How Commercial Real Estate Can Avoid Becoming the Next Walmart

In the battle for Internet wallets, Walmart knew they were behind and had to catch up.

By Steve Grubbs and Kerry Smith

“We’ve hired hundreds of incredibly talented people, in Silicon Valley and around the world,” says [Walmart CEO] Duke of his aggressive moves. “We are playing to win.” — Fast Company 11–26–12

Four years later, they tried again. This time they acquired Jet.com and their CEO.

Wal-Mart’s e-commerce sales last year reached nearly $14 billion, or 3% of its $482 billion in annual revenue. Amazon’s sales hit $107 billion last year, including its web-service business. -Wall Street Journal 8–8–2016

But still, they were falling further behind in eCommerce; but now that meant much more than losing the Internet, it meant they might yield their title as the leading overall retailer in the world.

By now, [CEO] Doug McMillon and his board at Walmart have figured that their most recent initiatives, and despite the success of their new buying online and free Pickup in-store service, are not sufficient to hold off Amazon’s assault on their #1 rank. — Forbes 1–15–2020

For years - as the world changed - Walmart doubled down on their brick and mortar strategy, after all, it had made them the #1 retailer in the world. Amazon was small. They sold books online, didn’t they?

To be fair, if one grew up in the retail world — not tech — it was hard to imagine in 1997 that people would actually prefer to sit at home, shop on their computer and wait for their purchases to be delivered a few days later. Sitting in 2020, looking back, it looks obvious. Hindsight is 20/20, right?

Today, the commercial real estate market faces a similar challenge as businesses choose to not renew their leases or abandon plans for expansion.

But since the coronavirus pandemic has forced nearly all of MediCopy’s 200 employees to work from home, Holt has had an abrupt change of heart. He says he’ll let staffers continue to telecommute for the long term, prompting him to relinquish both of the additional offices, convert his headquarters into a training center, and save $350,000 a year in leasing costs. -USA Today 7–13–2020

Across the United States and around the world, companies are realizing they can put a lot of money to the bottom line if they don’t renew their lease. In fact, most companies spend between 2% and 8% of annual revenues on their lease (not to mention upkeep, utilities, facilities management, insurance and other affiliated costs). Despite the many arguments in favor of a brick and mortar location, business owners are seeing dollar signs.

When the pandemic hit, the first step was to adopt an online meeting tool like Zoom or Microsoft Teams. Microsoft thusly reported a dramatic increase in the number of user minutes during this time.

Like tectonic plates shifting, the world had permanently changed in literally 30 days. And even though many parts of business will go back to the way they were, none of us expect life to return to the normal we once knew.

Business quickly found a lot of benefits in a ‘work from anywhere’ world like the cost savings from ending travel, the ability to easily record the meeting for those who may not be able to make it and of course, no transmission of disease.

At the same time, we have learned that Zoom and Teams have their limits.

If you’re finding that you’re more exhausted at the end of your workday than you used to be, you’re not alone. Over the past few weeks, mentions of “Zoom fatigue” have popped up more and more on social media, and Google searches for the same phrase have steadily increased since early March.

Why do we find video calls so draining? There are a few reasons.
Harvard Business Review, April 2020

Teams and Zoom have been a lifesaver, but we’ve lost a lot without in-person meetings. Consider some of what has been lost:

1. A sales meeting gathered around a table with a potential client demonstrating the benefits of a product.
2. Group strategy meetings with breakout sessions around a table or perhaps sitting in the grass.
3. And something as simple as listening to a speaker and seeing their body language at the same time you see their slides.
4. But most of all, sitting and staring at a screen for endless hours as others watch to see if your eyes avert from the content at hand.

Let’s face it, sometimes it’s good to have a meeting around a table where everyone can look at each other and address each person in a traditional way.

Sometimes, you want to take the prospective customer and walk them around the showroom, talking and building rapport as you describe features.

And sometimes, it’s good to have an auditorium filled with people watching the slides as they dazzle (well, maybe slides never dazzle).

Think about how KLM — the Dutch Airline — solved this problem.

In addition to training pilots in virtual reality — a practice used by the U.S. Air Force for years - they also now hold business meetings on a virtual reality platform that gives them the option of traditional meetings without the travel. This is the world of digital twin real estate. If a company that specializes in travel is embracing it, others are sure to follow.

And think about how HTC Vive solved the problem when threatened with the cancellation of their annual conference in the pandemic spring of 2020.

