How to find and secure the perfect retail site, for a fair price

Gerry Gerrard, General Manager, Bakers Delight

For anyone considering embarking on a retail venture, or existing retailers looking for a new site – where do you start in your search for the perfect space, and how do you achieve a beneficial result for your business in the retail lease negotiation process?

The science in the selection of a retail site

According to Colliers International there is around 2.6 million square metres of retail space currently under construction or expected to complete over the next five years in Australia.  More retail space means more choice – but there’s no need to be confused by the options - there is a science behind selecting the position of a store that will give you the biggest chance of succeeding.

What is the formula for success?

As Australia’s largest and most successful bakery franchise, which works both with and on behalf of its franchisees to secure new sites, the Bakers Delight property team has years of experience in securing the best possible location to ensure its bakeries deliver the greatest potential for franchisees.

The methodology behind site selection is not just a matter of choosing between a local shopping strip or a shopping centre - stores perform differently in different circumstances.  Here are some key areas to think about in crafting your own winning formula.

Macroeconomics and demographics 

The first question to ask is: what are the economic trends at play in the retail sector in general and what’s the economic profile of the area you’re considering?

It’s always worth staying across retail sector research – for example the most recent Colliers International report states that the highest individual retail sector returns were achieved by neighbourhood shopping centres (8.9%) for the year to March 2013.  Statistics like these will be essential to your decision making.

Then you need to consider the profile of the community.  Is it already well established or is there an opportunity for population growth due to housing developments in the area?  Don’t just think about what’s there now, think about how this could change over the years and the opportunities and challenges that presents.

Now consider the demographic make-up of that community, does it match your likely customer base?  Demographic profiles obviously include things like age, ethnicity and income, but it’s also worth thinking about demographics in terms of ‘life stages’ – as this is one of the biggest indicators of likely shopping habits. 

Once you’ve established that the broad economic and demographic profile of the area matches your strategy, look more closely at the position of the store within that community.

The middle macro mindset

Shopping centre or local shopping strip?  This stage is all about the potential footfall from existing shoppers in the area – so it’s time to take a closer look at the surroundings.  What other stores are close by and most importantly what mindset will shoppers be in when they’re in the area?

Being surrounded by retailers that complement your products will increase your chances of footfall.  For example, at Bakers Delight we know that being close to other ‘daily needs’ food retailers boosts our sales - shoppers will wander from the butcher, to the fishmonger to the bakery and the fruit and veg shop to stock up for the week.  On the other hand, if the shopping centre or local shopping strip is more fashion focused, even if there are thousands of potential customers per day, they aren’t likely to be in the right mindset to buy our products.

The micro matters

Yes, the micro detail matters.  For example, in a curved shopping centre more people tend walk on the inside, not the outside of a curve.  While shoppers themselves may not even realise they do this – there is a pattern to how they walk around and shop which impacts your potential footfall.  Have conversations with existing retailers in the area and learn from their experience, and try spending a few hours studying the shoppers in the area and consider how things change at different times of the day and week.

The difficulties faced by retailers in rental negotiations

Once you have decided on the perfect retail site, it’s time to negotiate the retail rental.  It would be fair to say that many tenants are in the dark about what their desired retail space is really worth.  The fact that each State has its own Retail Act, which are inconsistent and bear differing levels of transparency, can make negotiating rents and managing relationships across State lines a minefield.

In retail property there are no common or publicly available reporting structures, like those that exist within residential property leases.  There are no property portals that allow potential retailers to compare prices of stores within a shopping centre in the same way they could compare two-bed residential apartments in their local suburb.  Each negotiation is unique.

The major landlords also require sales information from retailers and often use this to their advantage – that is, they propose a lease that you can afford to pay rather than what space is worth.  Retail tenancy legislation can be biased towards the landlords at the expense of the tenant.

Landlords have been fighting to retain the compulsory submittal of sales figures, while retailers have been raising this issue with State Governments and industry bodies to have this requirement abolished to enable fair negotiation.

How to negotiate a fair price for your retail property

To protect against potential imbalances of bargaining power in favour of landlords, safeguards for retail tenants can sometimes be necessary, in particular in large institutional shopping centres.  Retail tenants need protection, including the provision of mandatory minimum standards for retail shop leases, while providing low cost dispute resolution process for retail tenancy disputes.

With such complexity and the sometimes intricate and onerous arrangements requested by specific shopping centre landlords, Bakers Delight takes great care to ensure that our leases for our franchisees are competitively negotiated on their behalf.  With a dedicated national team, we gather as much vital intelligence as we can.  For example, we will collate all information available about adjacent retailers within the same shopping centres in which we are based.  This information can form the basis for establishing reasonable market rentals for that precinct or within a specific part of the shopping centre.

As an active and passionate retailer within the community who has high standards of business operations, Bakers Delight has strong relationships with landlords.  This offers additional strength in negotiating.

For anyone setting out to locate and secure the perfect retail site, the first step should be to consider the macro, middle macro and micro factors that can affect the success of your business, because in theory, there are no unlucky shopping centres – just retailers who haven’t done their research.  The same principle applies when negotiating a retail rental – the better informed you are, the greater leverage you will hold in negotiations.  By doing your homework, you will be in a far better position to identify and secure the ideal retail site, for a fair price.

Gerry Gerrard is a General Manager at Bakers Delight, Australia’s most successful bakery franchise, established in 1980 as a single bakery on Glenferrie Road in Hawthorn, Melbourne.  An Australian owned company, Bakers Delight boasts over 700 bakeries employing more than 15,000 people, serving 2 million regular customers per week throughout Australia, New Zealand, and Canada.