Readers of this blog know that the rules of finding a winning site. If you are new to this blog or need a refresher, click here to catch up on the key elements to finding a winning site. As in everything in life( or almost everything) there are exceptions to the rule. Often times, retailers that do not adhere to the “rules” of site selection are known as destination retailers. Many restaurants are destination retailers because people will drive the necessary distance to eat at a particular restaurant. In the dry goods and soft goods world (non-food), there are not as many specialty retailers as there were in earlier times. This is particularly true for suburban America because some many national chains have a presence in the shopping centers and power centers.

Cities of the world are able to have maintain destination retailers, but no retail destination is as well known around the world as Saville Row. Saville Row is a retail street located in Central London that is famous for its Bespoke (uniquely individual) tailoring. Suits from Saville Row are known for their quality and people travel from around the world just to get bespoke clothing. Saville Row is the ultimate retail destination. It’s not really on the main drag, but people still go out of their way to go there because of the reputation. Is your retail business a destination?

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If you are looking for space in a hot market or in a new shopping center, you might have heard the leasing agent say that. I tell people many times that I would love to have their use/concept, but I cannot and the reason is EXCLUSIVES. Many landlords give particular tenants exclusivity. An exclusivity clause is defined as:

“A lease clause that limits the number of stores that can open in a shopping center competing with the lessee.” (ICSC’s Dictionary of Shopping Center Terms)

Fighting to get an exclusive is worth the trouble (if the landlord gives you any). If you will notice, you never see a Starbucks in the same shopping center as Caribou Coffee. The main reason is to allow each business to flourish and to prevent one business from putting out the other business. I have heard numerous stories of the disasters when two businesses that are near identical are in the same center. The results have never been good. Having a Ben & Jerry’s Ice Cream close to a Smoothie King is not a form of direct competition and should not violate any exclusivity clause. However, if a landlord opened a immediately next to Circuit City, you have a problem – huge violation of the exclusive.

So, I think you get the point. You need to be around retailers that pull you up and help increase sales, not retailers that are competing for sales. There are exceptions to this rule and some landlords just do not give exclusives, but that has more to do with flexibility and keeping options open as changes occur in the retail cycle and life of the shopping center.

Key: Ask your broker and attorney to negotiate exclusive language into the letter of intent and lease. It might not be possible and its not always worth sacrificing a great site for an exclusive, but you must try to get it.

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Right now, there is a war going on in major American cities, especially New York and Los Angeles. Many people call it, the Yogurt Wars. Several upscale yogurt concepts created by Korean Entrepreneurs are competing for the mouths and dollars of American consumers. Currently, the most popular concept is Pinkberry. When I was in New York during the holidays, I saw lines going out of the doors and around corners to get in some of the downtown Manhattan Pinkberry locations. Even uptown locations were crowded. Friends living in Los Angeles say that these yogurt concepts are everywhere! The frozen phenomenon is not new, it is just going through a revival. In the 1980s and 1990s, TCBY was definitely the yogurt champion in the Washington D.C. area. But these new yogurt concepts have a very Twenty First century presentation with many more toppings and choices. Right now in the Washington D.C. area, Ice Berry is the pioneer with their Reston Town Center location. More are coming and it will be interesting to see how the location battles begin.

Here are a few of the new frozen concepts battling for the best territory:

  • Pinkberry
  • Ice Berry
  • Red Mango
  • Cali Yogurt
  • Kiwiberry

Others include:

Blue Cherry Yogurt Bar, CéFiore, YogurtBerry, BerryLine, Yo Berry, Snowberry, Roseberry, Berri Good, Limelite, Bear Naked, Pingo Berry, Peach House, Dolci Mango and Cantaloop.

To read more about the Yogurt Wars, click here.

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I just read the report: Apple stores outperform Best Buy, Saks and Tiffany by Philip Elmer-DeWitt

I thought I would share the report because it is amazing how well Apple is doing. It is pasted below.

How productive are Apple’s (AAPL) retail outlets?

