‘Retail is not declining, it is changing’

CBRE Investment Management’s Eric Decouvelaere tells Paul Strohm how retail is adapting to a new environment in which physical and online are co-existing to the benefit of each.

The need for closer relationships between investors and the occupiers of physical retail space has become more widely recognised in recent times. As the structural changes occurring in the retail sector have advanced, the need for all retailers to adopt some degree of omnichannel distribution has become accepted.

Eric Decouvelaere, EMEA head of retail operator division at CBRE Investment Management, is clear: managing retail assets is not a process of managed decline, it is a process of managed change. He concedes there has been a decline in the demand for physical shops, but setting aside the current, temporary, economic turmoil, retailing across all CBRE IM’s channels of distribution is growing, long term.

“Consumer demand obviously has been disrupted by the closure of some physical locations, especially during covid, but in the meantime, the e-commerce channel has been booming. There is a tendency to think of retail as just physical retail, but we need to see it as consumers’ requirement to buy goods,” says Decouvelaere.

“When you look at the last 10 years – forgetting the noise of covid – we have seen the year-on-year rebalancing of channels of distribution. Covid has obviously exacerbated this, but I wouldn’t say retail is declining, retail is changing.”

Furthermore, while the pandemic did accelerate the structural change in retailing and the decline in demand for physical retail space – which has changed as much in the last three years as in the preceding 10 years – Decouvelaere says there has been something of a bounce back in the months that followed the ending of lockdowns.

“I’m very careful because we don’t know what the future economic outlook will be. But all the year-to-date figures for 2022, including the first quarter which was still impacted by covid, show a rebound,” he says. “Due to covid, we have learned to be better, and to adapt to a new way of retailing.”

More than ever, physical retail relies on three pillars, Decouvelaere contends. The first is location. The second is a proposition which factors in the different channels of retail. Lastly, is ‘operation’.

‘Relevant retail’

He says it is essential for investors/operators in physical retail to be strong operators. “If you put location together with good purpose with a relevant proposition and strong operational capabilities, then you end up having relevant physical retail.” Convenience retail is one area that illustrates the success of such a ‘relevant proposition’.

But he adds it is important to look beyond categories. “I hate to speak by category, because when you look at the equation – location, proposition, operation – you see that all types of retail can fit the high street, or it could be a retail park, it could be a shopping centre, it can be an outlet, or retail warehouse.

“Our job now is not to deal with retail as an asset class, it is to think of physical retail as a relevant channel of distribution for, mostly, omnichannel retailers.”

Successfully managing retail’s place in a real estate investment portfolio therefore requires the property asset and investment manager to become much more immersed in the tenant’s business, to gain a clearer idea of strategic objectives and requirements for mutual benefit.

Canadian outdoor retail brand Mackage, which specialises in high-quality outwear, has opened its first store in Europe at Düsseldorf shopping centre Sevens. The retailer has taken a newly renovated 107 sq m unit on the ground floor of the centre, which is located on Konigsallee. CBRE Investment Management has been repositioning Sevens for the past year. Floors three to six are to be converted from retail to office space, while the first and second floors will remain in retail use.

This is about as far away as you can get from the old-fashioned landlord approach of “let it, forget it, but police it”, Decouvelaere says.

Across its business, CBRE Investment Management has launched a customer relationship management (CRM) initiative to realise the potential mutual benefits to be gained from an immersive understanding of occupiers’ needs.

First-hand experience

This culture of working closely with the retail occupier is a familiar one for Decouvelaere, who has a first-hand retailer’s perspective. “I come from a business where for years I was very much hands-on with the retailers,” he says.

Decouvelaere joined CBRE Investment Management in 2019, having worked for retail outlet developer, manager and investor McArthurGlen for 14 years, latterly as chief operating officer. However, prior to that he was deputy buying director of French fashion retailer Printemps, and then as strategy and business development director of luxury department store Harrods in London.

