2015 hasn’t been kind to retailers. True, a few have done very well and are continuing to do so, but most have not. Most, including major supermarkets, are struggling to survive. Generally, honourable, they may pay rents on time which is why landlords don’t have the whole picture, but that doesn’t mean the tenants aren’t in difficulties.
For rent and other payments under the lease, retailers have to make enough profit out of the difference between the total cost to the retailer to buy stock and for how much they can then sell that stock to customers.
Profit margins vary, supermarkets for example, operate on very low margins, but higher margins do not necessarily translate into higher profits: the determining factor is rate of stock turn. How quickly a retailer can turnover stock depends upon the retailer’s stock selection and consumer demand.
To differentiate themselves from others, each retailer has its corporate image. Corporate image embodies everything the business stands for in relation to the market for the type of products and services the business offers. All businesses expend time and effort on building and maintaining presence. The idea is to attract enough customers to support and sustain the on-going development of the business.
An entrepreneurial paradise, retailing is intensely competitive. Competing for attention, more importantly how to succeed, is both an art and a science. The basics are reasonably straightforward, but not all businesses have what it takes to get off the ground and stay there, which is why the average life-expectancy of a new business is 3 years.
Even amongst those that manage to overcome the hurdles, long-term survival rates before crashing are not impressive. Those that do succeed in making a go of it are relatively few, not necessarily because they’re any better, often it’s that they’re not as bad.
Amongst my talents is an ability to help retailers and landlords experience long-term consistent success. For landlords, rising income and any voids not for long. For retailers, keeping property costs at an economical level. Anyone can get it right to begin with, before coming a-cropper. Consistent success, throughout ups-and-downs, is challenging: what it requires, above all, is a way of thinking inside the box. The box is the shop, a physical place or location for the business.
Physical places don’t change, but how people relate to them does. In the relationship between people and place, the default-setting, usually the town where we are born, is neutral. Whenever we regard a place as better or worse, our inclination steers us towards or away from wanting a relationship with that place. Coming to terms with the reality is a gradual process that can be accelerated by the corporate image of both business and the place itself. For example, given a choice between a town that provides car parking free of charge and one that doesn’t, most people would opt for freedom. But if there were not enough retailers in the free town to capture attention, then most people would accommodate the cost of paying for parking. Similarly if there were not enough people in the free town with enough money to capture the attention of retailers then retailers would gravitate to where the money hangs out.
Essentially, the reason that customers go shopping (including on-line) is to satisfy a need of some sort. Everyone has the same basic needs. We satisfy needs through the form of wants. When we want something, a product and/or a service, essentially what we are saying is that we want to satisfy some need. Having to satisfying a need through buying something is not always necessarily the only way.
When buying is the preference, and the customer has a choice, where we spend our money depends upon with which business we want to associate. That’s where corporate image comes in. Corporate image is tangible and intangible. Most retailers are good at tangible, the practical stuff; where most trip up is in the intangible. In the recipe for making corporate image work is the art of sustainable relationship. A relationship is a ‘vehicle’ for conveying help for a shared objective. Help is instinctive, help enables progress. Through relationship, we help and are helped, in some way and at some level.
Every upturn in the economy attracts new entrants. The market shifts to be accommodating of ideas, but mostly superficially. In retailing. a trend latched onto by corporate landlords is for lettings to smaller multiple retailers of so-called ‘artisan’ businesses which, ignore the hype, often nothing wonderful, but to a landlord are naive enough to commit to a rent level that, through applying the comparable evidence pro-rata principle, will enable landlords to drive those local traders in the firing line out of business.
The changing character of town centres is an on-going story. In the shallow end, market shift is an opportunity for landlords to increase rents across the board. In the deep end, whether a retailer is able to keep pace depends upon how psychologically-equipped the particular retailer is at appreciating the difference between market momentum and individual achievement.
Retailers come and go, but places remain constant. Every so often, for all manner of reasons, more retailers fall by the wayside. Tangible is easy. The challenge for retailers is the intangible, whether a particular trading position would work can only be discovered through experience, which means committing to leasing premises on the basis of hope.
Property leasing commitments are costly to enter and usually expensive to extricate. The amount of money that many retailers throw against the wall in the hope that some of it will stick is no longer the way to attract customers.
To join the few retailers that are doing well, the secret is to know how to form, develop and maintain profitable relationships. Not as many retailers are as good at that as they might like to think, it doesn’t help that their marketeers are none the wiser! The world is changing. More and more retailers are having a job to keep up. For landlords of shop property, 2016 is going to be a year to remember.
The Rent Review Specialist