Retailers Increase Customer Loyalty with Green Initiatives – The Landlord’s Angle

 

With the economy weathering tough times, all eyes in commercial real estate have been on declining retail performance. So it’s no surprise to see recent reports about how retailers are using green initiatives to improve both store performance as well as stay close to customers.  And we think those successes have wider implications for underwriting green real estate.

The Aberdeen Group recently published “Getting from Green to Gold: Retail Success Factors and Outcomes”. Note: you’ll need to register for free to download the report. They surveyed over 100 retailers with sustainability initiatives and identified the key components to a successful green strategy for retailers.

Here’s a high level download:

• Green Upside: The top 20% of the surveyed retailers are reducing their energy costs by an average of 20%.  Additionally, they are seeing significant reductions in logistics and merchandise costs.
• Green Downside: The green “Laggards” – those who were less successful with their green initiatives – reported their energy, logistics, and merchandise costs increased by 39, 16, and 17 percent, respectively.

The Green Journey Take

Aberdeen research also indicates that sustainability strategies help retailers improve their customer relations, which can be instructive for commercial real estate professionals interested in underwriting the value that green initiatives can bring to a property.

Retail profits can be quantitatively traced to attracting and retaining customers.  In the retail world, “customer value” is a euphemism for the dollar value a new or returning customer brings to the bottom line.  And the research indicated that over 80% of the “Best-In-Class” green retailers think that their sustainability strategies have improved their customer service and brand image.

We green real estate professionals love “quantifiable” green initiatives that we can directly tie to asset value creation.  Yet, in our practice we review many green projects where the value-add of tenant retention for a green project is not  underwritten into pro forma assumptions, to avoid overstating the green business case. Plus, frankly, most info about retention rates within green projects out there is self-reported and anecdotal.  Lots of folks want more data on this one.

But lots of investors lease to retailers. And most of those retailers have done the rigorous work of quantifying the value of customer loyalty. That subset of those retailers employing sustainability initiatives will undoubtedly know in the short term the contribution that green initiatives make to retaining customers and their bottom line as well.

Like my previous post about Google tying the leasing of green space to employee satisfaction, a retailer leasing in a green shopping center will be able to figure out how that helps customer loyalty and, hence, their bottom line.

While it is good for landlords to be prudent underwriters, they probably do not intend to be less sophisticated about understanding how to quantify the value of green than their tenants. The smarter ones will be working on quantifying the relationship between green initiatives and tenant retention in order to be more competitive and maximize their position in the market.

http://www.environmentalleader.com/2008/08/18/green-retailers-six-key-focus-areas/

Download and read the entire study from Aberdeen Group (free registration required):
http://www.aberdeen.com/summary/report/benchmark/5213-RA-green-to-gold.asp