Today, with many
major malls and community shopping centers owned by insurance companies,
pension funds, foundations, institutions and foreigners, the current real
estate depression is causing a new kind of consternation. Up until
recently, ownership meant increasing income, full occupancy, strong department
stores, and rising values; a gold-platted investment. Leveraged buyouts
of department stores, in the later '80s; a major recession, significant
overbuilding, the savings and loan disaster and consumer frugality, have
resulted in significant problems to the industry. These problems
are reflected in lower occupancy, declining overage rentals, store failures,
slower rent payments, vacant department stores, and most importantly, lower
real estate values. Where have all those guarantees, foreign buyers
and rosy computer-generated income projections gone?
In a typical scenario,
the institutional owner's staff or an outside management company has been
trying to determine what can be done to solve these problems. Unfortunately,
miracle cures are sought when quick fixes are a rarity. No doubt,
the probable objectives, alternatives, and solutions have been discussed
to death. Moreover, most of the management and executive staff have
visited the problem shopping center site several times. Recently,
while participating in solutions for a troubled shopping center, I asked
our client to add up all of his staff's time and travel expenses related
to the problem center. He was startled to find that the staff's travel
expenses substantially exceeded the amount of our fee. Next, we computed
his salary expense applied to the project. When he looked at the
results he almost had a stroke. He, like many others, never realized
what it was internally costing his company to address the problem.
The organization now has a new procedure for problem properties which requires
fewer people and fewer trips to the site. Interestingly, the process
is now faster, with quicker decisions and resulting in positive results.
Decision making is now the rule.
Historically, one
of the first steps in action-based solutions has been to replace the shopping
center manager or local management company, since obviously they must have
been at least partially or wholly responsible for the problem. This may
or may not have been true. Instead, this is often done simply to
show action. Unfortunately, we often find that previous management
were not given clear direction or authority, so the fault may not be entirely
theirs. Next, a new leasing company is normally engaged to institute
an aggressive "tenant acquisition program." Finally, when that fails, ownership
or management considers engaging outside consultants to help find solutions.
What does the consultant
do with a troubled shopping center? The first step is to develop facts,
rather than rumor, fantasy or opinion. Moreover, it should be done
by someone who has the depth of experience to read the signals and interpret
the findings accurately. Let's examine some basic steps to a factual
solution.
1. Thoroughly evaluate
the past and present performance of the shopping center, the individual
stores, retail categories, as well as the physical characteristics of the
center. It is important to determine the level and type of store
performance, turnover, and the how's, when's and why's of the situation.
Is the problem a result of external forces, poor retail mix, internal incompetence
or others? Often, it is a combination of all. Also, it is important to
understand the physical limitations or the expansion possibilities of the
complex. The analysis includes: anchors, store placement, sales performances
by store locations with in the center, access, parking, visibility, physical
condition.
2. Conduct a qualitative
and quantitative inventory and analysis of the existing competitive facilities.
This includes: location (intercepting or otherwise), date opened, square
footage, retail categories, sales performance by stores or store categories,
products, pricing, sales, market share and others. Are the competitors
also hurting? Do they have similar problems? There is a tendency
on the part of ownership or management to place a good part of the blame
here. Some of it may be correct given the tremendous number of new shopping
centers and retail facilities constructed in the past five to seven years.
Nonetheless, one must be realistic; how much really did hurt the center?
Or how much of it is directly related to the consumer's orientation to
price\value? Factually answers are required.
3. Meet with the
merchants and discuss the situation with them. It is essential to
see the opportunity and problem through their perceptive eyes. Many
owners are very dubious of this approach because it involves the tenants;
and, therefore, might affect renewal negotiations. My experience
indicates that they already know of the problems and are relieved to know
that management is doing something about it. It cannot hurt if done properly,
and in fact, can be very beneficial to tenant morale.
4. Interview the
shopping center's customers. Without
a well done customer
survey, you are going into a fire fight armed with a water pistol.
You need data regarding the actual trading area, customer shopping frequency,
store preferences, cross shopping, amounts spent, likes, dislikes, strengths,
weaknesses, suggested improvements, safety and security perceptions and
customer profiles including: age, income, lifestyle, driving time, and
other important factors. Yes, it costs money. However, without
the data, critical assumptions are made that often are totally wrong, and
yet considerable funds will be spent upon the erroneous assumptions.
Don't be foolish. Develop facts from which realistic conclusions
and solutions can be developed.
Many shopping center
owners and managers are opting for Focus Groups as a substitute for a definitive
customer survey. While it is interesting to sit on the other side
of a one-way glass and listen to the discussion, it is not an adequate
substitute. In fact, it is often dangerous because a very limited
number of people are queried regarding their patterns. Focus Groups
represent a starting point; insight into designing a questionnaire.
I find that major conclusions are being drawn from Focus Groups that are
not necessarily grounded in sound principles, nor adequate statistical
reality.
5. Establish the
Actual Trading Area based upon where the customers originate and evaluate
the age and income structural changes. Where do the most frequent
customers originate? How often do they come to the center?
Where else do they shop and with what frequency? What is the demographic
structure? Many trade areas are aging. Older people buy less,
usually resulting in the demand for less retail floor space. Also, changes
in household structure and income affect disposable and discretionary income.