They simply moved the conference to the virtual reality platform, Engage. Alvin Wang Graylin, the well-respected president of HTC Vive China, spearheaded the effort and upon conclusion declared it a success. But HTC went beyond words by investing $3 million USD into the platform they utilized.

One attendee of the conference described it this way:

Much like a real-space event, I experienced the visceral anticipation of meeting strangers, accompanied by a slight sense of uncertainty regarding the proper form and mechanics of interaction with other avatars. With my microphone off, I lurked around the edges of the room looking at displays and eyeing the crowd from a safe distance (so far so normal). The hum of conversations, spatially rendered, is a compelling aspect of the immersion.

Like other conferences, HTC Vive’s annual product showcase had keynotes, breakout groups and meeting breaks for attendees to mill about and get to know each other.

Of course there are do’s and don’ts to holding a business meeting in virtual reality and we laid those out in this article.

So, what is the opportunity for commercial real estate companies?

Much like 1997, the world is shifting. Consider these comparisons:

• Most commercial real estate will remain in play, just as most brick and mortar retail stores exist today.
• A small portion of savvy early adopters will begin using digital twin real estate, just like early adopters began using Amazon in the late ‘90’s.
• Initially, a small marketplace will be created for those seeking to rent digital work space for meetings, conferences, sales and other commercial needs. Over time, this will grow and then hit a hockey stick growth curve.
• Most large, incumbent commercial real estate companies will ignore the shift to digital twin real estate just as Sears, JC Penney, Kmart and Walmart largely ignored the trend for the first ten years.
• Nimble startups will begin to gain ground in this new type of real estate — just like Amazon, eBay, and Shopify — creating a lead that is difficult to overcome.

There’s an argument by some in Silicon Valley that this is all inevitable. Large, incumbent players have too many friction points to have the agility to move in a new digital world. But there’s the alternative possibility as well. Incumbent players, with their existing relationships in the world of commercial real estate could gain ground the fastest if they chose to explore this new world and implement a meaningful, well-funded strategy.

If that’s to be the case, commercial real estate needs to take these actions to avoid the decade of stumbling about that Walmart encountered as they entered eCommerce:

1. Begin now with an open mind. Some executives are good at anticipating the future, while others understand the past and execute well on those lessons. This moment requires the former.
2. Because digital twin real estate (the concept of an office space, retail outlet or manufacturing facility recreated in a digital world) can be explored through either a VR headset or a PC, invest in a VR headset and begin exploring.
3. Make three lists: those things that can be done well on Zoom or Teams, those things that can only be done in physical real estate and those things that can be done well (or better) in digital twin real estate.
4. Put bright, entrepreneurial minds on the task with broad authority to move quickly and try things. Be sure they understand that they may fail more than they succeed early on. These people may also not have an MBA. Frequently, the attention spans of the most successful entrepreneurs are too short to sit through years of college; but that doesn’t mean they don’t possess great business minds.
5. The CEO should actively supportive the effort. This is a megatrend that will play out over the next 15 years. It will require perseverance and resources. It will not yield big profits immediately, but ultimately, it will be the path that gives incumbent players an onramp to the future.
6. Partner with those who know their way around digital twin real estate. The space requires coders, 3D object creators, and people proficient in the management of spatial worlds. There are a handful of qualified companies and platforms, be sure to engage with at least one of them.

It’s tempting to ‘dance with the one who brung ya’, after all, the best predictor of the past is the future — except when it isn’t.

The corporate graveyard is littered with companies who failed to embrace the digital future even when it was staring them in the face like a grim reaper waiting to take them away. Blockbuster, Kodak, Encyclopedia Brittanica, and many others exist in that graveyard with executives exclaiming they did their best.

It doesn’t have to be this way. In 2020, Walmart is starting to overcome their eCommerce problem, as they have seen a 79% year-over-year increase in sales. A decade of effort is catching wind in its sails (sales).

If they are able to catch Amazon, it will take years, if not decades, but their continued efforts put them in a place to be a winner as the 2020 pandemic hit.

Commercial real estate is at their 1997 moment as virtual reality platforms, coupled with affordable headsets, are just now coming into their own. There will be winners and there will be losers, and the next few months will determine who the early winners will be.

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Steve Grubbs is the founder and chief technology officer of ChalkBites, a startup company specializing in the implementation of work from home strategies in the world of spatial virtual reality. Contact: steve@chalkbites.com

Kerry Smith is a CPA formerly with McGladrey (RSM) and Honkamp Krueger. He now serves as CEO of Chalkbites, guiding the business development and management of companies transitioning to virtual reality solutions. kerry@chalkbites.com