Tuesday, 6 March 2012

How to save on mall rent

Shopping malls can charge top dollar for rent space because the high foot traffic they bring means more customers for store owners.  They also charge high rent because they are frankly greedy in my experience.  Large names like Gap, Walmart and Tesco though are charged less per square foot/metre because they are regarded as anchor tenants.  An anchor tenant is a big name retailer that attracts customers by the power of their brand and mass advertising.  Anchor tenants are a reason in themselves to go to a mall: "I saw this recliner at a 25% discount at Ikea, let me head over to Local Mall to get it."

What most malls do: Discriminatory Pricing
So the anchor tenants bring large foot traffic and add prestige to a shopping centre then.  They thus have negotiating power with the mall developers.  Of course, the sheer volume of space they rent is also factored into their lower rental rate per square foot.  With the property developer or mall owner making low margins per square foot on the anchor tenants, they turn to the smaller guys to improve their returns.

The privately owned boutique store occupying a space little bigger than your bedroom will often pay twice as much per unit of space as an anchor tenant.  It's discriminatory pricing and practically every shopping centre does it.  Small enterprise owners get hit with ludicrously high rent and for them it can be difficult to break even.  Often you see the smaller guys opening and closing within a year as the rent simply drowns them, while the big mainstays never leave.

What can the small business owner do?
Move out and you miss out on that critical foot traffic that only a mall can give.  Stay and you pay exorbitant rent.  Seems like the small business owner in a shopping centre is stuck between a rock and a hard place.  But there is an alternative: kiosks.  These are basically little stalls that are erected in the middle of the walkways - they are not strictly letting spaces.  What would normally be a space of floor that people just walk on can become a revenue stream for the mall owners if there's a kiosk there.  Kiosks are therefore often seen as an added bonus for mall owners.

Further to this is that overheads for the landlord are lower because well, it's just a space of floor they're letting out.  There is no airconditioning, extra lighting or fire control system that a usual shop has.  This is why mall management almost always charge lower rentals to kiosk owners.

Do not confuse these kiosks for those mobile wooden stalls with wagon wheels: you know, those ones that look like carriages.  Those were just the pioneers.  Kiosks now can be little gems of design in their own right.  I snapped what I think are two perfect applications of the mall kiosk (click to enlarge):

Notice the glass display on the right of the kiosk, with the till and credit card machines on the left. It really is a miniature shop.

Okay, so Swatch is a big brand name.  But here's a privately owned example of an ice cream vendor, to the right of the Swatch kiosk:

Family owned Baglios Ice Cream catches people leaving the cinematic theatre and they also attract diners walking out of the Italian pizza parlour you see on the right with red signage.  To the left is the exit so those walking to their cars after they're done with shopping can also grab a cone.  Baglios is extremely well placed.

You can run more than one kiosk in the same mall
An ex-colleague started a coffee franchise called Gloria Jeans.  They too do not go for conventional retail space, opting to operate out of kiosks instead.  The lower rent they pay means they often have two, even three kiosks in the same centre and make money from each one of them.

The term kiosk has cheap and unglamourous connotations, but as shown by the above two such connotations are archaic.  Being in the middle of a walkway may feel a bit awkward and almost nomadic, but it can attract more customers than a small retail space in a lonesome corner of the mall.  Whenever you think something isn't feasible or is too expensive, often there's a viable alternative if you would just look a bit more closely.

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