Happy Spring! I hope you’ve been getting out now that the weather is turning. Last weekend was Opening Day for our daughters’ local rec softball league. The weather was perfect. The grounds were immaculate. There was bunting and balloons. The snack shop did brisk business. I got sunburnt. The park was full but socially distanced; fans wore masks and pitched up on camp chairs in the outfields to stay respectfully apart.

I don’t enjoy the elegiac “one year ago today” articles that circulate now, but it was the Friday morning of 2020’s Opening Day when we got the “league will suspend all activities until March 27th…” email.

Now at long last we are back. This weekend felt good. People smiled. Kids cheered. Home runs were hit and strikeouts thrown. Amazing plays were made, and errors too. I think I even heard someone yell at an ump. It was delightfully normal.

I had a professor in high school who always warned of the One Issue People. One Issue People are the ones who are neither capable nor willing to discuss anything other than their One Issue. It doesn’t matter if their issue is climate change or illegal immigration or #freebritney: all roads led back to that One Issue and nothing else can be considered.

I am in danger of becoming a One Issue Person. Well, inasmuch as it relates to national “credit” retail tenants. Yes I know that my low opinion of the credit lease finance regime is well documented. But nevertheless! I am really blind to anything other than this one serious (for reals) issue: the cost of customer acquisition. I’m afraid we can’t talk about anything else. Understanding it is going to be key to big national tenant retail’s survival for the next fifty years.

Customer Acquisition Cost (CAC) is one of the most important measurements for any consumer business: how much does it cost to acquire a new customer? If you ever wondered why Uber and WeWork lose so much money, it’s because they spend more than they make from old customers on marketing to acquire new ones. Tech guys accept this as part of the Faustian bargain for Scale, which is why it behooves everybody —even a fancy cab company and an executive office scheme with mantras and free beer — to pretend to be a tech company. The Underpants Gnomes were onto something.

In Retail World it used to be simple. You opened a store on a busy street, sent out flyers, put up a billboard, paid the local radio station to broadcast from the lot, maybe hired a guy in a gorilla suit. People drove by, came in, bought something. The cost of the flyers and the billboard and the DJ and the gorilla suit were the tenant’s problem. The cost of the parking lot was ours. The retailer may have thought of the monument sign as CAC in an offhand way, but they didn’t account for it as such.

Obviously the interwebs changed all that, but the real disruptor for real estate wasn’t Amazon. It was Google and social media, because those platforms fundamentally altered how customers and brands discovered each other. The wave of virtual DTC brands that arose last decade was driven largely by high real estate rents and low online CAC. Instagram was the wild west not that long ago. Clever Wharton grads could throw together an Insta page with some pretty pictures and an AirSpace vibe. Make up a compelling founder’s story. Talk all about Mission and Values. Tie it to a slick Shopify e-comm site with a sans serif font, buy all the social media advertising they could afford, and Voila! Profits. Who needs the mall when the media is the mall?

The steady rise of e-commerce has kept us talking about the process of shopping. We don’t talk nearly enough about why people shop (another Note) but you can’t swing a dead cat without hitting a longform piece on how people shop. The Wall Street Journal ran one just this weekend and I gotta tell you: it was a little pointless.

Showrooming, Webrooming, curbside pickup, BOPIS, BORIS, ISPU . . . this is insanity. Landlords: national tenants are making up acronyms in one hand to to divert your attention from the other hand where the card trick is really going on. The logistics of fulfilling customer orders in 2021 is a complex subject worth discussing. But the strategic question of how people shop has been answered: it doesn’t matter.

It doesn’t matter because there is no such thing as bricks and mortar. There is no such thing as online. There is only omnichannel. You sell your brand whenever, wherever and however you can do so most efficiently and most profitably. Your brand is expected to be everywhere, online and real world. It may be more virtual than real but it will be both. There is no marketing and there are no operations because everything is marketing and everything is operations, and it is all a Customer Acquisition Cost.

Instagram is advertising that you can shop in. Here’s the kicker: so is the store. Physical stores drive online sales and online activity results in instore sales. Even Macy’s— aka America’s Worst Retailer— has acknowledged that closing physical stores leads to a decrease in area online sales. [The title of America’s Worst Retailer rightfully belongs to anybody who cannot make millions with Rachel Schectman onboard. Fight me.] The customer expects the brand of the future to live everywhere, so all public activity from algorithms to collabs, from fake stores to real ones, is now a customer acquisition cost.

The true value of retail real estate is in the total sales it creates, inside or outside the store. Good retailers know this value. Landlords, by and large, do not. Landlords know only the in-store portion, and all those acronyms are just a way to move offline sales to the online books. This is the One Issue. How can national tenant landlords talk about anything else if they don’t even know the true value of the assets they own?

So landlords have to get smart. Collaborate. There needs to be a methodical data-driven method to understand the total sales effect of a brand’s physical location. If we don’t know the omnichannel sales a store generates then how do we know how to price the rent? My friend Kristen Morris has been banging the drum on this for years but few of us have been listening.

With this information at hand though, the world opens up. How is tenant merchandizing affecting omnichannel sales? What impact are events having? What kind of cross-brand collaborations can the landlord create? The possibilities are endless.

The media is the mall and so the mall must become the media. There is no rent. There is only Customer Acquisition Cost. This is the value of retail real estate. There is no other issue. . . aside from freeing Britney.

We’re Nationwide. Last summer we opened an office in Los Angeles overseen by Erin Mavian, who has previously worked on several significant California retail projects from Platform to ROW DTLA.

Now we’ve just opened a Revel outpost on the other end of the country in Brooklyn. Many of our Atlanta clients know Manav Thaker. He and his wife moved home to New York over the holidays and we’re adding Northeast staff and projects to the pipeline. Stay tuned for more.

As always, thanks for reading! If you’ve enjoyed this please forward to a friend.

I run a retail development and consulting company in Atlanta, and write (semi-) regularly on issues facing the retail real estate industry. If you’re getting this for the first time and want to sign up, just click here.

If you’ve got a retail project that could use some new thinking, or just some thoughts on the true value of retail, we’d love to hear from you.

Cheers,

 G