FSP Retail Blog

A bird in the hand is worth two in the bush...

…but are they all of equal value? In shopping centres and retail parks, recruiting particular tenants within an explicit retail mix strategy creates a more robust rent roll than simply taking the highest, or any, bidder. Without a tenant mix policy, the retail composition of the centre or park is determined by the judgements and vagaries of individual retailers.

Rent is paid from turnover and the lower its proportion the better. The proportion can be reduced either by agreeing a lower rent or by increasing turnover. Other things being equal, retailers whose customer profile matches the visitor profile will increase turnover more easily than mismatched retailers. Furthermore, several retailers with similar customer profiles outperform a ragbag of differently targeted shops. Historically, retailers in the same trade tended to group together in the same area of town.

There are five broad objections to shopping centres and retail parks having an explicit tenant mix strategy:

1. Retailers know their own business best, so don’t second guess them.

This over-estimates the resources of retailers and their agents to know the potential of your particular location. In FSP experience, the vast majority of retailers welcome solid evidence of the scale of the business opportunity represented by your centre or retail park

2. We’ve managed successfully so far without a retail mix strategy.

This omits the role of shoppers in making a retail location successful. FSP can demonstrate that happy shoppers visit more often and spend more per visit so that annually they are worth two or three times more than an unhappy shopper. Creating more happy shoppers increases sales, makes the retailers more profitable and therefore willing to pay more for their space. Establishing the identity of the happy shopper is therefore a fundamental step

3. It’ll only tell me what I already know.

In Made to Stick, Chip and Dan Heath describe the Curse of Knowledge which prevents experts from being able to see the issue from the perspective of the uninitiated. A tenant mix strategy gives a different emphasis to what is already known and thereby effectively communicates the potential of the location to retailers

4. It’s a sledgehammer to crack a nut.

On an established scheme, units come up one at a time, so the expense of developing a retail mix strategy is not justified. While more centres now have multiple vacancies, this may be a valid objection if the task is simply to fill it and flog it. However, FSP has been involved in a number of pre-acquisition due diligence investigations where such a policy has cut no ice with the potential purchaser

5. A different skill set is required to present the business case to retailers when it flows from an evidence-based retail mix strategy.

It can be difficult for letting agents dealing with many different schemes fully to understand the potential of each one for each target retailer. Much of the responsibility for this lack of understanding lies with the research providers who don’t make the evidence very accessible. Naturally FSP pleads not guilty to this charge but only because it is a high priority to work with the client and letting teams to translate the research into practical actions.

I now look forward to a flood of enquiries for help in developing tenant mix strategies!!

With kind regards,

Geoff Nicholson

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