When we enter into a lease or purchase a business with an existing lease, it is an unfortunate trait of human nature that any research on the location and its sustainability invariably stops there and then. Retail Leases are complex, with very specific conditions and critical events, and it is safe to say that it is not until one of these events is upon us that we start scrambling to pull together all the data required.
This is a very reactionary approach and such data will usually be limited to the current location skewed to support a singular position on rent. Despite this, there are many substitute locations out there, from suburbs and shopping strips to retail precincts and shopping centres, and the markets they create and operate in are constantly changing.
With expanded price disclosure, there are two key questions that Retailers need to constantly ask themselves: is my shop location still relevant, and is it still suitable for my business? Here is some helpful advice for tackling those questions:
Research is mandatory
Research into your current and alternative store locations, market pitch, branding, competitors and lessor is mandatory.
As an example, a recent outcome of applying sound research to an existing Pharmacy with a pending lease renewal showed that the business did not need to remain within its current shopping centre location.
Being adjacent to a large Supermarket for over 10 years, as well as the Landlord’s expectation on rent when compared to the real estate performance, identified that these premises were no longer suitable for the Pharmacist. Renewing their lease, even at the passing rent, was not a prudent business.
The research also incorporated nearby location options and with this data available the Pharmacist was able to make the bold decision to relocate their store.
Although seen as an inferior site, the vacant video shop directly across the road with main road corner access, dedicated parking and even a pylon sign, proved to be far more suitable for the future of this business. A highly motivated Landlord also further enhanced the appeal of this option.
As a result, the Retailer’s occupancy costs were halved and the business also benefitted from some generous rent incentives. The business was also free from the constraints of its previous shopping centre located in terms of trading hours, signage, marketing and car-parking.
Numbers increased through greater access and convenience, along with trading hours to meet consumer demands.
While retail sales did reduce slightly at first, sales soon exceeded those at the old shopping centre site due to the support of their franchise in re-aligning the range and merchandising to meet the new site’s customer demands and convenience.
The overall cost of the move was more than covered by the significant increase in profits. When merged with a long-term lease with options, the value of this business reached levels that would never have been achieved if it had remained positioned alongside a major Supermarket.
Information is power
As this example shows, the value of research, not just at a critical lease event, but as an ongoing focus, can empower your business.
With all the research data available to you, think of the leverage you can create at your next rent review with your Landlord.
More importantly, you will always be better placed to ensure that your Pharmacy, market pitch, branding and promotions remain relevant and aligned with the commercial terms of your lease.