Points to Keep in Mind when Retailers Select a Mall

In the US, any intentional retail expansion strategy must involve malls. Shopping centers and the curated shopping experiences they provide are integral to the American lifestyle and cultural landscape. This article will briefly outline some key considerations that potential tenants should keep in mind when planning to open a location in a mall.

MALL SELECTION

The Mall Category

Just like standalone retail stores, not all malls are the same. Some malls are more upscale than others. A company should concentrate on malls that closely match the brand's identity. Louis Vuitton, for instance, is located only in top-tier malls in wealthy areas because this aligns with the image it wishes to convey and because it's where its customer base shops.

Among other factors, some useful quantitative and qualitative metrics to consider include:

• Sales per SF

• Occupancy rate within the mall

• Average rent per SF

• Mall physical condition and amenities

• The caliber of Tenants within the mall

  
  

Target Customers

A simple method to refine your mall search is to concentrate solely on malls that appeal to your target audience. Considerations like age, income, and purchasing behaviors should be crucial in choosing malls.

For instance, if a company's customer base consists mainly of women in their late 20s with an average income of $100,000 annually, the company should focus on malls that attract this demographic. Additionally, if the company has a robust DTC platform, it can leverage its data to identify malls near its client base.

Foot Traffic

A key consideration when selecting a mall is the level of foot traffic. In the retail industry, having a high volume of foot traffic is crucial for achieving success.

Evaluating a mall's foot traffic indirectly means monitoring the mall's success, as increased traffic typically leads to higher sales. However, the quality of this foot traffic is equally important, and it's vital to assess the mall's capability to turn visitors into buyers.

LOCATION WITHIN THE MALL

Once a suitable mall was found, it is equally crucial to find a good location within the mall. Even great malls will have areas in which the foot traffic is not as good as in other areas.

Few of the points below will help a tenant find the right location:

Visibility

Is the store visible from different areas of the mall. It is important to make sure that shoppers will be able to easily find the store. The two other elements involved in the visibility are the signage and the storefront. In fact, a wide storefront combined with inviting displays will attract shoppers.

Co-Tenants

Who are the neighboring stores you share the mall with? I like to think of them as retail roommates, and it's crucial to maintain a good relationship with them to foster a mutually beneficial environment. As a tenant, you want to be located near other tenants who can attract customers to your store. For instance, having a Cartier store next to a Louis Vuitton store creates a symbiotic relationship because they cater to the same clientele.

Accessibility and Convenience

Is the store situated in a location favorable for foot traffic? For instance, stores positioned near escalators tend to attract more foot traffic. Additionally, certain stores, depending on the products they offer, need to be in particular sections of the mall. For example, stores selling large items are better off being close to the parking area.

RENT IN THE MALL

Typically, mall owners will charge a fixed rent as well as a percentage rent above a given breakpoint. The latter can be defined as the threshold above which the tenant must begin to pay a percent of gross sales as additional rent.

The artificial and natural breakpoint are the two ways to calculate percentage rents.

Artificial Breakpoint

The Tenant agrees to pay the Landlord a percentage of rent if its gross sales exceed a specified breakpoint.

For example, if the:

a) determined breakpoint is $300,000

b) the gross sales are $500,000

c) the percentage is 9%

the Tenant would pay to the Landlord 9% on $200,000 ($500,000 - $300,000) in addition to its fixed rent.

Natural Breakpoint

The natural breakpoint ensures that the Tenant's rent payment never goes below a set percentage of its gross sales. For example:

a) percentage is 8%

b) minimum fix rent is $25,000/month

In our example, to arrive at the natural breakpoint, the formula would be $312,500 ($25,000 divided by 8%). One way to think about it is that the fix rent will always be at least 8% of the gross sales.

If the gross sales end up being $500,000/month then the additional rent will be $15,000/month (($500,000 - $312,500) x 8%) and the total monthly rent will be $40,000 or 8% of the gross sales.

However, if the gross sales turn out to be $250,000/month the Tenant will end up paying 10% of the gross sales ($25,000/$250,0000).

CONCLUSION

Opening stores in malls involves an understanding of the different types of malls but also of the commercial dynamics within the malls. Working with real estate professionals to guide you in the process can greatly benefit retailers and simplify their decision-making process. Thanks to our deep expertise, Sutton Square Group is always ready to assist you in your physical retail development.