Ancillary Retail

MAY 2018

Ancillary Retail magazine is the retail industry’s resource for ancillary income markets. Ancillary Retail will provide relevant news, best strategies and practical tips to help developers and retailers grow and sustain successful businesses.

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May 2018 | Ancillary Retail 37 EDITORIAL BOARD Q & A Sharon Loeff President, Shopworks Inc. Jon Scheerz Director of Global Sales, TOL Inc. Lori McGhee Group Director, Specialty Leasing, Taubman Smaller retailers, in many cases, don't have "deep pock- ets" or reliable financial resources, so they make safe finan- cial decisions that can impact their business negatively. As a landlord, understanding the strengths and weaknesses of the small retailer and helping them get established in a center is always a win-win situation if the retailer is able to grow and flourish in the mall location without the worry of meeting an inflated rent obligation. The Number 1 problem for small, independent retailers is competing against big boxes and the internet for sales. In or- der to overcome issues like that, retailers will need to expand their brands to have an online presence in addition to brick- and-mortar. I believe one major challenge right now is the dead wing dilemma that starts with the closure of the anchor and domi- noes though a number of the inline stores in that wing. Small and independent retailers rely on the foot traffic generated by the anchors and surrounding stores for their sales and their absence can be sharply felt. While many developers are do- ing a great job at redeveloping the space, it is a timely process that some operators may not be able to endure. The adage of "location, location, location" is always paramount, but when the surroundings change so does the initial quality of the location. Retailers must be vigilant to quickly recognize the proper cause for the changes and not dismiss the drop in sales as seasonality or just an off month. While a rent reduction can be pursued, nothing makes up for lost sales. Negotiate for the best available location, even if only temporary, to maximize sales and maintain profitability through the transition. I don't believe it is just one issue, as much as a com- bination of a few. The main two that I continually hear from operators are rent and product. As rents are con- tinually increasing, in many cases, sales don't justify the rents proposed. Malls look to know retailer margins as a basis to negotiate the rent but it doesn't mean the sales justify the rent. This is bothersome as it forces the retail- er to continually find products that have a higher mar- gin as they believe, in their mind (rightly so), that if rent goes up, sales stay the same, and they need more margin to make more money. The other issue is product. New products are increas- ingly difficult to come by. The bridge to China is so much easier for smaller retailers to buy direct; it cuts out the distributor or company that developed the concept (not always patented) and, of course, online sales such as Amazon are directly hurting the market. Yes, retailers can and should sell here as an ancillary income to their business. Problem is, they cannot control the pricing that others post online. It becomes a war and now that the shopper compares pricing at the point-of-sale, the oper- ator loses. Again, this plays into the point that margins are important, but not the end all and it doesn't mean rents can go up arbitrarily. That operator can be losing sales due to Amazon, eBay, Walmart and more, but often the leasing manager doesn't see this. John Merenda VP Sales & Marketing, Innovative Vending Solutions Jennifer Thomas SLD, Director of National Specialty Leasing, Morguard I think one of the biggest challenges small business owners face is the current state of the retail market. Small businesses tend to open in shopping centers because they benefit from their high foot traffic to gain exposure for their brand. With higher than normal vacancies right now and the closing of major department stores, we are seeing more hesitation from new small business own- ers to open up locations and those who are already es- tablished are concerned about reduced visibility. I think once we see landlords come up with a creative solution to this vacancy issue, we should see an increase in inde- pendent retailers opening up in our centers. n

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