08 February 2019
Heaven and hell ‘I've been wondering what that special place in hell looks like, for those who promoted Brexit, without even a sketch of a plan how to carry it out safely’, tweeted Donald Tusk this morning in unusually combative mood. ‘After Brexit we will be free of unelected, arrogant bullies like you and run our own country. Sounds more like heaven to me’, retorted Nigel Farage. Tempers are palpably rising now with 51 days to go, and no deal in sight (or no-deal in sight if you prefer). There are two issues. The first is the substantive issue of the Irish backstop. Tusk’s comments came in a meeting with Leo Varadkar this morning, in which the Irish PM was seeking EU assistance in the event of a no deal, (odds now tightening to 2/1). This is ahead of May’s own meetings with Northern Irish parties in Stormont this afternoon. May had fired a shot across the bows of Brexiteers yesterday that a return to a hard border was not on the cards. This leaves us all wondering what it is that she will propose to Jean-Claude Juncker tomorrow that would unlock the situation. The second issue is now very clearly about time. Even if May can pull victory from the jaws of defeat, and secure a viable agreement with the EU, what are the chances of getting this through Parliament in time? ‘The sensible, cautious thing to do at this late stage is to seek a temporary extension of Article 50, so we have time to see if the negotiations succeed, or if they do not, to pursue a different plan’, stated Emily Thornbury, who, standing in for Jeremy Corbyn, made Labour’s position on the subject clear.
Furniture on demand Subscription pricing models around music and movies are now well established. However, as the world moves ever towards renting instead of owning, everything is up for grabs. IKEA is the latest to enter the fray, with a new furniture rental model for everything from wardrobes to kitchens. Presented as part of IKEA’s push to support the circular economy, the ability to rent one’s furniture has more far reaching implications. The typical cost of furnishing a home is c. £15,000, with a typical refurbishment cycle of say 10 years. Meanwhile, a report by Hiscox suggests that a new kitchen can add as much as 10% to the value of a home. Renting furniture, allows for a much shorter renewal cycle, less need to save up to do this, and the ability to renovate one’s property on demand in line with emerging design trends. From a residential perspective this poses new challenges, such as selling homes with no kitchen (if it gets taken away by the supplier). From a retail perspective, renting provokes a higher number of decision / purchase points that still need to be researched somewhere. Whilst that could conceivably happen online (IKEA has been a frontrunner in digital sales tech), at present it is more likely to happen in a store (where IKEA was also among the first modern innovators in experiential shopping).
ReTuna There is a reason why BHS and Woolworths are no longer on the high street - they failed to stand for anything. It is the curse of the modern department store; a format which by intention was designed to sell everything. In a world where the biggest department store is now the internet, having a clear point of differentiation for physical retailers is becoming increasingly important. This is a challenge not just for department stores, but also for ‘clone’ high streets and bland shopping malls. In previous editions of this blog, I’ve pointed to a few unique concepts, which through careful landlord curation give customers a clear sense of why they should visit a retail agglomeration. A further example, ‘ReTuna’ in Sweden, is highlighted this week by a BBC editorial. Every shop in this mall sells only recycled / upcycled goods – not as a flea market, but in the form of a well-appointed shopping centre, with a depot at basement level to collect and sort donated products. As provenance and environment sustainability continue to rise up the consumer agenda, the appeal of this proposition is clear. However, the bigger point is surely to have a proposition at all. As customers increasingly choose on experience, the need to create identifiably different experiences to one’s competition becomes paramount. This means tough choices on tenant / concession mix, and a clear vision on new ways to address underserved market segments.
Working 9 to 5? The workday timetable reached sufficient predictability that Dolly Parton saw fit to pen a song about it in the eponymously titled movie. However, that was nearly 40 years ago, and the axiom of working 9 to 5 is now starting to break. Most evidently this is seen in people working outside the traditional office hours. However, this week, the Wellcome Trust moves a step further by mooting a four days per week work model, with no reduction in pay. UK workers put in the longest hours in Europe, but within that are significant variations by industry, between say educators (29.1 hours / week) and those working in agriculture (45.5). Some office jobs of course command much more than this, but in a world focussed on productivity, the question is whether more hours translates to more output. Wellcome believes that a shorter week will result in greater focus, less absenteeism and greater loyalty among staff; hence greater productivity. The results of their trial will be revealing. However, this is not a new idea: in 1926 Henry Ford instigated a 5-day work week (down from 6) with no pay reduction. If the working world moves over to this model, the existing redundancy in real estate will be thrown into sharper relief. If 3 out of 7 days per week (43%) offices are not gainfully occupied, then they rightly come under greater scrutiny from a cost/benefit perspective and prompt the question of alternatives. One solution would be to put an end to the weekend and move to a fully flexible work week. Any takers?
Industrial shift In the first industrial revolution, the UK economy shifted from agriculture to manufacturing. During the past 50 years, a similar shift was made towards services, which have risen sharply in the composition of labour force activity, (1961: 48%, 2011: 81%). Over the course of the coming decade we will see a new shift to digital services. A recent report by Dell examines our preparedness for this change, with Michael Dell concluding: ‘In the near future, every organization will need to be a digital organization, but our research indicates that the majority still have a long way to go’. 78% of business leaders stated that digital transformation needs to be more widespread in their organisations with 1 in 3 concerned that they will no longer be able to service customer needs in 5 years without transformation. A staggering 91% felt held back by the following persistent barriers: data privacy, lack of budget, lack of skills, regulation, and an immature digital culture. Three out of five of these issues are legacy challenges, whereas two are about governance. The big challenge for all of us in the property industry, whether we are investors, advisors, or operators is to transform our businesses quickly enough, such that new entrants unburdened by legacy issues don’t see real estate as fertile ground for disruption.
Where the streets have no name The new chez Pickering is a numberless house, known only by its name. Any social-climbing benefits that accrue as a result are instantly wiped out by the endless conversations needed with delivery drivers about where it is (it’s opposite another numberless house, has a tree in the garden and it’s made of brick – what’s not clear about that?). However, this pales in comparison to the small town of Hilgermissen, near Bremen, where the streets have no name. In a bid to improve clarity for delivery drivers, the town recently held a referendum on whether to introduce street names. However, in a result which is binding for 2 years, the residents overwhelming voted down the proposals in favour of the status quo. What can we learn from this? Firstly, in a world of GPS, we no longer need street names. Secondly, people are inherently averse to change. And finally, to save disagreement, perhaps putting time-limits on referendum outcomes might be a smart move?
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