Top Ten Changes for 2012 and Retail Business

Main Street Managers are about as “on the street” people as exist and as such have some great insights into what is currently happening and what to expect.  The following comes from  Nadeen Steffey (Main Street Manager, Our Town Cooperative – Borough of Canonsburg Main Street Program), who shared this via Linkedin:

2012, A Year of Change — Top Ten Changes

1.  Weekday Convenience and Weekend Experience

These will be the major drivers in 2012 in retailing. The consumer will expect you to provide convenience during the week which may mean you will need to offer different services and possibly longer hours. During the weekend customers want your store to WOW them and therefore more theatrical events will need to be organized on weekends to catch the consumer’s attention.

2.  Avoid the Big Ticket Items

Consumers will be more frugal this year. This reduction in spending will not affect all retailers, in fact sharp retailers in the food and garden sector could see an increase in sales as families stay at home, cooking and gardening become more of a pastime. But, it will be the small ticket items that will prosper. The big ticket items are the ones that you will find difficult to sell. Furniture, carpet retailers, etc. will especially find it more difficult to survive while food and garden retailers whether the storm.

3.  Social media de-cluttering as a marketing tool

Many social media guru’s are predicting that business people will start analyzing which social media channels are really working for their businesses. Discard some and focus on others. Social media will be a major marketing tool. Those retailers who do not join in the social media marketing surge will quickly get left behind, but it will be a less cluttered social media world.

4.  Video and Pictures will grow as Marketing tools

A picture is worth a 1,000 words so the saying goes. Businesses will be putting more videos and more pictures online to sell their story to their customers. This may be an important area to learn new skills.

5.  Fewer staff, but better staff

Many retailers have forgotten how important their people are and have forgotten to train them in how to be the best hosts in town. In this area of common sense many businesses are failing badly. Customer interaction will be a real key to success.

6.  Networking with other retailers

Independent businesses cannot survive on their own. The future means networking either in a group within the industry sector or with retailers within your community, or better yet, in both areas. To be a truly independent retailer and not engage with other retailers could be a major mistake.

7.  Your Local Community will be the key

Customers will engage with retailers that they feel support their community. This is why farmers markets have been so successful in recent years. The consumers want to know your values and want you to be consistent in getting that message across.

8.  Price flexibility

All the research shows that price is a driver and nothing will change in 2012. Many retailers have been too inflexible in their pricing and we will see a lot more price flexibility in 2012. This does not mean discounting. There may be special offers, but at the same time other products may be increased in price.

9.  Seasonality will reappear

Retailers will need to celebrate all the seasons. Re-embrace the seasons and use this as a marketing opportunity.

10. Fewer but better

There will be fewer retailers doing what you do. But, the retailers who are left will be stronger as a result of the clean out that is taking place.

Landlord-Retailer Cooperation Called Key to Industry’s Future

From the ICSC, but is definitely not just for shopping centers.  All landlords and retailers can learn from this:

ICSC Suggests Cooperative Strategies Needed to Secure Survival and Foster Future Success for
Shopping Center Landlords and their Tenants

During the current difficult economic time, retail landlords and retailers need to adopt a mutual vision and work as partners to “reinvigorate consumerism, reposition business cooperation and restore investor confidence,” said the International Council of Shopping Centers (ICSC) in a February 27th Retail Real Estate Business Conditions Report.

“Retail property owners are experiencing higher vacancy rates, which are likely to rise further before the business cycle impacts run their course,” said ICSC, adding, “Now, more than ever, retailers and retail property owners must work closer.” The organization went on to offer specific short-term and long-term strategies that could be adopted to “build a stronger future” for retailers and retail property owners.

SHORT-TERM STRATEGIES
CO-TENANCY REQUIREMENTS

In a recent CoStar Advisor article titled, “Retailers Pressure Landlords Publicly for Rent Cuts,” a number of retail and shopping center executives said that several retailers are exercising co-tenancy clauses to either terminate or lower rent paid on store leases. With anchor and junior anchor tenants continuing to close stores, these practices are likely to heighten.

