The retail sector is in a state of transformation as more and more e-tailers set up shop on the high street. 

Amazon has been at the forefront of this foray by e-tailers into bricks-and-mortar with the launch of its book stores and plans to roll out Amazon Go stores. Missguided’s 20,000 sq. ft. flagship within Westfield Stratford City, London hit the headlines in 2016, with further stores expected in 2017. Other e-retailers including Ocado, Made.com, Loaf, Bonobos, Warby Parker, Birchbox and Casper are also joining the ‘clicks to bricks’ movement.

A surge of this size, therefore, raises the question – why has this trend come about? Part of it is down to a rise of the experience economy and the delivery of a more personal shopping experience. In essence, people prefer to have a memorable buying experience rather than simply spending their money on a product.

The trend also brings the advantage of marketing brands in-store working in its favour. Launching a brand purely in the eCommerce environment can be difficult and having a tangible presence can help cement a brand in the minds of the consumer. This can be paired with ever advancing technology that can be marketed to the consumer through mobile devices and emerging technologies like AI and VR and complement the physical retail landscape. These technologies also offer the benefit to the e-tailer that they can more effectively capture consumer data and, in turn, use this for renewed marketing efforts.

This sort of innovation is achievable alongside some more prosaic but nonetheless not insignificant benefits of great financial and logistical savings. For instance, being able to buy online, pickup and exchange in store reduces costs and can lead to extra sales. Finally, having a physical presence can drive the consumer back to the eCommerce portal – the fabled halo effect. 

However, investing in a bricks & mortar presence means some new decisions for e-tailers. Legal issues – sometimes tricky – can arise, affecting your liabilities and exposure as the holder of real estate, but here are some upfront aspects to consider:                                                                                                      

1. The store

Choosing the right location is always vital as retailers are often tied into long lease agreements. Be clear about your business model and strategy and analyse existing consumer data as this will influence the type and location of the store.

What are the short and long term goals? Do you require a substantial long term commitment (a flagship store) in order to enhance your brand? Or are you dipping your toe in to test the water? Would a partnership with an established retailer or a temporary pop-up with flexibility be more suitable? Your decisions will influence the commercial and legal deal, as well as the type of property.

2. Timing

Finding the right store, negotiating the commercial terms (including the rent payable for the premises, the lease length, refurbishment works) and carrying out the legal process (due diligence and negotiating and completing the legal documentation) will all take time. Depending on the complexity of the transaction, each of these could take a matter of weeks or months.

Do you want to open in time for the Christmas or Easter trading periods? How long will your fit-out take?

You will need to factor all this into your strategy and timetable at the outset. Understanding the process and planning for it will help you devise realistic and achievable targets and programming. 

3. Costs and budgeting

Factor in the rent and other payments due under the lease (e.g. business rates, utilities, contributions towards property insurance and service charge), liability for dilapidations and your repair obligations so you can understand your likely regular property outgoings. Other costs may include staff, products, logistics, restructuring, fit-out, infrastructure, digital integration, professional fees and stamp duty land tax.

You will also need to analyse other risks associated with leasehold premises. Some costs you won’t be able to control – e.g. your rent may be subject to upward only periodic revaluations at market rates, service charge increases (can you agree a cap with the landlord?). Once you understand the risks, you can then decide whether to accept them and, if so, have a strategy which budgets for them.

4. Get good advisors

Build an experienced team of professionals who can advise you throughout your journey:

  • Agents to identify suitable locations and to negotiate the best deal;
  • Interior design consultants to design the store, identify contractors to tender for the work and to manage the process of obtaining any consents; and
  • Lawyers who are experienced in the retail sector, who understand what retailers need and who can advise and protect you against the various risks.

The clicks or bricks debate seems to be dead or dying as omni-channel retail thrives. The jump from digital to physical doesn't have to be overwhelming, but preparation is key. As in many walks of life, forewarned is forearmed and there are significant rewards out there for the innovative e-tailer willing to reinvent itself with a bricks and mortar presence. 

Julia Poulter is a managing associate and Tom Merrick is a senior associate in the real estate team at Lewis Silkin LLP.