In the past thirty something years I have had both the pleasure and horror of having met, interviewed, negotiated, and worked with countless retailers. For the most part their ranks are filled with ambitious and optimistic sorts that somehow can not only eek out a living, but can prosper and grow into admirable operations. Through the process, which ranks well into several hundred of retailers and would be retailers I have grown to quickly assess their chances of being either the next great retail chain or just another retail has-been. Much of my career has been working for shopping center groups to make such assessments and quickly give the prospective tenants the thumbs up or down.
So just how many dog biscuits are you going to have to sell from your prospective doggy bakery to just pay your rent? Can you really do that when your store is located next to a dentist and nail salon?
I’ve learned through that process some cautionary red flags on whether the would-be retailer has any chance at all in making it past that crucial first year (or until their savings dries up, whichever comes first). The first red flag comes after I ask the most basic of financial question: “well Ms. Jones, what kind of sales do expect to do in your store?” It is surprising just how many folks have no concept at all on the simplest of financial projections, not to mention something as basic as what their break even sales level would be! Often the question is brushed aside with the claim that their accountant has that information. If you don’t know something as basic as that, keep the day job.
The second red flag comes when the prospective tenant is more concerned about how much rent he may have to pay than how much business he can do from your shopping center. While it is certainly important to be cost conscious in any business dealings, the good retailer is going to be focused on how his “top line” (i.e., sales) is going to do at your shopping center rather than only focusing on finding the cheapest rent. I often see prospective tenants go to certain shopping centers that I know are cheap deals, oblivious to the fact that their sales will languish…well at least they will fail knowing they got a good rent deal!
A third red flag is when the concept just doesn’t have legs or just is a poor or meaningless combination of things. Combining an art gallery with a yoga studio just isn’t going to work no matter what you say. If the concept has never been done before, there’s probably good reason for it.
Is it a trend or a fad? Trends are often longer term changes is societal tastes and preferences that naturally spin off into businesses and merchandise catering to the trends. Fads are short lived and often spawn a plethora of look alike business start-ups that almost always crash and burn within two years. Remember the rash of yogurt franchises in the 80’s, followed by the gelato, frozen ice berry knock-off’s, and of course the fro-yo shops. The first ones often appear for the first time in NYC or LA and spread like wildfire to the point of over-saturation and people really reaching for the stars in locations that just don’t work. Different exercise inspired studios are always starting up and closing down.
Innovation in retail concepts is what every shopping center and mall operator hopes to uncover as that freshness keeps their real estate relevant. So it’s often the job of the leasing professionals to try to distinguish between the innovative and the ill-conceived. Sometimes, we just may stumble across the next Chipotle!