Recipe for success

Published:  30 April, 2013

Creating an effective tenant mix is key to the success of any shopping centre but attracting the right brands can be a challenge, especially in a changing retail environment and with an unstable economy forcing consumers to spend carefully.

Each leasing strategy is unique depending on location and positioning but landlords of centres big and small, community-focused or fashion-forward agree on three things – that tailoring leasing strategies around customer research is more important than ever, that there has to be a renewed emphasis on effective communication with potential tenants and that attracting the modern retailer requires a new level of flexibility.

“There is a need to fundamentally reassess leasing strategy, especially in the current economic climate,” says Gerald Jennings, retail portfolio director – North, Land Securities. “Gone are the days you can build a centre and retailers come; it’s demand led rather than supply driven. We need to go back to the fundamentals and think about what makes a successful shopping centre. Up until 2007/08 it was relatively easy but both confidence and consumer spending has fallen since then.

“We’ve got to roll our sleeves up and understand the key metrics and the USP of each asset, as well as understanding the consumer. It isn’t one size fits all – it’s about understanding the demographic and what each individual centre needs.”

Land Securities undertook hard research with a view to update leasing and marketing strategies based on the findings. At the White Rose in Leeds they rediscovered that one of its key USPs was its family friendly approach and that led them to re-think and expand the F&B and leisure offering. In line with that objective, a planning application has been submitted to expand the centre. If given the green light, the extension will include a cinema and four new restaurants.  

The Bridges in Sunderland was the next target for re-assessment. The centre has a very different dynamic to the White Rose and while it is 99 per cent let and enjoys annual footfall of 20m, the team felt there was a need to improve dwell time. Like at White Rose, improving the F&B offer was the solution and they’ve attracted a new wave of operators like Cafe Nero and Krispy Kreme.

“The key is to understand and manage the catchment and absolutely gear the tenant mix towards what they want,” says Hermes asset manager, Ben Tolhurst. “Getting the tenant mix right is about understanding the make-up of the catchment. Shoppers can always make the decision to shop elsewhere but if you’ve got the right line up, people will come to you.

“In tough economic times people have less money and are making fewer shopping trips and they may not visit your centre unless you can provide a destination. And if people don’t come, retailers won’t come; it becomes a death spiral, especially in poorer towns.”  

Christopher Place in St Albans, which Tolhurst describes as “recession proof”, has a wealthy catchment but one made up of residents who might choose to shop in Knightsbridge or Bond Street rather than stay local.   

“We went about creating the right environment to attract premium brands and in some cases that meant weeding out tenants that were no longer right for the centre,” explains Tolhurst. “We were prepared to lose a couple of tenants whose leases were due for expiry to build a more consistent tenant mix, and one that appealed to the catchment.”

New brands include Cath Kidston, Links of London, JoJo Maman Bebe and Neil’s Yard, while The White Company, which was already a tenant, upsized.

The strategy in recent years has been to create a critical mass of the right type of retailer, something Tolhurst says will inevitably drive up spend. And Hermes has gone one step further at thecentre:mk by banding similar retailers together into distinct zones.

“Over the last three years we’ve made sure tenants are grouped in certain areas – premium, fashion, home and lifestyle for example – so shoppers can more easily orientate themselves and don’t have to walk 1km down to the other end of the centre to find what they want,” explains Tolhurst. “Sales densities have increased as a result because it’s easier for shoppers to make comparisons between similar retailers.

“You don’t have the luxury of doing that easily unless you develop a scheme. In a living, breathing centre you’ve got to have a plan but if you stick to reconfiguring, it will produce dividends.”

According to Tolhurst, zoning helps agents negotiate with potential tenants because it’s easy for them to imagine where they’d sit within the scheme. At thecentre:mk, the team has also worked to encourage retailers to re-think stringent requirements.

