Going against the current in retail
It is hard these days to develop an investment thesis that does not relate to the pandemic. Particularly in real estate, research shows that in the travel and tourism industry, not only was $2.1 trillion lost in value during 2020 but, more worryingly, nearly 75 million jobs were at risk as a result of COVID-19. Developers weren’t able to obtain permits or were faced with construction delays, stoppages and reduced earnings, according to McKinsey. Even though essential business continuity was ensured by governments in businesses that provided food and critical products such as supermarkets, corner shops and pharmacies, retailers selling non-essential goods have seen their stores closed — even if online retail grew almost 31% in Europe, GDP dropped by 12% in a single quarter, which hasn’t been seen since World War II.
In many verticals, the pandemic has had devastating short-term effects that we hope will not linger in the years to come. But, as with all crises, there is a silver lining to every economic downturn. For example, the change around the world has made retailers take the time to review their strategies and focus on improving their processes and for a good reason, as using AI in retail can bring a £27 billion upside to the industry, while retailers that prefer to use AI are growing 30% quicker than those that choose not to. Retail sales volumes also expanded 1.5% in September and are 4.7% higher than in 2019, the largest annual rise since April 2019 and are even higher than before the pandemic started.
We have previously written a case study focusing on retail alone, by our very own Andy Saull, Head of Research at Pi Labs, to understand what would be the underlying effects of the pandemic in the retail sector, in particular, the rise of flexible leasing, more data-driven decision and a better understanding of the customer journey. And this is how we found out about our newest investment: Placense.
Old-school analytics
Using data to understand customer behaviour sounds like a concept that has been around for quite a few years and, in fact, it has. Nielsen, one of the largest marketing research companies, has been doing so for a number of years and pretty much every retail landlord has heard of the likes of CACI. However, the vast majority of the industry is still either using manual processes such as surveys, manual counting (like the picture below) or, at best, laser counters. And this is when they aren’t relying on pure gut feeling (why wouldn’t you open a store in Oxford Street?).
Following our research, we decided to dive deeper into this space and understand the main players and key differentiation points. There are obviously a plethora of companies that collect and analyse in-store data, using people counters, thermal imagery, IoT sensors, WiFi and many others, to such an extent that these technologies became quite developed. This information is incredibly useful, as in-store analytics are said to improve customer experience, increase conversion, optimize promotions and promote A/B testing scenarios.
However, a customer journey does not start when consumers enter a shopping centre or a physical store. It factors in details such as: what do people search for before deciding to leave their homes, where do they live, how do they go to work, where do they work, where do they have lunch and other important details such as if I can’t find what I was looking for, where do I go next? And luckily for us, Placense covers all of this.
The holistic approach
I first met Dan and Avi back in Nov-19, after having multiple people tell us that we should take a deeper look into what they were building. At Pi Labs, with our new fund, we set out to find the best and brightest founders across Europe and Israel, but had struggled to find the first start-up that we wanted to back in the latter. Weirdly enough, my last investment before leaving Portugal was also into an Israeli company, so making my first investment at Pi Labs into another company from that same country only seemed natural.
We dived deep into conversations that lasted for a few months (we were still working in the first close of our new fund) and I got to know the team quite well, as well as their technology. Placense’s focus on GDRP compliance and their algorithm that takes a privacy-first approach allows them to get incredible granular detail on consumer behaviour from the moment customers wake up until they go to sleep, by tapping into third-party mobile phone data providers. As a proof point, it also helped that even though they were based in Israel, Placense already had customers in Germany (with access to almost 12 million devices) which is arguably the strictest country in the world in terms of GDPR compliance. Placense’s approach means that they can work on several use cases for different types of customers:
- Retailers: using Placense, they can understand how their footfall compares to anonymised competitors in several parts of a city rather than using surveys;
- Brokers: capital markets teams are using more and more data to inform their real estate sales pitches and adding Placense’s insights can drive their likelihood of success;
- Consultancies: similar to brokers, with the added benefit that this type of data also serves for audit purposes;
- RE Developers: the additional data, combined with industry expertise is an incredible step-up from the more traditional methods such as people counters;
- Out-of-home (OOH) advertisers: using this data for A/B testing and measuring the impact of a given campaign, while also understanding the frequency of people that go by these signs.
Another thing that impressed us about Placense was the traction that they were able to achieve since its inception. After being funded by Innogy and Nielsen back in Aug-18, they were able to secure their first customer by Nov-18 and since then have acquired the likes of Cushman & Wakefield, Nuveen, Drees & Sommer, KPMG, BCG and REWE.
Unsurprisingly, due to the pandemic, this was not a straightforward investment and had a lot of twists and turns over the past 6 months. Regardless, the team was relentless in their efforts to close the round (which was led by Zero Gravity Capital and included new investors Blue Minds, alongside existing investors Innogy and Nielsen) and I cannot stress enough the lengths that the founding team went to in order to satisfy our strict requirements.
What is next?
To begin with, Placense was able to make use of the silver lining angle of the pandemic and have an impressive last quarter of the year, which makes us really excited to see what they are able to do over the next few years. They have also already expanded to The Netherlands and we hope we can help them tap into the rest of the European market. They are also on a hiring spree to make sure they can handle demand, so be sure to keep track of them if you want to work in an incredible environment!
And lastly, Dan and Avi have been incredible founders so far, catering to all my wild requests and impressing LPs and other real estate players alike. Plus, they are quite happy that they are having early access to the vaccine, meaning they will be knocking on doors sooner rather than later.
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