In this economy and the shopping centre property market, it is important to understand your customer and continually monitor their needs and requirements. Rent and leases need to be protected from the impact of the economy. Great retail properties do not just happen, they are shaped and built on to a plan.
The way to strengthen the shopping centre performance and underpin the rental is to optimise customer visitation and spending. When the rental for the property is underpinned by good levels of trade you have happy tenants. This is the fundamental focus that all Landlords, Shopping Centre Managers, and Leasing Managers should aspire to. Get the balance of rent and sales under control.
Today’s Economy and Retail Property
Given that the economy is under some pressure, this has real impact on the levels of sales that some tenants can achieve and some properties can create. In this market the tenant mix and stability for your shopping centre becomes more important than ever before.
This optimisation always comes down to the customer in every respect. Landlords and shopping centre managers in today’s economy must be ever vigilant to strengthen the property performance. Careful tenancy placement and customer interpretation is part of that process.
Without customers in a retail property today, nothing will work, regardless of how new and modern the property is. It is the experience and service that a property creates that brings customers back. Your property experience needs to be equal to or better than any other in the area. To do this you need to know what your property is trying to do and who it is trying to serve.
Any negatives that the customer sees or identifies in the property must be minimised. The customers that visit your shopping centre should ‘feel good’ regards the experience. You want them to come back often. The ‘feeling good factors’ about a property can be many things including:
1. Car park usage
2. Safety and security
4. Ease of access
5. Public transport
6. Tenant mix offering
7. Presentation of the tenancies
8. Common area services and facilities
9. Price points
10. Entrances and thoroughfares
11. Demographics of the customer base
12. Special social areas and food courts to extend the visit.
13. Entertainment facilities.
Undertaking customer interviews on a regular basis is a sound and sure strategy to maintain awareness of the needs and the demographics of the customer. Customer surveys on a quarterly basis undertaken by a professional survey company, on different days of the week, will capture the sentiment of the customer. The results of the surveys can be integrated to your property business plan and budget. Regularity in the survey process is important so that you identify any changes as they start to impact on the property.
In this market, landlords and shopping centre managers should be sensitive to any negative feedback which has commonality across the customer surveys. Look for common complaints and observations that customers give you, and then adjust your property quickly to minimise impact on the rental and sales.
The performance of retail properties will be easily affected by any comparable properties and competing properties nearby. This means that the new development activity in the precinct should be monitored. You can do this by keeping in touch with the local planning officers and municipal offices.
This also means that existing competing properties should be monitored for their success and service in the same market. Discretion is the name of the game when visiting and assessing competing properties given that property performance is a sensitive topic. Do however visit the competing properties on a regular basis and on different days of the week.
The vacancy factors in competing properties can have impact on your property, especially if that other property is offering attractive incentives for new tenants. In this retail property market, incentives are very active and will sway the thinking of any prospective tenant. The reality of incentives however, is that they are not free. Some tenants do understand that fact.
Any provided incentive is (or should be) amortised back into the lease deal, so it will be paid for by the relative tenant over the term of lease. Sometimes tenants simply see the incentive offering rather than the payback.
If you are competing with another shopping centre that has seemingly more attractive incentives, part of your negotiation strategy to derail their lease deal and incentive offering could include the reminding of the tenant as to how and why incentive is recovered. To prove this to the tenant you can do an NPV (Net present value) analysis of your lease offering over the term of the lease and then compare it to the other property. It is the value of the lease over the term that is more important than the initial lease incentive. The NPV analysis will help you prove that; numbers speak volumes when it comes to negotiation.
To keep on top of the customer sentiment, the interview process that you undertake regards your property should be carefully formulated. Some of the questions below are worthwhile incorporating into your questionnaire that is to be used by the marketing survey company.
Any property survey that you undertake should cover the following areas:
- Visiting Who? Find out what stores your customers are visiting and for what reasons. Stores that have relatively low sales volumes may actually attract shoppers to the centres and thereby contribute to the property success overall. It is not so much the sales volume you are concerned with, but rather the profitability and the offering between tenancies. When sales are up, then your main target is achieved.
