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The Specialty Leasing Business

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If there is a way to shorten the Specialty Leasing Temporary Tenant learning curve for Indian retailers and shopping center real estate developers, they should look to North America for creativity, management and operational training practices. After 35 years, pushcarts and retail merchandising units (RMUs) have become ubiquitous around the globe and this form of retail commerce has morphed into a $12 bn business.  Today, specialty retailers have become the darlings of one of the fastest growing and most dynamic distribution businesses in the world.

This profitable business concept that now occupies the public spaces in shopping centers, airports, downtowns and main streets around the world has a storied past. And, because of it, American retailers have created a multi-billion dollar business by utilizing the common areas of the shopping center. These “islands in the mall” have created new revenue streams for developers and provided entrepreneurial opportunities for people who want to try their hand at retail.

Some of the greatest markets of the world have provided inspiration for entrepreneurs worldwide. From the Grand Bazaar of Istanbul to the Chandi Chowk district of New Delhi, India, these markets and merchants around the globe have offered ideas that transfer well into today’s shopping center environment, especially under the right conditions.

In the mid 1970s and through the early 1980s, most North American shopping center developers were enjoying the extra income benefits from common area and temporary in-line tenants especially at holiday periods when retailers who had seasonal or Christmas-related merchandise leased space. As American developers began to recognize the rental revenue value of these temporary retailers, several of the developers expanded the programs to other times of the year when consumers had a higher propensity to spend.

In the beginning years, retailers supplied their own merchandising vehicle, which was typically a cart, kiosk or an eight-foot table. Kiosks were a larger format ranging in size from 150 to 200 sq.ft. and typically the tenant also demanded a long-term lease of three to five years because their investment in the kiosk had to be amortized over the length of the term. In addition, developers took the opportunity to convert vacant in-line space by leasing it to larger more established temporary seasonal retailers who sold everything from Persian rugs to Halloween costumes. These activities helped the shopping center look fully leased and it was still a way to incubate retailers who may become permanent down the road.

During this period, specialty leasing suffered from the lack of organization both at the corporate level and at the local level. This led to the disorganized look and general malaise of retailers. Due to the lack of a clear and articulated strategic merchandising direction in the shopping centers, some developers took notice of the haphazard way in which kiosks and carts began proliferating in the common areas of malls.

At the same time, developers also began organizing leasing efforts around several regional and national retailers who jumped on the temporary tenant band wagon such as, Hickory Farms, Brookstone, and Santa’s Corner. Simon Properties was among the first American developers to wrap their arms around the problem and in doing so, invested over $1 mn in custom designed gazebo-like merchandising units, which they rolled out into their best shopping centers. The units almost always had wheels on them so they could be removed from the floor when not leased or when the floors needed to be cleaned and waxed. A few years later, a  Texas-based manufacturer invented the first retail-merchandising unit, later called an RMU.

As North American real estate developers were enjoying this newfound rental income from carts, complaints from the permanent inline retailers started growing because the common area clutter was obstructing the permanent retailers’ site lines to their stores. Several national retailers with the clout to say so, demanded lease restrictions prohibiting carts, kiosk and RMUs within a 20 to 50 ft. frontage of their storefronts.

In a country like India where retail manufacturing is among the best in the world, sourcing ideas that match the consumer demands presents an extraordinary opportunity. Getting into business is fairly simple and inexpensive. All one needs is a good idea; a business plan; the capital to invest in inventory; and a shopping center with good foot traffic. The more narrowly focused the concept with a wide breath of selection, the better. For example, a popular carry-away food, cupcakes, is a single product offered in a wide variety of flavors. Other successful products are silver jewelry, cosmetics, bed linens, leather goods, pet products, belts, hair accessories and cell phones. In destination shopping centers where tourists are the primary customer base, ideal products include commemorative city/country logo t-shirts; foods indigenous to the area; and mementoes of the city or country such as flags, key chains, shot glasses, etc. Every market is different, so tailoring the products to match the consumers’ needs is a key to success.

Specialty retail is an easy way to start a business and it offers employment opportunities for the unemployed craftsperson to expand a business or product line. For instance, The Craft Market in Cape Town, South Africa, is a place where the city connects on all levels – socially, politically and economically. This market underlines the possibility of translating such a concept to the Indian real estate landscape.

Since 1991, South African crafters have been growing their businesses with ongoing support from the Small Business Development Department who, along with the V & A Waterfront, focus on cultivating co-operative associations with informal traders. The V & A Waterfront does its part by offering rent concessions and skill-building courses in sales, visual merchandising and customer service.

Advertising and brand marketers have discovered that shopping centers offer rich and rewarding exposure opportunities. With the foot traffic in some shopping centers exceeding millions of shoppers per year, placing a brand in front of these consumers is a smart move. In-mall media marketing seems to be well understood in Delhi shopping centers. Media advertising messages to potential brands reach customers at the point of purchase. These formats include interior and exterior banners, escalator wraps and entranceway transflex graphics.

One must keep in mind that the typical cart, RMU, or kiosk is approximately 90 to 150 sq.ft. This forces a retailer to focus on single items that can be beautifully merchandised in a way that inspires purchasing.

Most North American shopping centers consider three sources of common area revenue: carts and RMUs, kiosks and sponsorship/internal advertising/partnership. The average center with 35–40 vehicles in the common area and a sponsorship deal could generate $3–$7 mn additional revenue for the landlord. In the United States, cart retailers pay rent of approximately $1,500–$2,500 per month with higher rents during holiday periods. The beauty of the specialty retail program is that retailers can lease a unit for a weekend, a week or for a month. This allows retailers to test market products and adjust plans before considering building an inline store.

As Indian and Middle Asian developers catch onto this successful merchandising program, they should take some lessons from forefathers who made mistakes and learned the hard way. First, it is important to design a shopping center and think through in advance if a specialty leasing program is appropriate or not. This allows the developers to build common areas wide enough to support merchandising in the common area. Laying conduit in the floor to support telephone and computer lines when the mall is being built is certainly less expensive and less disruptive than doing it post  construction.

Secondly, there is no need to literally reinvent the wheel. There are companies that focus their manufacturing on carts, kiosks and RMUs. It is important to use firms who understand the units and have already figured out through trial and error what serves the retailer most for inventory, visual display, cash wrap stands, lighting and security.

One of the keys to success is having a professional specialty leasing staff that knows how to help prospective entrepreneurs get their business up and running quickly.

About the Author
Duffy C. Weir is the former VP of Specialty Retail Leasing and Retail Marketing at The Rouse Company, in Columbia, Maryland. She is an independent retail consultant and a freelance writer.

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