Some managers of physical stores are getting paid for online sales too – and landlords want a slice of the action

While in Downtown Los Angeles a few weeks ago, I saw a large sign – like an oasis in the desert – for Dunkin’ Donuts coffee at a subway stop. Instinct took over and I followed the sign’s directions down into the station, but alas there was not a Dunkies to be found. Taking revenge, I went to Starbucks. That’ll teach Dunkies for trying to fool me with its outdoor advertising! It’s a rare occurrence when advertising costs a company business.

Unlike this misadventure in advertising, the effectiveness of bricks-and-mortar retail real estate to act as a kind of billboard is undisputed. The power of the ‘store as advertisement’ has only increased in the omnichannel age, making it increasingly likely that consumers will buy a retailer’s products online after seeing its signage or walking through one of its stores.

Health ratios (rent as a percentage of in-store sales) are the most common metric used by landlords and retailers to determine how much rent a tenant can reasonably afford. Percentage rent is largely disfavoured by landlords and their lenders for being too difficult to underwrite or subject to manipulation.