Expert Insight: The future of retail spaces in cities

Author: Helene Timm | Paguro Podcast
September 9, 2021
Virke
Tord Dale
Retail
Offices
Spaces

A conversation with Tord Dale from Virke

Guests

Tord Dale from Virke.no

Helene Timm | Paguro Podcast

Welcome Tord and thank you very much for your time.

Tord Dale | Virke

Sure, I think that we are having this dialogue shows that Paguro is a very interesting and exciting company. It is interesting for Virke to communicate with some of your customers. I think some of them might be our members or potential members.

Helene Timm | Paguro Podcast

Yes, that might be indeed the case. You are the head of sustainability here at Virke. Could you explain to the listeners how your position is related to retail spaces?

Tord Dale | Virke

Firstly, Virke is the federation of Norwegian Enterprises. A lot of our members are in retail, which includes everything from groceries to cloth to electrical products. But a lot of our members also deliver services. Everything from hair salons, like Cutters, to large consultancies, are members here. I am the Head of Sustainability and as it is stated in our vision, this means to prepare our members for the future. It is both, to challenge them regarding sustainable business models but also to support them on their transition from a more linear traditional to a more circular business model and to achieve cuts in emissions to reduce their climate footprint. Either through what they directly do or products that they purchase and sell to consumers.

Helene Timm | Paguro Podcast

We came across you at the conference “Den vanskelige førsteetasjen” which can be translated into the question: “What to do with ground floors in cities?”. Therefore, I am interested to hear, what you think the current situation and particularly the current challenges are of ground floors in cities?

Tord Dale | Virke

We currently face the issue of a lot of empty retail spaces in Norway and globally, particularly in the Western part of the world. Parts of the retail sector tend to blame politicians for the empty retail spaces or the challenges, as they impose traffic regulations or zero-emission zones. Others say it is due to online shopping, digitalization and consumers preferring online shopping. Because online shops are good at tailoring their marketing as well as the online customer journey.

I have been working on the impact of the government and local policy regarding sustainability and retail spaces in cities. My experience with politics is, that is in general much easier to single out and regulate what is visible to the consumer and politics rather than seeing the bigger structures behind it. So, in bigger cities, it’s easier to impose traffic regulations, zero-emissions or no-traffic zones that are visible to us and understandable though they may have effects. The effect is probably much more moderate than to do the more substantial approach with toll roads and adding CO2 tax to fuel prices. As a result of this, we might make online shopping more attractive than going to local stores.

Because as consumers are used to be able to drive the car to the store and go shopping there. Now we have to walk a while, take public transport, bike and then go to the store and then find new ways to transport the goods home if you can't fit it in your bike. That represents a cognitive challenge for us. Oda (Kolonial) for example, the large digital grocery store, says that it takes the customer five times of shopping to overcome the cognitive barrier of shopping online. Meaning, they have to shop five times in their online shop before they are returning customers. But we no longer find it a cognitive barrier to drive with the car to buy furniture. We just expect everybody to manage it. It is not just a task for businesses and consumers to adapt to this new way of moving around in cities but also for the government.

To help local stores and businesses to flourish even though met with demands of sustainability and competition from digitalization and online stores. In the worst-case, online shopping leads to an even greater emission footprint. If you for example buy all your stuff from Zalando in Germany and I like Zalando, I shop there myself. But if you order there, try it at home and send it back, that represents a huge emission footprint rather than just going to a local store to try it on for the right fit and buy it there. It is also sad if you end up with these empty spaces in the local area. You probably discussed this previously in your podcast, but if some stores disappear in an area, you will see a turn down in traffic for other stores. This creates a negative snowball effect.

Helene Timm | Paguro Podcast

Yes, the vibe of a whole area might change because certain shops are either present or do no longer exist. At Paguro, we notice that a lot of people have an online brand and an online shop which is convenient as they easily reach their customers. But they use the store as a concept store to build up an experience. Has it also been your observation that the trend is going towards an experience in shopping rather than only the practicality of trying on things?

Tord Dale | Virke

I think it is both. To give you an example: We have a member, Bohus, which is a quite big furniture retailer in Norway. They have warehouses which are located outside the big cities. You drive there, park and pick up your sofa at the back end of the warehouse to then go home. Recently they established a store in one of the busiest streets in Oslo, Torggata, without the warehouse and with curated selected items. Consumers can view and try out furniture, get advice on the interior as well as shop the items which will then be delivered to their home the same day from their central warehouse, preferably by an electric truck. This is one example of how a big warehouse established a showroom. Multipurpose venues and stores are on the rise in several cities. That might be stores that sell travel equipment while also having a bar or café for dedicated travellers as well as a travel agency. They might organize evening get-togethers for people who are particularly interested in travel, or breakfast meetings or theme nights. In that sense, the store manager is more than somebody who sells cups or sweaters but also a travel agent or a café host. This requires the traditional shop workers to be more competent and give better customer service. Rather than a one-stop venue to buy things it becomes an experience that is attractive to a broader audience.