“White Stuff signed up when we were in the process of improving the premium offer at thecentre:mk,” explains Tolhurst. “The significance of that deal was that it was their first shopping centre store in England. They’re among a group of certain brands like Cath Kidston and Jack Wills, who only want to take olde-worlde units in Tudor buildings in traditional market towns like Oxford. But if you want to tap into a market like Milton Keynes, you don’t have a choice because most of the town was built 30 years ago. Some said they’d never break the mould but they might have to reconsider; White Stuff is trading its socks off and it makes them realise when a respected retailer says ‘Come on in, the water’s lovely.’”

For Westfield UK operations director, Bill Giouroukos, the second facet of its leasing strategy, after its primary focus on the customer and conducting research into what they want, is to monitor global trends. As he explains: “It’s important for us to keep abreast of global trends, introducing things that are happening in the world, such as a move towards food and leisure – you can’t always rely on the customer research to pick those things up because there may be trends consumers aren’t aware of yet.”

Another string in the leasing strategy bow, and a key one in attracting the right brands, is communication, and for Jennings, it’s a relatively simple case of targeting the desired retailer and being able to tell them ‘We understand your brand and we think it’d be a good fit for our centre’.

“Retailers don’t always understand or appreciate a particular centre or the area it’s in,” explains Land Securities’ portfolio manager, Harlan Pollitt. “We’ve undertaken research to better understand the retailer and how they might fit into a centre. We spend time with them and walk the centre together, talking about how they might integrate into a certain part of the mall.  

“We operate turnover leases so we need them to succeed. It’s about partnership and we have to deliver on it; and we can’t always do that remotely. There’s greater chance of success if it’s mutual.”  

For Tolhurst, the best way may be to approach retailers directly, providing them with research, data, exit surveys and notes on how existing retailers are doing, even if it’s anecdotal.

“If you have an existing tenant your target retailer wants to be near, show them how it’s trading. Any information, sales densities etc, will be useful. Good quality marketing collateral will give agents the materials to sell the dream and tailoring data in various ways to a particular tenant can be really powerful.”

Swings and roundabouts

With UK vacancy rates high, a 100 per cent let shopping centre is an achievement. But can it also be restrictive?
“It’s always useful to have a bit of room for manoeuvre,” says Jennings. “If you’re 100 per cent let on ten year leases without breaks it’s fantastic as an investment, but how do you move forward?”

For Giouroukos it’s a good problem to have. And even when a centre is 100 per cent let, like Westfield London, there are always opportunities to freshen up the tenant mix: “Leases are staggered, retailers might want to upsize, downsize or relocate and then there are unfortunate things like administrations and other economic reasons which affect us all,” he says. “The thing to remember is that we’re in retail property because it’s dynamic and because things do change.”

But he is keen to point out that there will always be retailers looking for the right space: “In the current climate, retailers might be more discerning about location, looking only for good, strong retail opportunities and pulling back from the weaker ones,” he says. “But in a recessionary period, it isn’t all about the contraction. Retailers are upsizing as well.”  

Communicating with existing tenants is also vital in assessing how they’re performing and identifying why particular retailers are less successful, potentially allowing you to move tenants around and allocate space for more sustainable retailers. Jennings says it’s not unusual to find that one retailer will perform better in a smaller unit while another will perform better in a bigger one, fixing the problem with a simple swap.  

“If a centre’s 100 per cent let there’s a good chance not all of those tenants are happy,” agrees Tolhurst. “They might put dwindling footfall down to their location on the mall and the distance between them and similar retailers. Upsize, downsize or relocate where possible.”

“It takes continual investment,” he adds. “People like change, they like to see their local shopping centre renewed and reinvigorated. Towns are cities are often accused of being clones – you might have an area for independents in order to introduce a point of difference and to incubate start-up businesses. People remember if there’s a store they haven’t seen before in any other town. It gives you a competitive edge.”  

Tolhurst’s last piece of advice is to think about the long term, even if that means turning retailers, and their rent money, away: “There’s no point throwing brochures at any old retailer, you’ve got to fill a space with the right retailer even if that means compromising on rent because in the long term, you will add value,” he concludes. “Sacrifice short term revenue for the benefit of the future. Often the sum is more powerful than its constituent parts; add to the whole before considering the financial terms.”

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