In its fourth quarter earnings call, Daniel Hurwitz, president and COO of Developers Diversified Realty (NYSE: DDR), talked about co-tenancy provisions. “Shopping center co-tenancy is typically tied to either a large anchor store, such as Wal-Mart or Target or a series of junior anchors. For example, a co-tenancy clause may indicate that two of the following four anchors must be open and operating otherwise the tenant is permitted to go into co-tenancy, or alternative rent. If co-tenancy is not cured, typically within the first year, the tenant has the right to terminate the lease and close their store, or revert back to minimum rent. In most cases, the tenant will chose [the latter], as the cost of closing a store and opening in a new location is much greater than staying in the current location.”
Dick’s chairman and CEO, Ed Stack, said that co-tenancy is part of the reason it hasn’t opened as manystores. “One of the headwinds is that developers are bringing less product onto the market. When we open a store we have usually some pretty strict co-tenancy requirements and with other people scaling back, it is difficult for the developer to meet those co-tenancy requirements,” he said.
ICSC says that retailers should place less importance on co-tenancy requirements. “Too often, retailers ’leases demand certain tenants be present in the same property for their business model to succeed, but that logic fails to focus on the true reason behind that contractual demand, which is to generate complementary traffic. Riding on the coat tails of other similar-type retailers seems increasingly risky.”

Hurwitz said that 1 in 30 of its tenants had requested rent relief. Pointing to landlords’ frustration with retailers pushing for such relief, Hurwitz said, “Overall, most of the requests are being received by tenants with healthy balance sheets that are attempting to exploit the current environment.”
Instead, recommends ICSC, at least in the short term, retailers should support landlords’ efforts to
maximize occupancy at shopping centers, without so much focus on specific retailers being part of the tenant mix, because from a basic perspective, a mass of retailers, rather than a certain few, collectively generates more traffic.

REPORTING AND TRANSPARENCY

In order to grant retailers temporary rent relief or other concessions during this tough sales environment, most retail real estate executives told CoStar that landlords require a high level of “transparency” from the retailers. Landlords won’t grant such relief unless a retailer shows proof that down sales are a result of the recession, and not just a consistent pattern of declining sales.
Unfortunately, in general today, “Retailers have shifted ever more towards providing less sales
performance information with less frequency of that information,” said ICSC. The organization said that retailers should be more forthcoming with landlords regarding store performance metrics. If transparency increases, the industry could create new benchmarks, which would be useful to all parties involved.

UNCOMMON STRATEGIES

In a couple unorthodox suggestions, ICSC said retail auctions and pooling of back-end operations should be considered as short-term strategies.

Landlords could allow retailers — not just those closing a store — to conduct “auctions” of inventory,
where retailers would allow shoppers to bid on a certain pool of merchandise, in a silent format, for a
controlled time period, said ICSC. This would allow retailers to “clear merchandise faster [and would] incentivize the bargain hunter and generate spillover shopping” at the center, said ICSC.
To lure local tenants to lease space at shopping centers, ICSC suggested that landlords should offer a
package of tenant services. For instance, a landlord could provide tenants with accounting, ordering, marketing, or some other services that would reduce overhead costs, thereby helping tenants focus on maximizing sales.

LONG-TERM STRATEGIES

PARTNER ON NEW CONCEPTS

Landlords should more often act as an incubator for new and interesting retail concepts, recommends ICSC. For example, if a concept is identified that has the potential to drive traffic to a center (because of its uniqueness), a landlord should consider taking an equity position in, and granting reduced rent to, the retailer.

Such a strategy would help keep the landlord’s shopping centers “fresh”, said ICSC — a quality that is
extremely important in the retail real estate industry, as it is subject to the ever-changing spending
patterns of consumers. ICSC didn’t recommend that landlords maintain an ongoing investment in the
retail concept, however, as the idea is to keep investing in different concepts to keep centers new and interesting.

