A Proptech Column by Placewise CEO, Peter Tonstad
Originally published by Across Magazine
When visiting trade shows like ICSC Las Vegas or Mapic many of the property owners or managers have amazing stands. They differ in branding and size, but they typically decorate the walls with pictures of the properties they own and display figures on the size of the center and the number of annual visitors. At Placewise we have always envisioned the day where they also display the digital reach of the property alongside other key metrics. The number would be shown as the number of digital profiles and as a percentage of annual unique footfall.
We also see the day where our clients put a valuation on their digital reach and add it to their balance sheet.
Our mantra has for many years been to convert visitors into long lasting digital relationships. As such we are converting physical locations into digital assets. This has predominantly been done for shopping centres, but more and more for other assets related to mixed use (office,residential etc.).
The approach has been to begin with a digital handshake(opt-in) with the people who shop, dine, work, or live at a specific location.The initial handshake is made in relation to an offer redemption, or attending an event at the physical location, or through the property website, or social media. This handshake then becomes a profile in the property consumer database or CDP where as much data as possible is attributed to the individual profiles over time. The volume of profiles then become the actual digital reach of the property, often communicated as the percentage share of annual unique footfall.
On average Placewise clients are able to get to a digital reach of 30% of their centre’s annual unique footfall after 3 years. The number will keep growing, and our best performing clients have more than 80% reach after 5 years. The insights that derive from these initiatives are for some an eye opener to also increase their defined catchment area, which also has a positive effect on the property valuation.
The business value of marketing programs enabled by the digital reach is well documented in terms of increased visitation frequency and transactions. We also see examples in our client portfolio where they win attractive tenants due to having a digital reach that competing properties don't have. And regularly, when properties change ownership the new owners demand the transfer of a property’s existing digital assets as part of the transaction agreement, hence increasing the property value for the seller. Both examples indicate that digital reach should be an integral part of a property valuation.
The question then becomes what number do you put on the value of your digital reach?
At Placewise we have been involved in many projects to set this value. The ideal starting point is to look at the actual incremental annual sales value of a digital profile or digital member compared to non-members. This number is then multiplied with the number of profiles, and then multiplied with the average leasing rate to arrive at the cash flow to the owner. As the churn in these databases is very low the lifetime of a member becomes very high (typically 2% annual churn equals a lifetime of 50 years),so in financial modeling 10 years might be a reasonable timeline to calculate.
One example dataset has an average basket value per visit of EUR 45 x incremental sales value of 25% per visit x average of 60 visits per year x 10 years x 80.000 members = MEUR 540 in sales value and MEUR 39 in leasing value if using 7 % as average leasing fee. Applying a discount rate of 10 % over 10 years gives a Net PresentValue of the same of MEUR 332 without including typical growth in database volume or applying a terminal value. The leasing value of the Net Present value is then MEUR 23 – a substantial addition to a valuation.
With 30 % upwards digital reach the value will be substantial for any individual property. Given a time with high inflation, increasing interest rates and assumed reduced consumer spending now is a very good time to start evaluating your digital reach and consider increasing your investment today in an asset that has a guaranteed return over both the short and long term.
The heyday of third-party data collection using cookies is coming to a close in our new privacy-first world. First party data is free and most experts in the field agree that first party data is more accurate since it’s obtained directly from the customer. It’s also a more future proof method for data collection, and with the requirement for consumer consent and company transparency it is considered the most ethical. As third-party data becomes more complicated to collect and more expensive, the value of your first party data asset grows too.
“Increasingly, data assets are the engine driving the total value and growth of modern organizations. As a result, building a framework to discover and realize the potential of your data is critical to increasing the value you provide to shareholders, and to optimizing the future success of your organization.” - Deloitte Data valuation:Understanding the value of your data assets
Yes Deloitte, we are pleased you agree ;)