/dislike, what they buy, what they crave, when they shop, where they shop, and most importantly of all, what makes their 'heart sing'. That's a tough ask isn't it? 

Historically it has been nigh on impossible to understand our customers this well, at least since the era of Supermarkets and Shopping Centres put paid to people shopping in the same local shops every day and being served by the same person, who was probably a neighbour anyway.

Now, apart from understanding our customer deeply, we have to contend with the great elephant in the room, the online, virtual world. The old shibboleth of 'people like to touch things' has proven to be wishful thinking. Amazon is now the 4th largest clothing retailer in the US, online sales are growing multiples of times faster than in store, and it is likely that 20% or even more of all sales will be online in the UK by 2020. 

We have to acknowledge that most people, for most products, do not HAVE to come to a store to shop. Yes Click & Collect drives a fair amount of traffic to stores but this is just a temporary windbreak until the likes of Amazon crack same day delivery at scale. In the US Amazon have depots within 45 minutes of 25% of the population. Certainly within major cities, very fast delivery will be a solved problem within a few years.

So what do we do with physical retail? The answer is two part; first, the experience of shopping has to be exciting, stimulating and very agreable. The aim must be 'the liberation of dopamine'! This is the liberal arts and humanities side. Great product, environment and service. A friction free sensorial treasure hunt. An experience that cannot be replicated offline.

The second part is that we need to use technology, data and networks to understand our customers in such depth that we can personally tailor the experience our shops and centre deliver to each and every visitor. But how? Well in 2017 it is not 'Go West, young man' but 'go East', and look at China. In particular look at the incredible online behemoth Alibaba, who are involved with more than 80% of ALL online shopping there. 

In January they bought Shopping Centre Owner Intime, who run more than 30 mid-to-upscale department stores across mainland China for $2.6 billion. "Today we cannot just separate online and offline" said Alibaba CEO Daniel Zhang. This is like Amazon buying Hammerson and is a huge signal that big change is afoot.

Why would they buy, outright, 30+ shopping centres? Because they have realised online isn't enough and retailers need shops? Absolutely not. They have realised that the future of retail is where online and offline merge into one offering for the public. Zhang describes it as a networked distribution channel, that is a closed loop and data driven. E-tailer and retailer come together to be one. 

Imagine how accurate the profiling could be with the e-tailers knowledge of what people are buying locally, what the retailers have in stock, and the profiles of millions of individual users. Bolt on online payments in store, shared warehouses and a battle hardened logistics operation, and you have a 'data platform' that facilitates exceptional customer experiences.

This is Systems Thinking on a grand scale, optimising the entire value chain. Perhaps it is only Alibaba in China who are in a position to do this, but the underlying strategic imperative to create an end to end offering that is soft and flexible enough to cater for any number of whimsical customers is an idea to take to heart.

If you know what a customer wants, and also what is available, then you are in a position to create compelling reasons to visit your shop or shopping centre. To the shopper the experience is very human, very soft and pleasurable, but under the hood it is all about data. The more data you have and the more you understand the four V's about it (Volume, Variety, Velocity and Veracity) the greater the experience you can provide your customers.

Online and offline are merging to create something better than we have today. It turns out that technology and the liberal arts, just as Steve Jobs said, not only need each other, but together really can make 2+2 = 5.

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And how does this impact Agents?

So how does this merging of Offline and Online impact on Agents. If their Retail Property clients are morphing from being ‘Property’ people to ‘Data’ people how is that going to impact relationships? Will they even understand each other? Where does PropTech figure in all of this?

The answer lies in what PropTech, in fact all technology, is really there to do: remove friction and enable discovery. Wherever there is a kink in the road, or a bottleneck, that makes doing X harder than it should be (or you’d like it to be) then PropTech’s job is to remove that blockage. Where too much time is spent trying to find out Y, or the answer to Z, then you have a ‘discovery problem.’ You might put this down to information overload but what you are really experiencing is filter failure; the inability of your systems to break down your data, to understand it, and to return to you exactly the information you need, when and wherever you are.

Truth be told, PropTech is about making your company a technology company. In a similar way to how Alibaba boss Jack Ma says ‘We are a data company, not an e-commerce company’ Property Agents have to become, at heart, data companies. Sure, they can retain and exploit all their human skills, but what is their actual purpose? Buying, selling or leasing property is what they are paid for. And to do that they need to understand exactly what their asset is (far more than bricks and mortar), who they are likely to transact with, and why that entity is going to deal with them as opposed to someone else.  It should not be an accident that an agent introduces this property to that retailer. Serendipity needs to be engineered.