- Sales Figures? Any service tenants that do not report sales figures to the centre management (for example banks, professional services and public facilities) frequently draw large numbers of customers anyway. That has some benefit to you. The location of service tenants in your property needs to be considered carefully. In themselves, service tenants will generate a path of foot traffic from which the specialty tenancy mix can be optimised and positioned. Service tenants unfortunately do not normally pay the same elevated levels of rental that you will achieve from a specialty retail tenant. For this reason, the location and number of service tenants in the property should be carefully considered and balanced. You would not normally give your best property locations to a service type tenancy. They detract from the retail atmosphere you are trying to create and can start to turn your great retail property into an ‘office block’. Eventually that will mean lower rent.
- Regularity of Visits? How often does the customer visit your property and on what days? It has been shown that over half of the customers at some shopping centres visit at least once a week. In such cases this provides an opportunity to increase the range of convenience retail tenants and services across the property. That will be tenancies such as fruit and veg, bakery, news agency, chemist, supermarket, and specialty butcher. In placing these tenancies, due care needs to be given to the ‘ant track’ of people within the property, so that each tenancy can complement each other and feed sales from and to each other. It is interesting to note that the clustering of tenancies is a preferred option today when it comes to tenancy mix. The customer does not like to travel extreme distances across properties simply to complete their shopping. This means that like related tenancies should be near each other. That strategy creates the volume of sales the shopping centre requires. Should the customer be made to walk a lengthy distance between tenancies, they soon develop a reluctance to spend extra money.
- Time and Money Spent? It is important to understand how much time the customer will spend in the property on average and in each visit. Be aware that there is a significant difference between the male and female shopper in this regard. The male shopper will typically go to the property for a small amount of goods, browse around, and then leave quickly. The female shopper will typically go to the premises to purchase a larger number of goods as well as catching up with friends. The average female shopping centre customer spends about two to two and a half hours per visit. If you find the average visit is much shorter, consider adding elements to strengthen the overall shopping experience. This can be through including physical amenities, entertainment facilities and restaurants or fast-food tenants. The demographics of the local residential area surrounding your property will tell you what people want. Also be sensitive to special case visitations to your property such as tourism, and that which comes from the passing highway or freeways. Both of these will dictate shifts in your tenancy mix to serve this special type of customer and the reason they have visited your property.
- Popular Stores? Find out how many and what stores the customers visit each time. Note that this may change on certain days of the week given that the payday for pensioners and business workers generates a shift in shopping patterns on those days of the week.
- Single Visit Spend? Many shoppers enter only two or three stores on any single visit to a shopping centre. In such cases, consider accommodating larger tenant units or premises, which may be more effective than a greater number of small tenants in generating the sales that you and the tenants need.
- Spending Pattern? The spending pattern for each tenancy type needs to be categorised. You also need to know an average spend that people undertake and in what categories. In many property situations, the turnover figures from the tenancies are gathered each month to compile a confidential survey for the property manager and or the landlord. This allows property performance to be monitored and decisions taken where a segment of retail shopping is underperforming or overperforming.
- Genders in spending? Females will continue to make up the majority of the customer base for shopping centres, but males between ages 25 and 44 often spend substantially more per visit. If this is not the case in your property, a remerchandising program could concentrate on increasing the space allocated to menswear, sporting goods, electronics and other male-oriented categories.
- Special Customer Groups? Other key customer groups whose spending should be respected are seniors and children, both of whom have significant spending potential, but may not be adequately served by the current tenant selection. Always concentrate your identified shopping groups within the property to cross sell between adjacent tenancies. For example, concentrate your shopping segments for groups such as male shoppers, female shoppers, children, entertainment, tourism, leisure, and food. This will help you will generate more vibrancy in the property. That can only mean more sales.
Ask About Improvements!
The future of property is perhaps even more important than the matters of today. An effective customer survey in a retail property should therefore ask about what specific stores and store types customers would shop at if they were added to the property and what improvements could increase their shopping enjoyment. You can also do a detailed probing for this market intelligence in informal focus groups.
As shopping centres mature and the demographics and shopping patterns change, shopping centre managers and leasing professionals must respond with remerchandising and expansion programs that better serve their markets. By using historic sales, the current space distribution and customer survey information creatively, owners and managers can increase the effectiveness of their leasing strategies.