It should be an immutable rule for all lessors and property owners. A balanced, attractive tenancy mix which satisfies a full spectrum of consumer needs, wants and aspirations is an effective magnet which generates customer traffic. Thus, it is and must be Sine Qua Non.
Moreover, range, selection and choice hold the interest and attention of consumers who are inclined to visit more often, stay longer and increase purchase amounts. That is a sweet mix of optimising share of market and share of wallet. A compelling and profitable thought and reality. Never forget, an appropriate tenancy contributes to a great customer experience. That will result in high customer retentions.
The same principle can be extended beyond the bounds of the retail sector. Every business needs to ensure it offers a balanced, attractive product/service mix.
Qantas provides a striking case study on the consequences of a poor, limited product/services mix.
Two decades ago the airline enjoyed 42% market share of the inbound and outbound Australian International travel business. Today, that figure has shrunk to just 18%, with a continuing downward trend.
The causal factors are many and varied, not the least of which is the destination offerings. Throughout Europe Qantas has two destinations, London and Frankfurt, Germany. That pales into insignificance when companied to the 30 plus European cities serviced by Singapore, Cathay Pacific and Emirates airlines. Lesson learnt. Point made.
The same principles apply to pharmacists, veterinary surgeons, advertising consultants, engineers and real estate agents.
Therefore, achieving, sustaining and enhancing a balanced, attractive tenancy mix and product/service range is and should be a primary Key Performance Indicator (KPI). Some will contend that is a matter of "going back to the basics". Astute business people, property owners, lessors and analysts will understandably question why there was ever a departure from the basics.
A GOLDEN RULE
Retail yields, internal rates of return and other financial measures should, ideally, be secondary criteria. Moreover, they should also be dependent on first achieving and sustaining a balanced, attractive tenancy mix.
Sacrificing a small percentage of yield in the current marketplace to ensure the maintenance of a sound tenancy mix is logical, establishes the foundations for stability and for sustainable growth and is a wise investment decision.
MAXIMISE OR OPTIMISE
The seeming conflicting between the goals of maximising rental receipts and yields against that of a balanced, attractive tenancy mix raises the perennial question, "is it best to maximise or to optimise?"
Evidence abounds in recent times of a widespread pursuit of maximising rentals (often measured in terms of dollars per square metre per annum). The criterium is applied to shopping centres and precincts with liberal abundance, reflected in the typical oversupply of jewellery stores, coffee lounges and phone retailers and casual leasing tenancies. Income is usually maximised in the short-term.
In the intermediate to longer-term such complexes and locations become boring, narrow in scope of their offerings and appeal, and progressively lose customers. Therefore, maximised rental income can be and often is a false economy and goal, with profound, negative longer-term affects. The income of the lessor or property owner and the buoyancy of trading conditions inevitably declines and under-perform over time.
Ross Duffield is a well established, successful Western Australian businessman, retailer and shopping centre lessor.
He owns the 21 store Perth metropolitan area Carine Glades Shopping Centre, which is anchored by an independent IGA Supermarket. The centre consistently attracts more than 42,000 customers per week. A number of the lessees enjoy annual seven figure gross profits. Understandably, the retailers are happy. They are also respected and valued by Ross and his company.
The pillars of success which are applied by Ross include:
- A good tenancy mix is imperative. It is why customers visit the centre.
- Beyond a good tenancy mix, it is important to seek out and secure the very best targeted retailers one can get.
- Establish a justifiable rental structure, which is fair and equitable to all concerned. Retailers must be allowed to profit from their expertise.
- Be severe, set standards and never compromise. Fantastic, that is discipline.
- Ignore inappropriate retailers and retailing businesses who are prepared to pay excessive rents. Stay focussed on a balanced tenancy mix.
- At all times be open to and aware of changing consumer needs and opportunities. In short, stay relevant.
There is much to commend the proposition for a detailed review and refinement of the procedures which determine the remuneration of executives, in particular those in retail property sector.
Maximising rental receipts by having a tenancy mix which features 11 jewellery stores, 8 gift retail outlets and 7 coffee lounges could arguably be appropriate for incurring executive income penalties, not bonuses.
In the final analysis, there is only one arbiter of the degree to which a business is "customer-focussed". That is the customer.
Very few consumers, if any at all, will applaud extreme duplication of business types in a mall, streetscape or locality. Moreover, no research has ever revealed increased customer satisfaction based on high rental income. Measuring a balanced, attractive tenancy-mix is difficult, bordering on impossible. The criteria applied by consumers are subjective, emotive and variable. A reasoned person may contend that a fair and equitable quantifiable variable is consumer traffic counts.
Now that is a refreshing perspective and one that should be put in the mix.
Barry Urquhart, Managing Director of Marketing Focus