Your plan for retail success requires a shopping center or mall
location. So how do you find one--and how much will it cost? Read on to
learn the ins and outs of these retail locations.
Shopping centers are distinctly different from downtown and local
business strips. The shopping center building is pre-planned as a
merchandising unit for interplay among tenants. Its site is deliberately
selected by the developer for easy access to pull customers from a
trade area. It has on-site parking as a common feature of the layout.
The amount of parking space is directly related to the retail area.
Customers like the shopping center's convenience. They drive in, park
and walk to their destination in relative safety and speed. Some
shopping centers provide weather protection, and most provide an
atmosphere created for shopping comfort. For the customer, the shopping
center has great appeal.
Can You Qualify?
Developers and owners of shopping centers look for successful
retailers. If you are considering a shopping center for a first-store
venture, you may have trouble. Your financial backing and merchandising
experience may be unproven to the developer. Your challenge is
convincing the developer that the new store has a reasonable chance of
success and will help the tenant mix.
Whether or not a small retailer can get into a particular shopping
center depends on the market and management. A small shopping center may
need only one children's shoe store, for example, while a regional
center may expect enough business for two or more.
Darrell T., a licensed dealer of Thomas Kinkade artwork, thinks the
main reason the Seattle mall leasing agents allowed him in without prior
retail experience is because the artist his gallery exclusively
represents has a great reputation--and because of the product line the
gallery carries. "In nationwide mall tenant polls, I believe [the
artist] is No. 2 in sales per square foot, second only to Sunglass Hut,"
says Darrell.
To finance a center, the developer needs major leases from companies
with strong credit ratings. The developer's own lenders favor tenant
rosters that include the triple-A ratings of national chains. However,
local merchants with good business records and proven understanding of
the market have a good chance of being considered by a shopping center
developer. So if you or your store manager has a good reputation and
track record in retailing in the area, you may be able to make a strong
case for acceptance into the center you want.
Center Costs
In examining any shopping center location, get answers to questions
such as these: Are its shoppers your prospective customers? Would the
center offer the best sales volume potential for your kind of
merchandise or service? Can you benefit enough from the center's access
to a market? If yes, can you produce the appeal that will make the
center's customers come to your store? Can you deal with the competition
of other stores?
How much space do you need and where do you want it? Naturally, the
amount of space you want will determine your rent. Many merchants need
to rethink their space requirements when locating in a shopping center.
Rents are typically high, so space must be used efficiently. What amount
of space will you need to handle the sales volume you expect to have?
Be sure that it has adequate interior space for sufficient inventory, an
area for an office, and possibly a receiving and shipping area. You
should also consider the necessity for adequate space for expansion when
business picks up.
Your location in a center is important. Do you need to be in the main
flow of customers as they pass between the stores with the greatest
customer pull? Who will your neighbors be? What will their effect on
your sales be?
"We're in [a mall that] has about 60 specialty shops," says Darrell
T. "We compared it to some of the other sites in the territory that were
available to us, and based on the information we received--sales per
square foot, other stores--we went ahead and chose [this mall]. We have
to be a little picky about our location. Galleries located in a prime
spot within a mall do much better than those that are in an
out-of-the-way location. Even though the malls are comparable, basically
a 'C' location in an 'A' mall is not the same as an 'A' location in a
'B' mall," he says. "And location in the mall is quite possibly the most
important factor--even more than the mall you are in--in my mind. As
long as you are visible and can catch the shopper's eye, I think you'll
do well wherever you go."
What will rent really cost? In most nonshopping center locations,
rent is a fixed amount that has no relationship to sales volume. In a
shopping center, the rent is usually stated as a minimum guaranteed rent
per square foot of leased area against a percentage. Typically, this
percentage is between 5 and 7 percent of gross sales, but it varies by
type of business and other factors. This means that if the rent
calculated by the percentage of sales is higher than the guaranteed
rent, you pay the higher amount. If it is lower than the guaranteed
rent, then you pay the guaranteed rent amount.