The mini-baby boom is beneficial to some centers and detrimental to others.
Also, today many customers may be originating their shopping trip from
work, rather than at home. Time available for shopping is being compressed.
Shopping is becoming a chore, rather than an experience. Also, the
customer's frequency of visit is critical to truly understanding the trading
area.
The trading area
should be subdivided into parts. The primary trade area should represent
the area from which the most frequent visitors originate. The secondary
trade area represents those customers who visit on a less frequent basis,
and so on. Also, trading areas are not round. Instead, they
often tend to take on an elliptical shape because of the roadway network.
6. Conduct a thorough
evaluation of demographics and make projections for at least five years.
If you are using data from one of the computer demographic services, check
to make sure it is accurate. Because it comes from a computer does
not make is accurate. Make sure that you also order the list of census
tracts included in the data. Take a census map a check the tracts
to be sure that they are the correct ones. Finally, drive the trade area
and make notes regarding what you see. Then review the demographic
data, especially the age and income figures. Remember, in retailing
usually the most important demographic characteristics are age of the consumer,
household structure and household income.
7. Gather and analyze
the current traffic flow data. Also thoroughly study the existing
shopping patterns within the trading. We are finding that some very
large malls are being avoided because of traffic congestion and the importance
of consumer time. Also, obtain hourly traffic counts. This
will permit evaluating activity around the center hourly.
8. Analyze the strength
and weakness of the trading area. This involves studying the resident demographic
characteristics of the trade area portions (i.e., primary versus
secondary) which show strong attraction versus segments that reflect limited
attraction. Next, compare the data to the findings from the shopping
center customer survey. How do they compare? Is the shopping
center not attracting customers from some areas? Why? Is the reason
competition, road patterns, or are the resident characteristics considerably
different from the customer characteristics?
9. Calculate the
current market share or market penetration of the mall both totally, and
by retail categories. Market penetration is the same as market share.
It is important to determine the shipping center's batting average and
compare it to other centers of a similar size, location, and tenant mix.
Market penetration is determined by computing the market for which the
center is competing in relation to the sales being captured. This should
be carried out for both the center as a whole and the individual retail
categories. For example, women's ready to wear market penetration
should be computed as would all of the other significant categories.
This requires some work, but is well worth the effort because it truly
indicates where problems lie or opportunities exist.
10. A telephone
survey of residents within the trading area should be conducted.
The in-center customers survey will indicate the segments of the trading
where the center has strong attraction and, conversely where the center
has weak customer visitation. Both are important. Moreover,
it is essential to know why residents of one trade area segment do not
shop at the center on a frequent basis, in order to develop a program to
encourage their increased shopping.
The sample must be
large enough to permit considerable cross-tabulation of results.
The questions should be designed to identify both shoppers at the center,
as well as non-shoppers. This is the best way to determine possible
actions that may both increase the size of trading area and increase customer
frequency to the shopping center. What do the results indicate?
What actions are necessary to address the patterns, opinions, like and
dislikes of the respondents.
10. Identify
comparable situations and attempted solutions.
You are not
alone with a problem shopping center. Therefore, networking with other
shopping center or retail people will aid in identifying other centers
with similar problems. The objective is to see how others have approached
the problem and what solutions they have tried. Most important, what
has worked?
11. Analyze
the results and objectively develop conclusions and possible solutions.
Often, this can be painful, since it focuses on problems which might have
been addressed previously. That not withstanding, it is time to get
on with the solutions. The process may be slow, time consuming and
frustrating, especially if one is looking for a quick fix. Nevertheless,
here are some things to think about.
A. Work with the
existing tenants; do not let them get away or lose faith.
B. Realistically
where are the tenant solutions going originate, how should they be implemented,
and how much will they cost? I am reminded of a problem shopping
center where management met with each tenant, and in many cases, reduced
the rent or went to percent only. A nearby shopping center competitor
refused to deal with the existing tenants causing many of them to fail
or relocate. Today, the center management that worked with the tenants
is improving sales with an 85 percent occupancy, while the other non-cooperative
center has an occupancy of under 40 percent and has been taken over by
the lender.
C. Who, both in and
outside of the "retail" market, might represent a possible tenant.
For some centers, there will be very few new tenants for at least the next
two years.
D. What are some
other alternatives? Most landlords do not like non-retail uses in
their centers. Nevertheless, they can occupy space, pay rent, bring workers
to the center on a daily basis, and perhaps, generate additional people
to the center. Naturally, it may require some moving of existing tenants
to make it work. How does it pencil out? It may be a solution.
For example, in middle to small sized cities and towns, it is not impossible
to obtain city, county or state offices. It has been done in Canada
for years. Will it work in your troubled center?
While the economy
will likely improve in the balance of 1993, there simply are too many shopping
centers for all of them to survive. Location alone will not dictate
the winners and the losers. Instead, hard work, detailed planning,
innovated leasing, aggressive management, unique marketing, and unusual
approaches to complex problems will prevail. Nevertheless, the road
can be made much smoother, if the facts are accurate and the analysis is
comprehensive. |