A great deal of data is in the public domain nowadays, but much of the really valuable data is in the hands of agents, even if many/most of them either do not realise this or do not have the tools (or inclination) to make best use of it. 

PropTech startups are desperate for the sort of data that agents leave lying around. At the moment agents are largely protected from ‘disruption’ because startups don’t have access to the data that could rearrange the real estate value chain. That though will not maintain. It is an ‘unknown unknown’ but something will occur to upend the apple cart. In business it always does. Either a data owner (one of the big surveyors) will partner with a startup to leverage their own data or they will build the capabilities in house. And when they do, this newly fangled technology company, that happens to operate in the real estate sector, will be enormously powerful and dramatically more competitive than the bulk of market players. 

The company that understands that they are in the data business, and that augmenting the human skills of their most capable employees is the way to out-compete their peers, will be a force to be reckoned with.

In my crystal ball disruption to the world of agency will come from within. When PropTech moves from being a niche silo to be being part of an agents DNA, feathers will be ruffled. 

Who will make it happen?

Antony

#SpaceAsAService and its consequences

JLL recently stated that they believe ‘up to 30 per cent of corporate real estate portfolios will include flexible space by 2030.’  I applaud them for saying something much of the industry does not want to hear, but I believe their prognosis is not nearly aggressive enough. For me, the numbers are likely to be closer to 30% by 2022 and 40+% by 2030.

Why? Because the commercial real estate industry is undergoing a structural change that will affect every facet of the market and reshape the entire ecosystem that has existed for 50 years or more. This change is not just a function of the natural, cyclical real estate cycle but a set of structural, fabric changes that are the by-product of a world where technology is leading to fundamental changes in how businesses operate, the work people do, and especially how and where they do it.

There are 5 technological ‘megatrends’ that are ‘the great enablers’ of all the change heading our way. And each of these are on an exponential growth trajectory. Indeed they are all hitting the uptick of the exponential curve. They are the ubiquity of 1990’s SuperComputers (aka SmartPhones) in everyone’s pocket, pervasive high speed connectivity, cheap and abundant Cloud Computing, billions of IoT sensors connecting anything that can usefully be connected to the Internet, and the rise of AI and robotics.

Combined these are reshaping demand. The very nature of the work we do is being reshaped to the point that we no longer NEED an office to ‘work’, or indeed a shop to shop. We may desire them, but we do not need them.

Which means the nature of employment is changing, and on-demand or in some other form, contingent work is becoming the norm for many people (perhaps up to 40% by 2020 say Intuit). In their Workplace 2020 report last year Google wrote ‘Flexible working will be the defining characteristic of the future workplace.’ and the bigger the company the more so. Companies employing over 6000 people will be 66% flexible by 2018’.

In this world, purchasing flexible space, Space As A Service, becomes an obvious response for individuals and companies. And just as it is technology that changes behaviour, not the other way round, so it will be that this demand leads to a change in the nature of supply. Put simply, the real estate industry is going to be forcibly moved from being a rent collector, to a service provider.

And that changes everything. The changing nature of what an office is for (the robots will do anything rote or predictable, so we need places that catalyse human skills), and the fact that they will often be operated ‘on-demand’ will lead to a lot of space being no longer fit for purpose. 

The necessity for our buildings to become much ‘Smarter’ will transform what it means to be a property manager. Short leases, or rather the death of the lease, changes notions of valuation, financing and asset management.

The really big change though, the fundamental, maybe even existential challenge for the real estate industry is that the business of real estate will no longer be real estate. Rather it will be all about Service, Data and Brand.

In a #SpaceAsAService world your customer will be everyone who enters into and/or works in your building. The value you are able to build around your physical asset will be a reflection of the user experience, the UX, that you can provide each and every one of them. Because in an on-demand world they can simply go somewhere else.

How do you build a great UX? By using data in a way the industry has not even touched upon to date. You need to know who your customer is, their needs and desires, how they wish to work, what services they require, and what it is about your space that they engage with. Then you need to understand how your space is being used at a much more granular level than most do today; not only to allow you to move from preventative to predictive (on-demand) maintenance but to analyse, and A/B test new layouts and configurations.

