Research your lease and benefit from the power of information
When we enter into a lease or purchase a business with an existing lease it is an unfortunate trait of human nature that any research on the location and its suitability invariably stops there and then.
Retail Leases are complex, with very specific conditions and critical events, and it is safe to say that it is not until one of these events is upon us that we start scrambling to pull together the data required.
This is a very reactionary approach and such data will usually be limited to the current location and skewed to support a singular position on rent. However, there are many different locations out there, from suburbs and shopping strips, to retail precincts and shopping centres, and the markets they create and operate in are constantly changing.
With expanded price disclosure, there are two key questions that Retailers need to constantly ask themselves: Is my shop location still relevant, and is it still suitable for my business?
RESEARCH IS MANDATORY
Research into current store location and other location alternatives, as well as your market pitch, branding, your competitors and Lessor, is mandatory.
As an example, a recent outcome of applying sound research to an existing Retail Business with a pending lease renewal showed that the business did not need to remain within its current shopping centre location.
Being adjacent to a large Supermarket for over 10 years, as well as the Landlord’s expectation on rent when compared to the real estate performance, identified that these premises were no longer suitable for the Pharmacist. Renewing their lease, even at the passing rent, was not prudent business.
The research also incorporated nearby location options and with this data available the Pharmacist was able to make the bold decision to re-locate their store.
Although seen as an inferior site, the vacant video shop directly across the road with main road corner access, dedicated parking and even a pylon sign, proved to be far more suitable for the future of this business. A highly motivated Landlord also further enhanced the appeal of this option.
As a result, the Pharmacist’s occupancy costs were halved and the business also benefited from some further generous rent incentives. The business was also free from the constraints of its previous shopping centre location in terms of trading hours, signage, marketing and car parking.
Prescription numbers increased through greater access and convenience, along with trading hours to meet patients’ needs, and not those of the Supermarket.
While retail sales did reduce slightly at first, sales soon exceeded those at the old shopping centre site due to the support of their franchise in re-aligning the range and merchandising to meet the new site’s customer demands and convenience.
The overall cost of the move was more than covered by the significant increase in profits. When dovetailed with a long-term lease with options, the value of this business reached levels that would never have been achieved if it had remained positioned alongside a major Supermarket.
We were pleased to learn that the Lessor of our client’s old shopping centre site is still wondering what happened!
That’s right! The Landlord did not do their research on the business channel, and its challenges, alternative sites, including those right on its doorstep, nor the ACPA Locality Rules.
Our client was well researched and now trades directly across the road with the comfort that no competing business can take up a lease.
Update: the Landlord of the old shopping centre took a seven-figure hit to their property value and not surprisingly changed their Managing Agents.
INFORMATION IS POWER
As this example shows, the value of research, not just at a critical lease event, but as an ongoing focus, can empower your business.
With all the research data available to you, think of the leverage you can create at your next rent review with your Landlord.
More importantly, you will always be better placed to ensure that your business, market pitch, branding and promotions remain relevant and aligned to the commercial terms of your lease.
*The information and advice contained within this article is intended to inform and assist retail business owners. However, the article is necessarily generic and is not intended to provide specific advice on individual retail lease arrangements. You should always exercise your own judgement and seek independent advice in relation to your commercial arrangements.
Phillip A. Chapman is the Founder of Lease1 and Director of MiLease Strategic Lease Management.