Big Guns time again. The short story is that the Big Guns are doing well; we’ve seen some really solid increases across the board and, for those centres showing a drop in MAT (small minority), in most cases the drops were very small. Fears of the Internet seem to have been overcome, as we predicted several years ago when the concern was first mooted.
I don’t want to go on about the professionalism in the ranks of our industry, but it’s timely to point it out again. We, as a profession, continue to improve our performance; our centres not only maintain market share but, in general, they increase it. Why? The short answer is that professionalism, and the sophistication of the industry, but the longer answer will reference the data we collect, our interpretation of it and, subsequently, the strategies we adopt to make use of it. There is much data we collect, but the most valuable of all is that surrounding turnover figures.
I remember many years ago, when I was a junior leasing executive, I was sent out by my company to find a ‘costume jewellery’ tenant for one of our centres – it was the term given to inexpensive jewellery items. I’d spent two previous weeks reading the lease from beginning to end; if there was anything I didn’t understand, I was told to ask the Senior Leasing Executive (my boss) and he would explain it. When I knew the lease, the time came for me to ‘go out into the field’ and find the prospective tenant – the best one I could find. I spent a week looking at jewellers.
‘Tenancy selection’ meetings were held every Monday morning. The Leasing Executives gathered in the meeting room and the Leasing Director and senior leasing staff were in attendance as those executives presented their prospects. I felt good: I’d found a great retailer; his shop was well fitted out, the stock display was first class and, in addition, I’d exceeded the ‘Target Rent’. I remember the feeling – I was about to lease my first shop! – but it was rejected on the grounds that his ‘estimation of turnover’ was too low.
It was a hard lesson, but it taught me the importance of turnover statistics. The retailer I’d proposed lacked confidence in reaching the level of turnover required. If he did what he estimated, the ratio of rent to turnover was too high; he’d suffer, be under a strain and face the risk of losing his investment.
The subject of ‘turnover information’ is currently being debated in several quarters. Government enquiries are underway and various factions are putting forward the proposition that the requirement for retailers to provide turnover details is unfair. The argument is flawed. The case against is spurious, and the old saying ‘be careful what you wish for’ has real relevance here.
Presently and historically, we have leased our centres on the fundamental basis of providing the market with what it wants. Our centres, management and leasing staff are geared towards satisfying the retail needs of the community. How can this be done if we don’t know turnover details? Specialty shop turnover in a centre may average $8,000/m2 per annum. Say that two butchers trade well: one at $9,500/m2, the other at $7,900/m2. Is there a case for a third? How can that decision be made without turnover statistics? Imagine that a vacancy occurs in a centre that has no turnover details, and a third butcher offers a high rent to get in. The rent is good, so the shop is leased. A year later, three butchers are trading with an average turnover/m2 of $5,200!
The arguments against centre on the ‘privacy’ issue, but this is a spurious contention because privacy is simply not an issue. Different retailers operate with different business models. Some fashion operators work on a profit margin of 10% of turnover, others on 5%, still others on 25%. Profit is a privacy issue, but turnover is not.
The ability to pay rent bears no relation to turnover. Profit levels determine ability to pay rent and nothing else. It can be clearly, logically and pragmatically proved that three shops in identical businesses can afford the same rent, whilst the variation in turnover may be enormous.
Detailed examination of our trade areas (which is the norm in all of our centres) and the demographics will indicate the level of spending in different categories. With turnover statistics we can see where the weaknesses in our tenant mix lie. We can see in which categories our mix is oversupplied and where it is insufficient. This leads to comprehensive tenant mix, one responding to market demand. Turnover details are vital to the business we are in, and they are also vital to the retailers in our centres!
An essay on the need for turnover figures will appear in the next issue. Contributions on the topic are welcomed. SCN