Put all that together, the services and the data, and that will be your Brand. And in this world Brand really is everything. It is your Brand that will attract users, enable you to maximise revenue, and build a waiting list for your space. There will be a large yield gap between the best Branded spaces, and the rest.

So the consequences of #SpaceAsAService go far beyond a bit more co-working. Physical assets are going to need to become smart by default, property managers are going to need to re-focus from operations to user experience, Landlords are going to need to become experts in AI and data analytics. on top of morphing from Product to Service companies.

If demand does indeed make all the above come to pass, it strikes me that we’re looking at a very different industry, providing a better 'service' to a happier customer and probably (some at least) making more money into the bargain. Do you think we are up to the job?

Antony

Estates Gazette: Tech Talk Radio

I sat down with Estates Gazette Deputy Editor Samantha McClary last week to chat about Data, Brands and #SpaceAsAService in Commercial Real Estate - aka The Future of Real Estate.

Here is the full episode: http://www.podbean.com/media/share/pb-nfxb6-69db7c

Antony

Real Estate Developer 2020: What does that look like?

The Nobel Prize winning Physicist Niels Bohr famously said “Prediction is very difficult, especially about the future”. Not being either a Nobel Laureate, or a Physicist, I won’t be making any predictions below. However 2020 is but four years away, and whilst Mr Bohr was of course correct about prediction, such a short timescale only demands extrapolation, and that is something I am happy to take on.

“The future is already here, it’s just not very evenly distributed” is a more apposite quotation for discussing 2020, because as William Gibson so eloquently pointed out, technology moves in waves, and what the Innovators are up to today, will be adopted by the majority some years down the line. And for Real Estate, the trends are quite clear.

Society is moving very rapidly from a world of Products to one of Services. We are becoming much less bothered about acquiring more possessions and much more interested in being provided with services, experiences and ephemeral pleasures. So Uber instead of cars, Spotify instead of CD’s, Neflix instead of DVD’s, and Airbnb instead of Hotels. And the number of on-demand services we patronise in vast numbers grows and grows. Takeaways, Dry Cleaning, Household Chores, Clothes, Gadgets etc. We are buying what we need, when we need it; access is trumping ownership. With a 1990’s supercomputer in our pocket, and software that enables gratification in just a few clicks, the technological die is cast. We can have what we want when we want it, and funnily enough, we all like that.

And Real Estate and the world of work will not be immune from this trend. Just as we can buy almost any software we want ‘as a service’, so it will be with Real Estate. Space, as a service, is the future of Real Estate. On demand, and where we buy exactly the features, and services, we want, whenever and wherever we are. The Real Estate industry is moving from being about a physical product, to a service; in essence a provider, and seller, of User Experiences. And the developer that provides the best User Experience, to the largest number of people, will be the winner.

Increasingly the value of a Real Estate company will be tied up in the User Experience that company provides its customers with. The best will be known by the User Experience they provide, and that User Experience will be their Brand. And by 2020 Brand will really matter.

All of this will be pulled into existence by technology, but it won’t seem like it. What will happen is that businesses will find that the actual work they need their employees to do will change, as new technologies slowly, then suddenly, enable much rote work (which exists at all levels) to be offloaded to ‘the machines’. And this will have two major consequences. First, it will unbundle work from being something one has to do in an office, and secondly, and more importantly, will change the type of places we need to spend time in. With more and more value being added through the application of intensely human skills, such as design, imagination, empathy and social intelligence, the workplace of the future will, of necessity, be somewhere that catalyses those skills. Simply put, in a technologically advanced world, what humans have to offer is their humanity, and that only thrives in intensely human environments. I dub these spaces ‘Imaginariums’.

It sounds like a lot to ask for in just four years doesn’t it? The reality though is that this is a trend that has been developing for many years, at least 6, so we are talking about a decade of change, and as is the way with such things it is in the last couple of years that change really takes hold. So many aspects of the world today are changing at an exponential pace, and the Hockey stick shaped growth curve that creates always leads to dramatic ruptures. Nothing much changes year to year but everything changes over a decade. The iPhone is not even a decade old but smartphones truly have changed the world.

For Commercial Real Estate, all this technological change, and resultant behavioural change will lead to groundbreaking developments: the demand is coming for a new product, and that product will come wrapped as a service. And it will be very different from what we have all become used to. In many ways.