Helene Timm | Paguro Podcast

Yes, and it also helps to maximize the space as one store alone might not be able to rent the entire space. The collaboration might enable them to rent a way bigger space and also use it at times that it would normally be empty at. To use your example of the travel bar, this would make the space of the travel store usable outside of the store opening hours.

Tord Dale | Virke

I think this is not ground-breaking news for anybody in the retail or property industry. These are trends that they all see. They realize that to create an attractive retail area you have to create a good mix of cafes, stores, bars, restaurants. Shopping streets are no longer as attractive as they used to be. This is another trend that also increases the demand for sustainability. The current increasing consumption in Western society can only be sustainable if retail goes into a more circular direction.

In the years to come a lot of our purchases will be made on services rather than on buying more products. Circularity means that items will be made more out of recycled materials and designed to last longer, to be repairable and be assembled in a way that they can be disassembled after you finished using them so that they can be recycled. In terms of service, it is about the phenomenon of a product as a service. This is a huge trend, and I am not sure how effectively it turns out to be for retail but this goes to see. Services like nabobil the Norwegian car rental service is a good example of that. Private people renting out their cars to their neighbours. We will spend less money on shirts or shoes and more on services like getting our nails done. Or some of us might get our nails done. Or fixing pants that don’t fit any longer. Ideally, we would have more services of this kind which leads towards more sustainability. Hopefully, this will mean more local repair shops that fix things for you there and then or which are even integrated into a store.

Helene Timm | Paguro Podcast

Perhaps stores would then also have to ensure that their products are being fixed.

Tord Dale | Virke

I would hope so. In my mind, this would give them a great competitive advantage over online stores. A physical store could help you fix and adjust items there and then as a part of good customer service. This is an alternative to purchasing an item online and if it breaks you will have to send it and wait for them to fix it and send it back. Just to give you another example, a couple of months ago I bought a new pair of jeans and after a very short while the button fell off and it was one of these metal buttons that you find on dungaree jeans. This was a fault in production, I don't think I break my jeans that easily. I went back to the store to have it fixed which they said they would do. I delivered the jeans hoping to get them back within a few days, but it took two weeks. Why? Because the system they use required that they send faulty products back to the factory, to the main office or producer.

They could have also delivered it to a tailor around the corner and have it fixed there, instead of mistreating a loyal local consumer and also sending the jeans back and forth with a great environmental footprint which isn’t sustainable. I think part of the discussion on retail spaces in cities and sustainability is about decentralization. That is a key aspect for the customer experience, circular economy and the development of the kind of personnel. The customer would want that when choosing to go to a store instead of buying things online. Not necessarily the customer in 2021 or 2022 but 2030, as we get used to the combination of shopping online and going to local stores.

Helene Timm | Paguro Podcast

Earlier you said that this might not be a new way of thinking of building shopping centres more around experiences or different business models coming together in a store. But how do you think then that the retail area will change in the future? What is perhaps also needed to change? Because you are for example involved in how policies could change.

Tord Dale | Virke

I think a lot of the responsibility for empty retail spaces in cities or good retail spaces has been left for contractors of property managers in the retail industry. But I think as areas dominated by cars and traffic are opening. New spaces create new opportunities for a new city scene with bars but in general an environment that is more attractive for consumers. This is Virke’s most important point, that creating attractive city places is a task for local authorities. They have to take this task more seriously and do so in close cooperation with property owners and businesses. Short-term rental is an important aspect in this discussion with property owners and in curating areas. How do we create a city or a space that is attractive to a certain combination of tenants?

Helene Timm | Paguro Podcast

If we take the example of Oslo, is there currently a collaboration of local politics and the real estate sector to see what a certain neighbourhood can look like and what kind of retail experience should be part of that?

Tord Dale | Virke

One example would be Munch Brygge, close to Sørenga and the Opera. This is an attractive area in the first place, so it is not as difficult to work with. You have an area where people can swim as well as restaurants and an open playground for children. I think the property managers have nicely curated which stores they want in the area but just by putting up a playground, you allow for two adults to come and bring their children. One adult can play with the children while the other goes shopping. The idea here in city development is, that you can work with more than just the stores to curate an area. You also need to have access to playgrounds, green areas, and bicycle parking. I think politicians or local governments should be much more conscious of how they develop these areas to be attractive and not just impose traffic regulations or implement no traffic areas. They have to do more of the development side and less of the regulatory side.

