The fact that smartphones are perfect surveillance devices has been kicked around for a long time. And the data are immensely useful in B2B.
Wolf here: Most of the discussions center on how smartphones spy on their users in order to bombard them with the most effective ads and sell them more stuff. But there are other aspects to their spying that have been commercialized for entirely different purposes, where this user data is being used in actionable behind-the-scenes business-to-business dealings. So here is an example of how immensely useful the consumer data is in commercial real estate…
By John E. McNellis, Principal at McNellis Partners, for WOLF STREET:
Geofence: A virtual boundary set up around a geographical location, such as a shopping center or retail space.
Owning retail has been challenging since the Great Recession. You likely know the reasons why: overbuilding, the internet, rapacious private equity, too many lackluster tenants. You also know that every move you make—every breath you take—is recorded by your mobile phone. This latter circumstance has allowed a clever company, Placer AI, to develop the most useful tool for commercial real estate since Hewlett Packard introduced the HP-12C in 1981. (A phenomenal financial calculator, the 12C has become the abacus of our time, used by a slowly dwindling number of mandarins).
While Placer’s software is no doubt breathtakingly complex, its tool is—in essence—as simple as a bouncer counting a nightclub’s patrons with a clicker. Placer allows one to set up a “geofence” around a shopping center, a retail building or even a tiny tenant’s space and then calculate that finite area’s walk-in traffic by counting the phones crossing its threshold. By using those phone visits and an algorithm or two, Placer delivers an accurate traffic count of the geofenced area. A Swiss Army knife looks like a spoon compared with the multiple uses this traffic count offers.
On offense, a landlord can use Placer to prove her center has more foot traffic than, say, three competing centers and thus entice potential tenants to lease her vacant space. She can use this data to figure out the “path to purchase”, that is, where her center’s customers are coming from and, incidentally, where they live. (If your phone stays put long during the day, the algorithm says you work there; at night, that you live there.) With this information, she can approach a tenant already in the trade area, show it’s getting no traffic from a key zip code and argue that it should add a new store at her center to fill that void.
On defense, it works like this: The tenant says, “I have no customers, I can’t pay rent.” The savvy landlord replies, “Actually, Placer says your foot traffic is fine. Pay up.” Or when it comes time to renew a lease, that multi-billion dollar purveyor of coffee says, “You need to drop our rent by 20 percent or we’re walking.” You hand over the Placer data that ranks your store’s traffic in the top quartile of coffee’s northern California stores. Coffee sighs, stops the saber rattling and quietly exercises its option.
Placer AI is relatively new, I just heard of it (no surprise there, I’m still tapping away on my 12C), but the biggest retail players already have it, giving them yet another great advantage over the little guys in the industry. What’s the little guy to do? Placer is expensive—subscribers pay a fixed annual fee based on its number of individual users. The CEO of one super-regional brokerage firm told me his firm was paying $40,000 a year, while a major REIT put its subscription cost at $100,000 a year. Way beyond the reach of the casual investor or small company doing a couple deals a year.
What should the little guy do? Easy. Insist on getting the Placer data for free from his brokerage firm. The biggest companies—CBRE, Cushman Wakefield, Marcus & Millichap, etc.—either have it or their key retail brokers do. If some broker is trying to convince you to buy a Walgreen’s in Elko (don’t), make him fork over the store’s foot traffic. If you’re playing defense—say, a coffee renewal—ask your favorite broker to run the traffic data for you. (By the way, this is another reason to pay full commissions).
We did just this; we have a major tenant with a lease option coming up at fair market rent. As part of the negotiations, we asked this tenant for its profit and loss statement for our store and got crickets. Then we asked our go-to broker to placer the store’s traffic for us. That report put our store’s traffic in the top 10 percent of this tenant’s nationwide portfolio. A useful bit of information.
A final note: foot traffic is great, but it’s only one of the two variables you need to calculate the tenant’s gross sales and thus its profitability (your ultimate goal). The other? That particular tenant’s average ticket or basket size. That might take some sleuthing, with the internet being a good place to start. The net will tell you, for example, that the average basket for a supermarket is $55. If Placer says your store has 750,000 customer visits a year, you can guess that it’s doing around $41,000,000 in annual sales. Good luck. By John E. McNellis, author of Making it in Real Estate: Starting Out as a Developer.
Working from anywhere has cost cutters drooling. At Dropbox, “All expense categories benefited from lower facilities related costs, driven by our employees working from home.” Read… What Dropbox’s $400 Million Real-Estate Loss Says about Office Rents in San Francisco’s Biggest Office Glut Ever
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