But this guarantee is not the end. In addition, you may have to pay
dues to the center's merchants' association. You may also have to pay
for maintenance of common areas. Therefore, you must think of "total
rent" when considering what you can afford to pay. Can you draw enough
sales to cover the true rent of being in a center?
Don't forget that you still have to design and finish out your space.
You pay for light fixtures, counters, shelves, painting, floor
coverings, and installing your own heating and cooling units. Some
landlords provide a cost allowance toward completion of your retail
space. This "tenant allowance" is for storefronts, ceiling treatment and
wall coverings. The allowance is a percentage of their cost and is
spelled out in a dollar amount in the lease. Some developers will help
you plan storefronts, exterior signs and interior color schemes. They
provide this service to ensure storefronts that add to the center's
image rather than detract from it.
Specialty Leasing
About 80 percent of America's 1,800 enclosed and regional shopping
malls have temporary tenants, which include kiosks and carts. There are
between 10 and 40 carts per mall at the Simon De Bartolo Property Group
malls of Indianapolis, which rely on carts to add color and variety, as
well as to generate income. Entrepreneurs can display their wares in a
prime, high-foot-traffic location with little investment. Some cart
operators move in just to capitalize on busy holiday seasons, and others
remain year-round.
Rent for in-line stores is about four times the rent for carts and
kiosks. You can buy a cart for $3,000-plus or rent one from a mall. Many
entrepreneurs find carts and kiosks a low-cost way to launch a retail
business or to supplement an existing business. You'll see a variety of
specialty products introduced this way--silver jewelry, engraved
products, imported fragrances, hair accessories, watches, etc. Some
retailers use carts as test businesses in potential markets, while
others make more than $1 million by operating several carts in several
malls and cities.
At Bloomington, Minnesota's Mall of America, about 100 temporary
tenants dazzle 40 million visitors a year. Cart rental rates are about
$2,300 a month or 15 percent of monthly sales, whichever is greater. All
temporary tenants must pay $1,500 in "key money," which pays for a
store designer to design and build a cart with the right look.
Everything Is Negotiable
Once you've decided what kind of space you want, where, and how long
you need it, it's time to consult a lawyer to discuss what specific
issues you need to address in order to negotiate the best lease for your
business. Core points to review carefully are occupancy date,
chargeable floor space, which renovations or tenant improvements the
landlord will do or pay for, services to be provided, liability, and
renewal or termination terms. Once you're close to reaching an agreement
with the real estate broker, leasing agent or landlord, your attorney
can make sure that everything is in writing to clearly define each
party's obligations.
Retail space is usually rented on what's called a "net lease" basis,
meaning that you arrange for most of its services. Unless your premises
are tied to the building's mechanical systems, the costs for most
services--such as heating and air-conditioning--are your responsibility.
The breadth of your use clause (the specific use intended for the
space) will affect your ability to assign your lease or sublet the
premises. The broader the definition, the better. If you've leased the
space to sell ski equipment, for example, and business lags because of a
lack of snowfall, you want to have the option of opening a juice bar
instead.
In addition, it's a good idea to get a restrictive covenant to
prevent the landlord from leasing space in the same building or nearby
to a business that competes with you. How far this provision extends
will depend on the type of area you're located in. In a city, it might
be a few blocks, whereas in the suburbs, it could be a few miles.
With shopping center leases, you are customarily charged for
maintenance of common areas and for the mall's marketing efforts. Find
out what the mall's plans are for any structural alterations or
remodeling, resurfacing the parking lots, or replacing the roof. These
can be devastating assessments for a young business. Requirements for
hours and days of operation, employee parking restrictions,
participation in community service events, gift certificate and loyalty
programs, and storefront appearance may not fit into your business plan
or capabilities. Make sure you will be capable of conforming to these
requirements.