The best developers will work much more closely with their customers. They will know more about them, more about how they like to operate, how their space requirements ebb and flow, in scale and in usage, and what they need from ‘the space around us’ to support their business. They will be able to provide core permanent space, and then flexible on-demand space to top up as required, or for specialist uses. They will offer a wide range of services, on top of base rent, that their customer most likely could not procure on their own and will willingly pay a premium for. And on top of all this, they will be building a network of peers that will facilitate knowledge sharing, mutual support and commercial exchange.

In this services world, Real Estate becomes a genuine two sided market, where each side enhances the value of the other. Where we move from a hierarchical relationship to a genuine network. The network is the User Experience, and the User Experience is the Brand.

So in summary, I believe we could be entering a golden age of Real Estate. As technology upends the supply/demand equilibrium of generations, our understanding of what real estate is for, and the form of space itself, it could, paradoxically, be enabling a built environment that better serves everybody.

Now, is that prediction, or extrapolation?

Antony

Know what you know, and what you do not

I am often asked by people in the industry ‘What PropTech should I buy or invest in?’. To which my reply, which irritates those looking for easy answers, is that that is the wrong question. What you should be asking is ‘What do I need to know, to know what PropTech I should buy or invest in?’

So, what do you need to know?

Who is your customer? Sounds simple doesn’t it? Well, if you want to create new value and differentiate yourself you maybe need to think about who your customer is differently. For example, in a workplace world where the percentage of people working ‘flexibly’ is growing each year, and Space as a Service (no lease, purchased by the hour, day, week or month) is the new normal, who is an office owners ‘Customer’? It’s clearly no longer the, most likely, CEO or CFO of some corporate entity. No, the customer is now the individual, and you have to engage, inspire, interact with and sell to each and every one of these individuals who uses your space. That is, for most people in property, a new game and requires different tools and a new mindset.

If you are a retail property owner the same applies. It might be your retailer tenant that pays the rent, but really your customer is each and every person that walks into your shopping centre, or store. Retail property owners must own the relationship with visitors to their space. Without data, space is just a commodity. Alibaba have not bought a chain of Chinese shopping centres because they want to get into the property business.

How does your customer want to interact with you? When you can book an Uber in 30 seconds, make bank payments from your phone, order anything from anywhere in the world and have it delivered tomorrow, why on earth is any form of transaction in the property world so utterly painful? Why is it so slow, why isn’t the information you need available immediately, why can’t you access documents in a readable format on your phone, and why oh why do you have to wait till office hours to get anything done?

What part of your job could be done by a robot? Mckinsey say 49% of all tasks performed at work could be replaced by technologies that exist today. You might not like the answer but do you know enough about the technologies that are available today to dispute this? And in your case is the actual figure higher or lower than 49%?

What data do you have access to? Think of the four V’s of data: Volume, Variety, Velocity and Veracity? The digital world is built on data: knowing what you have, what else you need and where you could get it from is essential.

How well do you understand your market and your competitors? Have you considered that like Alibaba above, they might no longer be from within the property business? You might be being smart and following Wayne Gretzky who famously said ‘I don’t skate to where the puck is, I skate to where it is going’, but what if the game is no longer Ice Hockey. Kodak wasn’t put out of business by a better film maker.

All of the above is what you need to know BEFORE you ask about what PropTech to use or invest in. Because you need to understand clearly what is the pain point that needs relieving, what gains you are trying to achieve, and what is the job that needs doing. You should not touch any technology until you understand what the value proposition is.

If your job, or big chunks of it, is under threat from the robots, what can you do about it? What technology can you utilise, or co-opt, to fight off this threat? How could you turn this severe bug into a feature, and by embracing the robots, enable them to augment your skills and make you dramatically more productive than before. Being brutal, when you and your colleagues are up against the robots, it is not the robots, but your colleagues, that you need to outrun.

There are methodologies (de rigour in tech startups) that help you dig deep into your value proposition and business model, and these are very useful in answering all the above questions.

Once you get to this stage you should have a clear understanding of what technology (PropTech or otherwise – the nomenclature is not important) you need, and clarity as to how these new tools will catalyse innovation throughout your business.

The days of IT are over: every business is a technology business. The differentiator going forward is knowing what technologies you can use to compliment your human ingenuity, skills and creativity in the service of a robust, solid and scalable business. Knowing the right questions to ask is a good start.

Antony