Retail Property Top Tips For Success
The past year has seen a steady improvement for most franchise networks, with improving retail sales helping businesses move on from the global ﬁnancial crisis and settle into a more positive economic outlook. Despite this, many retailers are still recouping their losses, a factor often not considered by landlords in the property retail market.
As a result, franchise businesses have to work harder to stay on target and combat the risk of landlords capitalising on this demand for space. In a strong franchise system, in order to ensure franchisees’ best interests are kept, there is often a specialised property team to manage lease negotiations on behalf of your franchise network.
A growing trend we’ve noted is the tendency for landlords to disregard trading conditions by introducing signiﬁcant rent increases. This practice is unfair to the franchisee. The rental ﬁgure should be set on the market for the shopping centre or district, not on the retailer’s capacity to pay.
This is why it is so important to ensure that when leases are negotiated, a full understanding of the market is known and ﬁnancial planning is undertaken. This will help eliminate any surprises and clarify your limits before talking to the landlord.
As shopping centres are generally managed by larger corporations, negotiations can be more challenging. It is important that retailers, whether big or small, equip themselves with all the information they need about the site to make informed and strong arguments on lease negotiations. Having strong relationships and the backing of a franchise network does work to a franchisee’s advantage. The franchisor is able to negotiate competitive lease arrangements for franchisees by leveraging knowledge and relationships with major landlords and gathering as much data as possible about adjacent retailers.
Insight gathering is key
The key to successful property management is constantly evaluating market conditions and being on top of quality, up-to-date data for each of your sites.
Research is essential
This can include comparing the rents of other tenants in the vicinity. It is important to take the time to get to know neighbouring retailers. This allows you to support each other when proposed rent increases take place. It is also important to actively review the ﬂow of trafﬁc past the site on a weekly basis and compare this with previous data. This can greatly improve your bargaining power and provide strong proof points for negotiating rent reductions. Finally, make sure you keep a close eye on sales growth over the term of the lease agreement, to use as concrete data to assist with keeping leases competitive.
Prepare yourself to negotiate
But how do you approach negotiations? It all starts off with a good plan. Be sure you enter a negotiation with all the correct information and details for the items you are prepared to compromise on. Intelligence gathering is vital. If you don’t know the landlord, it is best to try and ﬁnd out as much as you can from neighbouring tenants, to help prepare yourself prior to any negotiations. Have a clear walk-away price in your mind before you even start the negotiation process and make sure you stick to it. Most importantly, make sure you don’t over-estimate your sales ﬁgures. You need to allow yourself room to move in case your returns don’t match your forecast.
Once the deal has been made and a lease is drawn up, the time comes to evaluate all the aspects of the lease agreement. Review the lease and ensure it concurs with everything discussed throughout the negotiation phase. It is also best to remove any emotion around the relationship you have built with the landlord up to this point. Also, get a solicitor to review the lease on your behalf. This will not hinder your relationship going forward, as most landlords will appreciate that the retailer cannot enter a lease agreement without certifying it is legally correct and all terms and conditions are fully understood.
All this advice also comes into play at lease renewal time. With a large franchise business, the bulk of a property team’s time is spent looking at re-negotiations across the network. The ﬁrst aspect is compiling a lease-analysis report. This is similar to the initial research conducted prior to signing up to the property, but also includes an evaluation section that compares the data to the previous 12 months. This information is then used to draw on any changes in the trading conditions that may help counteract the landlord’s proposed rent increase.
It is also recommended to have a thorough review of your surrounding area to see if any competitors have opened stores in the last 12 months, as this may have an impact on your sales. Another factor you should take into consideration is whether your ﬁt-out is likely to last the length of the new lease. If not, you should be prepared to negotiate an upgrade as part of your lease agreement.
Top tips on how to select a suitable retail site
• Site layout: Make sure the structure and size of the site is a good ﬁt for your business. In food retail, ensure there are adequate power outlets and water facilities. Take note of all entrances, exits, car parks and supermarkets. Don’t try and retro ﬁt your business into a space that isn’t right for you. This can make everything harder in the long term.
• Consider customer ﬂow: Review the customer trafﬁc past the tenancy at busy and slower periods to assess the opportunity for business.
• Strength of the location: Analyse the
retail potential of the surrounding area and the position of complementary businesses. Conduct a thorough review of what else is available locally in terms of entrances, exists and car parks.
• Demographics of area: Understand the potential customers in the area and map that back to your businesses target audience.
• Landlord communication: Find out what is on plan for the shopping centre or retail strip in the coming years, especially possible refurbishments and how it could affect your business.
• Lease lifecycle cost: When establishing the cost of the rent, the retailer also needs to add in all costs related to the site, such as outgoings and promotional funds. Also, and most importantly, if you are required to do a refurbishment, you need to amortise this cost over the lease term. The rent, the outgoings and the refurbishment costs make up the lease lifecycle costs. The base rent should only be 70 per cent of the ﬁnal cost to the retailer when all charges are included.
Gerry Gerrard is General Manager for Property at Bakers Delight and manages a portfolio of over 630 bakeries across Australia.
An Australian-owned company established in 1980, today 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.
For more information on franchise opportunities contact:
Phone: 1300 309 759