Eric Rubin, principal of Madison Retail Group addressed the role landlords can play in new retail concept incubation in a recent story posted on Madison Marquette’s Places Magazine website, titled, “How to Lease in Today’s Market”.

“A landlord must consider these tenants an investment in the entire center’s success and not simply a stand-alone deal to increase net operating income,” said Rubin. Smaller-scale landlord “investments” commonly include giving healthy tenant improvement allowances and offering entrepreneurs access to the landlord’s own in-house experts, for little to no cost, in areas of design, financing, marketing, and more.

“It may be difficult to accept investing so much in a tenant that may not succeed, but these costs are also a potential investment in the next concept. A restaurant build-out today for a concept that only survives two years will still be a good investment when the next concept, with a more proven track record, agrees to a favorable deal because of the pre-existing infrastructure,” said Rubin.

Regarding the heightened financial incubation relationship ICSC suggests, Rubin said, “Many developers have successfully taken financial stakes in the prospective retailers and earned substantial returns for their centers and for themselves.”

THINK OUTSIDE THE BOX ON TENANT MIX

In “Filling Vacant Retail Boxes Requires Thinking Outside the Box,” CoStar Tenant research revealed that service tenants, at least on a local basis, continue to sign new leases at U.S. shopping centers. Some of those uses include tax preparation, insurance, real estate, financial, hair salons, nail salons, spas/ massage/ acupuncture, doctors and veterinarians, tutoring, copying/shipping, government offices, and more. In addition, agents are increasingly seeking nontraditional tenants to fill the increasing pool of vacant spaces at their centers.

While general thinking is that the need to lease to these tenants is a short-term issue, ICSC suggested
that the retail real estate industry has reached a point where a paradigm shift in the tenant mix is
required.

Particularly, landlords should encourage service concepts that complement anchor stores, said ICSC. For example, a stand-alone tailor service might make sense as a complement to a department store or lifestyle center with a concentration of apparel retailers.

INTRA-INDUSTRY FINANCING

ICSC said it would like to see an intra-industry, collective, state-charted, loan company developed. This entity would have “broad banking powers, operate with federal deposit insurance”, and make loans “based on covered bonds.”

On Jul. 28, 2008, the “U.S. Treasury Department and bank regulators unveiled guidelines for the
development of a covered bond market in the United States as an alternative source of funding,” said
Reuters. Covered bonds have been very popular in the European market for a long time now.
What is a covered bond? “Securities issued by banks and backed by mortgages or public-sector loans.

What about those buy local campaigns?

You’ve probably read or heard about “buy local” campaigns and wondered if they were just fluff.  Here’s the answer!  No!  They are fluff, they work!!

Wanna go shopping? Across the U.S., most folks respond by heading for the nearest suburban big box retailer, bypassing small, locally owned specialty merchants.

These shoppers may be surprised to learn that their dollars can generate a greater local economic impact if spent at local merchants, not chain stores, according to a series of studies sponsored by the Urban Conservancy in partnership with Civic Economics. The studies were conducted in specific neighborhoods in Austin TX in 2002, Chicago IL (2004), San Francisco CA (2007), Phoenix AZ (2007) and Grand Rapids MI (2008).

In Austin’s Liveable City study, two local retailers were found to generate three times the economic activity as their chain store competitor. In the Andersonville Study of Retail Economics in Chicago, the economic impact of revenues generated by 10 local retailers was on average 70% greater than chain stores with similar revenue. The study was expanded in San Francisco to determine the impact of increased spending at local retailers versus chain stores. It found that a 10% increase in sales at locally owned stores would generate an annual economic impact of nearly $200 million, create 300 jobs and a $70 million annual payroll. Similar findings were established in the Grand Rapids study.

The most recent study was undertaken as part of the rebuilding of New Orleans’ Magazine Street corridor, one of the city’s most vibrant commercial districts stretching four miles from downtown to Audubon Park. Before Hurricane Katrina, Magazine Streetwas home to a high density cluster of locally owned retailers, related businesses and restaurants serving the surrounding neighborhoods. In the aftermath of Katrina, city officials have been debating two possible rebuilding strategies: either a suburban approach with big box/chain store retailers surrounded by parking lots or restoration and revitalization of the existing commercial corridor, maintaining the urban grid and density.

