FSP Retail Blog

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• the consumer’s own ‘thinking age’: i.e. how young or old do I feel? 
• the image the consumers wishes to project with the merchandise they are seeking to buy: i.e. stylish or safe?

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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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Socially Acceptable Insanity

“Socially acceptable insanity” has been defined as repeating an unsuccessful pattern of behaviour and expecting it this time to be successful. We keep on doing the same things, even when we know they don’t work, and are surprised by their repeated failure. If things aren’t working, it’s madness to keep repeating them. It’s time to make a change.

Changed behaviour is evident amongst retailers. SnapShop this month notes that Dorothy Perkins, New Look, River Island and Furniture Village are all extending their merchandise offers into a higher price range, to better serve the needs of their customers. It also reports on the emphasis the Big Four grocers are giving to their £1 offers. Asda now claims to be “Britain’s biggest pound operator”. Tesco, of course, manages to have a foot in both camps. It reports both increased sales of premium and ethical lines and has launched in-store “Pound Shop” zones.

What about retail property development and urban renewal? Are similar changes evident? The existing model, whereby anchor tenants demand substantial incentives and local councils impose heavy Section 106 obligations, is broken. For unit shops, the ratio of occupancy costs to turnover in new developments exceeds that elsewhere in comparable markets. The cost-benefit ratio of anchor stores has become unsustainable. The response of developers has been to increase the number of unit shops. With insufficient shopper demand to support the whole development, the vitality and vibrancy of neighbouring centres is endangered.

The lack of further town centre retail developments would be as unwelcome to local councils as to developers. Dissatisfied shoppers will migrate even more rapidly to edge-of-town supermarkets and to on-line shopping. Without retail driven urban renewal, conditions in British towns will return to their state in the Seventies. The need for a new retail development model is urgent.

Some point to smaller scale developments in small towns as being more sustainable, without the need for major anchor stores. Others are looking for lessons from Factory Outlet Centres which have anchors but without the scale of dominance of department stores. Still others muse on the possibilities of restoring traditional markets to their former role, noting the continuing rise of Farmers’ Markets with their implications of wholesome, local produce. Effective maybe in West London but what about Newport?

However, while a new model is urgently required, there is little sign of one emerging. FSP has much of the data required to inform the debate. FSP will be at the BCSC Conference in Manchester in November and you are invited to participate in a debate on this subject. The present seems an appropriate time to start to return to sanity.

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