When it makes sense to assist your customers to spend less instead of more.
In the retail sector of the corporate real estate market, the landlord undertakes sophisticated analysis of consumer behavior, tracking purchase activity with loyalty programs, dwell-time through movement detectors, and now with advanced CCTV technology, the ability to monitor shopper eye movements to determine what attracts their attention. These activities are all undertaken by the landlord in order to enhance the value of their retail center and to ensure the retailer tenant perceives that their needs are being carefully considered, optimizing both rental income and tenant satisfaction.
Although still only in its infancy, the relentless onslaught by the online economy is of real concern to retail property landlords and investors. With pressure applied to retailer margins by increased competition for the consumer dollar from the online marketplace, along with a general contraction in consumer spending since 2008, and the traditional challenges of labor and rising operational costs, retail tenants both small and large must pursue every efficiency in their operations in order to maintain profitability and sustain their business.
Aside from providing an attractive retail center, the landlord is also a service provider to their tenants, delivering a range of services such as electricity and waste disposal thereby returning additional income to the landlord.
With energy being one of their significant operational costs, it is natural for the retail tenant to investigate efficiency opportunities within their premises in order to reduce ongoing expenses.
Herein lies a problem for the landlord: if the tenant undertakes efficiency measures that significantly reduce their energy spend, then there will be a reduction in ancillary revenue for the landlord. So why would the landlord want to assist the tenant to reduce the amount of energy they consume?
This paradox was recently discussed with the managers of the largest and most advanced shopping malls in the southern hemisphere, who are actively working with their tenants to assist in the reduction of energy consumed in their premises. They are doing this by providing full service packages including led lighting upgrades, heating and cooling options, real time monitoring and analytics for their energy consumption. These packages can be applied to single store or rolled out to an entire retail chain and is all part of a holistic approach to delivering their tenants a valuable service for optimization of their operations.
The first step in an efficiency upgrade is to know where the baseline is, and exactly how energy is being consumed within the retailer’s premises. Using a cloud hosted energy and operations monitoring platform is the fastest and most cost effective way to provide this valuable information to the retailer without requiring them to invest in any additional IT infrastructure. This platform also provides the landlord with valuable aggregate data on the energy performance of all of their tenants, as well as reliable data for end of month billing and a centralized repository for other center-wide operational statistics.
Understanding tenancy energy use is the first step, but implementing the upgrade is where the landlord has the greatest opportunity to provide true value to their tenants.
Empowered with an understanding of the energy consumption patterns and intensity, the landlord can offer bespoke efficiency projects that are tailored to the tenant’s individual requirements. Furthermore, with the benefit of their scale and experience, dedicated efficiency specialists within the landlord’s organization have the ability to design, source and implement energy saving projects with a greater likelihood of success and a higher certainty around results, and with the benefit of bulk purchasing, all at a cheaper cost. For example, the procurement of low energy LED lighting can be a process fraught with difficulty for a novice, as there is no shortage of sub-standard product available in the marketplace, and without a rigorous evaluation of many samples under a range of conditions, it is unlikely that the results of a lighting “upgrade” will live up to expectations. An individual retailer has neither the expertise nor the time to undertake the analysis, and this is where a proactive landlord can add value to the relationship, by leveraging their experience with hundreds or thousands of individual tenants to identify, implement and verify the savings from the optimal energy efficiency project for their tenant.
The benefit to the tenants is obvious: a clear and measurable reduction in energy consumption achieved through the efficient application and management of proven strategies in a cost-effective and individually tailored package.
But what is the benefit to the landlord? At first glance, by assisting the tenant to reduce their energy consumption, there will be an immediate reduction in revenue. This however is a very narrow interpretation of the relationship between both parties, and if adopting the same approach taken when optimizing the shopping experience to drive more revenue for their tenants, the landlord owns the entire process, ensuring not only the best result for their tenants, but also capitalizing on additional revenue opportunities through the efficiency projects, which would have been lost to other consultants and suppliers if the tenant undertakes these projects autonomously.
By consistently offering their retail tenants the highest level of service, and collaborating to transparently deliver maximum productivity and profitability, the landlord will be recognized as a leader within the marketplace, which will be reflected in rental income and ultimately the maximization of their asset valuation, which should always be their fundamental goal.
A further example of this new paradigm of less being more: energy utilities and retailers are now investigating this strategy as a value-add for their Commercial and Industrial (C&I) customers, providing real time monitoring and analysis of the customer’s energy consumption with the view to reduce maximum demand, as peak load is one of the key challenges to maintaining a reliable and efficient supply and distribution network.
Gareth Woodham is in business development NSW at Switch Automation.