Helene Timm | Paguro Podcast

This is a great example of viewing such projects more holistically and focusing on the needs of the people that come there.

Tord Dale | Virke

Exactly. The task is to create attractive cities but also meet the competition of large warehouses if you want to meet that competition. There needs to be more conscious about that. In the end, we need diversity. Which the warehouses have been doing for a long time. They offer a combination of in-house playgrounds, restaurants, maybe entertainment. In Asian warehouses, they even have an integrated cinema and a lot of diverse eating spaces.

Helene Timm | Paguro Podcast

To create a future scenario: What will ground floors particularly look like in the future in your opinion?

Tord Dale | Virke

There will need to be a greater mix of stores in these spaces or areas. It needs to be curated as an ecosystem that also includes restaurants and bars. We also need to challenge the property owners, because running a café might not be very profitable but it might draw people there to get a cup of coffee and something to eat. Hopefully, property owners and managers will come together and discuss, not prices, but discuss that cafes and services are needed in an area. They will solve it among themselves to achieve the diversity that is needed. A challenge is that in some areas where stores and cafes disappear you get banks and property agencies on the first floor, which might pay good rent, but it doesn't draw many people to the area. I think you have to discuss how you want to work in cooperation with the local government. In that aspect, it is also interesting how you, Paguro, work.

Helene Timm | Paguro Podcast

I was just about to say that, when you mentioned the café perhaps not being as profitable for the host. We often have hosts with a cafe or hotel kitchen which they only use for parts of the day. Therefore they now list and rent it through Paguro for the evenings or weekends when it is not being used.

This is a shift in mindset. People realize that they can make more out of their space. Not through more activity of their own business but through other people that need their space. This is an opportunity for an extra income that you would otherwise not have.

Tord Dale | Virke

Yes, and that is an interesting way of reflecting on your own business. Is your main business as a hotel kitchen to produce food or is it that you have facilities where food can be produced? These are two different aspects, one of them is that you are selling food and the other one is that you are selling a space to make food. That opens new business opportunities. I think we have to think a lot less static what a retail space is and how it is used. We have to be way more dynamic about how we are using space to create vibrant city areas. I also think that short-term rentals give property managers or owners a way to explore what might be a sustainable business model in the location. A huge advantage that digital businesses have, is, that you can quickly build prototypes. To test, develop and scale them or scrap them if they don’t work. But traditional retail spaces don’t have the opportunity to do so.

But one might test with Pop-up Stores and that allows both the business and the property owner to see what does or doesn't work in an area rather than making assumptions or making assumptions based on some traffic data. It will never give you the whole truth about how a business will work in a certain area. It shouldn't be fatal for either side in case the business fails. You tried something. But it also requires collaboration on rental prices from both actors about new forms of rental and we see some examples of that. The right tenant for a certain area might be instrumental for an area as a whole and the right location is instrumental for any business. Drawing customers for online shopping is expensive and hiring the right location might also be expensive. But as the head of sustainability at Virke who works with enterprises, it is interesting to see the physical manifestations of that on the ground floor. You see some effects already and you look at the developments in consumer habits and it can have an impact on how we look at the physical side of cities. It has to.

Helene Timm | Paguro Podcast

Do you think that things will be more fleeing and faster when people are used to new stores popping up all the time?

Tord Dale | Virke

Not that it will be a new store, but maybe they will look more for a boutique store and less for these traditional warehouse stores. Because a lot of these cheap goods are easier found in online stores. It is a discussion on strategy how to meet the online shopping competition while meeting the demands for sustainability and combine these two, to create a business advantage.

But then again, I am not the one owning a big retail chain having to implement all these changes. It is a major challenge and one of the things to remember is that retail in Norway but also globally employee a lot of people. In Norway over 300.000 people work in the retail industry. A lot of them are younger people, who have their first job in retail or minorities who come to Norway who can easily find jobs in bars and cafés. A lot of them are also women. The retail sector is instrumental in creating (first) work opportunities for people. Besides the discussion on sustainability, retail spaces and this transition, this is an important aspect to take into consideration. That’s why I am also encouraging local government and politicians to get involved and have a closer dialogue with the retail industry on how to develop these areas. Both to create possibilities for work as well as value creation for the cities. Not to ignore them or impose traffic regulations or zero traffic zones but how to curate this as attractive areas.

Helene Timm | Paguro Podcast

Thank you very much.

Tord Dale | Virke

Thank you for having me!

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