He says the pandemic made it imperative to engage with the brands to better understand their strategy in terms of distribution channels, and to better understand the new role of a store. Specifically, that a store is not just a place to sell products. “A store is now a logistics hub for click-and-collect (or return), it’s a place to build emotional connections with consumers that you cannot build online. This is such a revolution for physical retail.”

“When I joined this business, my main objective was to change the mindset on retail within five years. That is really what is happening. In fairness, Covid has accelerated this change of mindset. We still have a long way to go. This is what makes retail so exciting!”

Landlord/tenant dialogue

The pandemic led to more than 5,000 detailed discussions with tenants across Europe and those discussions also allowed tenants to gain a deeper understanding of CBRE IM’s landlord model, and its constraints.

“We have really understood our tenants better and now we clearly focus on establishing – although I hate the overused word – ‘a partnership’, interacting with our brand partners across our business. We try to be the ambassadors for CBRE Investment Management and vice versa, the ambassadors of our tenants within CBRE Investment Management.”

‘Our job now is not to deal with retail as an asset class, it is to think of physical retail as a relevant channel of distribution for, mostly, omnichannel retailers.’ 

Eric Decouvelaere, CBRE Investment Management

These are not just nice ‘fluffy’ words, he emphasises. “What it really means is that we are not here to strike deals and run away. We are here to understand what their need is now, in five years, and even in 10 years, in terms of size, adjacency, location and amenity requirements.”

Historically, there has been some reticence on the part of retailers to share too much information about their business and many have kept their financial details closely guarded from both competitors and landlords. That has changed markedly, but more so in some countries than others.

“We operate in 16 countries, across 450 assets in Europe and it is striking to see how retailers in some countries are more open compared to others.” UK and Dutch retailers have been particularly protective of company data in the past.

“But even in those two countries the mindset is changing,” Decouvelaere adds. “The strong retailer has no problem sharing data because they understand the benefits they can obtain if they share. We can give them back an anonymised benchmark, for example, so it’s give and take. If they share, we can really work better with them to anticipate requirements. Rather than stick to the letter of the lease, we can really be a little more proactive about what they need.

“We need to be as proactive as the other channels of distribution. And this is really what we work on with our team.”

Understanding tenants’ requirements

He explains that across all asset classes, CBRE IM now has a team of more than 50 people in Europe dedicated to understanding what the tenants’ requirements are and how they can be served. ” It’s fascinating, and this is not only an operator business, this will also impact the way we invest.”

“If you really understand the future requirements of our brand partner, you can acquire assets which are relevant and dispose of those that are not.

‘If you put location together with good purpose with a relevant proposition and strong operational capabilities, then you end up having relevant physical retail.’

Eric Decouvelaere, CBRE Investment Management

“The beauty of our business is that we are a platform. Our job is to make sure that capital matches the right real assets. Obviously, to be more granular in our operational capabilities, we need to specialise – retail, office, logistics and residential. But we are a multi-asset-class platform, and this puts our business in a unique place. When it comes to mixed-use repurposing, I believe that our business is uniquely placed to bring capital, deploy the relevant skills and deliver the right solutions to occupiers while generating strong returns to our investors.”

The customer relationship role is not delegated to CRM specialists. “We don’t want people who are only working on relationships. We want talents who day in, day out are in the business, so that we can be relevant to the brands we speak with. We want colleagues who are asset managers, directors, etc… It’s amazing to see the richness of the intelligence that we then gather,” Decouvelaere says.

“If you look where we are compared to where we should be, we have a long way to go, but the mindset is changing. Even in those countries where tenants are more reluctant to be open to share, we see the mindset changing, not only because we have a turnover-rent lease structure, but because they want to better understand, they want to anticipate.”

Sharing information is helping physical-retailing-only brands to become omnichannel brands and, sometimes, vice versa, when pure-online players realise that they too can benefit from a physical location. “We are at the beginning of a very exciting new era for retail and real-estate,” concludes Decouvelaere.