The most in–depth study in the series to date, the New Orleans project focused on 15 businesses in the Magazine Street corridor whose owners provided highly confidential information on revenue and expenses. Data from these firms was compared to revenue and expenses associated with a typical SuperTarget store. Among the findings:

• Local merchants were projected to re–circulate twice the dollars that the SuperTarget would circulate.
• Average sales per square foot for local merchants would be slightly more than double than that for the SuperTarget.
• Local merchants utilize on–street and existing parking while the SuperTarget would require a seven acre, 300,000 square foot parking lot.

In general, the research found that locally owned merchants exert a greater economic impact than chain stores in four ways:

• Labor costs paid to local residents
• Profits retained in the community by local merchant–owners
• Purchase of goods and services from other local businesses
• Charitable giving within the community

These studies provide a compelling argument for “Buy local” campaigns across the nation from Portland ME (Buy Local. Keep Portland Independent) to Portland OR (Think Local. Buy Local. Be Local). At the same time, these studies offer a development option for those communities willing to dangle limited economic incentives to land a big box retailer.

So, everyone with me … “buy local!!”

Link to full study & article

Holiday season home stretch tips for retailers

We all know how critical this period of time is for retailers.  A few must do last minute tips –

• Have all salespeople read company ads, catalogs and distributed literature before customers come in with questions and inquiries. Also check out the ads of the competition. If your competition has a Facebook page – become a fan so you know what information they are passing on to customers.
• Establish dress codes for employees and enforcing these dress codes. Employees are the representatives of the business and should project the image the business wants to convey.
• Greet everyone who walks through the door. Coming up with five different greetings — so customers don’t hear the same greeting over and over when shopping in the store.
• Have employees identify themselves when answering the phone. This adds a professional touch and provides the caller with a person to identify with on the other end of the line.
• Clean up the cash-wrap area as-you-go and put everything in its place. Customers are concerned about transaction accuracy and your services, i.e., shipping, if this area is a mess.
• Listen, really listen to customers. If you don’t really listen and show customers the wrong merchandise — they will assume you don’t have what they are looking for and leave.
• Stock and clean during hours when the store is not open. Doing these chores when the store is open is inconsiderate to shoppers and doesn’t convey a professional image.
• Get everyone on board. Ensuring that everyone in the organization understands what the winning advantage is and what their role is in supporting it.
• Stay in contact with your customer base — contact customers who shop in your store regularly. You can use email or regular mail. I recommend you call your very best customers yourself. Tell them what’s going on and why they need to drop into your store. If they need a little more persuasion — let them know that a gift certificate for $5 is waiting for them to start their Christmas shopping in your store.
• Build your database. It’s a very busy time of year but don’t forget to capture customers contact info to grow your database. Your database is “gold” to you.
• Store and window display lighting. Add at least 30% more light in your store; it will affect the way your store looks and help sell more product. It can be as easy as replacing light bulbs that have burnt out.
• Focus on selling. Teach your staff to show just one more item to every customer that they talk too. Don’t forget add on sales at the cash register.
• Tone in the store — this can be many things. I like to see enthusiastic, happy staff all pulling together to achieve this Holidays Seasons’ goals with a focus on exceptional customer service.
• Hands free shopping — offer customers a basket, a bag or cart. Take your customer’s coats and other bags, offer to look after them. Do what ever it takes to make your customers feel wanted and cared for. Creating this type of shopping experience will keep customers in your store longer and will increase sales.
• Daily sales targets — should be shared with your staff. They should know what is expected of them and what the goals of the store are. Create a sales culture in your store.
• You alone are the driving force in your business. Get out on the sales floor more often over the next weeks.
• Watch your sales increase. They always do when the boss shows up!

Today’s tips are from Barbara Wold, Author and Business Strategist