“Out of this world” according to a report issued this morning by Toni Sacconaghi of Bernstein Research. In fiscal year 2007, he estimates, Apple stores generated an average of nearly $4,500 in sales per square foot — a figure far higher than any other consumer electronics or luxury retailer. That’s nearly five times the productivity of Best Buy, for example, one of the most efficient consumer retail outlets, and nearly 12 times that of Saks. Only Tiffany & Company comes close, with sales of $2,750 per square foot. (see charts at right)

The findings were part of a follow-up to the in-depth report on Apple’s retail strategy that Bernstein Research issued a year ago. Since then, Apple has opened 20 new stores (total: more than 200) and reportedly has plans to expand to China, France, Germany and elsewhere.picture-60.png

Among the report’s other findings:

  • Mac sales per store grew 26 percent year-to-year in fiscal 2007. Apple’s brick and mortar stores sold an average of 8,000 Macs in 2007, or a “stunning” 21.4 per day.
  • Apple Stores boosted the company’s total revenue by at least $1.35 billion (5.6 percent) during the year, with gross margins of 42 percent (versus 34 percent for Apple overall)
  • Despite the high gross margins, the stores have somewhat lower profitability than the company overall because of high operating expenses. The average Apple Store has 40 full-time-equivalent employees, double the number four years earlier. All told, Sacconaghi estimates that the retail segment’s operating margin was 16.9 percent for the year, compared with 18.4 percent for Apple overall.

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Yesterday, January 7, 2008, Starbucks sacked their CEO, Jim Donald, and announced that they will close some U.S. based stores in 2008. Starbucks is a great concept, but after thousands and thousands of stores opened in a close proximity to each other, its time to take a breath. The share price has suffered considerably in the last few weeks as a result of declining sales. They likely plan is for Starbucks to close the stores that are not strategically positioned and under performing. To read more about Starbucks closing, click here.

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Opening a retail store takes time – in most cases. Occasionally, a retailer will leave and the following retailer to back fill the space will be of the same use type. This happens often with restaurants, but for the most part “the shoe does not fit perfectly”.  As a result, most retailers ask for a FREE RENT period.

Free Rent is a specified time period negotiated between the Landlord and Tenant allowing the Tenant to handle all construction, legal, permitting and operational issues before opening for business.

The amount of free rent achieved through negotiations depends on many factors, but here are the main factors:

  • Market Conditions
  • Duration of Vacancy
  • Type Of Use

Market Conditions influence free rent because in a hot market landlords are less motivated to give extended free rent periods. In a slow market, negotiating a longer free rent period is much more likely.

The Duration of a Vacancy can also determine the amount of free rent provided by a landlord. Challenging centers and spaces are options for obtaining more free rent. Additionally, if a space sits vacant for a long time there is a better possibility of getting free rent.

The Type of Use also determines the amount of free rent. Restaurants require considerably more time, money and inspections to get open when compared with insurance agencies. Restaurants usually have the ability to negotiate a considerably longer free rent period, even in a hot market. This is especially true for white table cloth restaurants.

Free Rent can sometimes be the factor that makes or breaks a deal. It is certainly one of the key negotiating points. There is always remove for negotiation with a free rent period, but it is important to know how it fits into your deal.

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Just like in all sports or business ventures, it is important to have a team when growing your retail business. From a real estate/site selection perspective, the members of your team should be:

  • Broker/Agent: Look around and find the right person/group that fits your personality and goals. They should be able to help you identify the right market and site for your store.
  • Real Estate Attorney (Experienced in Retail Real Estate): This is the person that is going to review your lease and can truly explain language that might not make sense on the surface.
  • Contractor: You will need to work with a contractor to get your space built out. The contractor can also help you save money by providing an estimate of what it will cost to build out a store. You have to watch the contractors, but if you get a good one, they can really help you out.
  • Architect: You are most likely going to need to submit plans to the city showing how you are laying out your store.  In an ideal world, your contractor and architect work together to build your retail masterpiece. Either you contractor or architect should deal your local municipality in getting permits. 
These are the main components to having a winning team in your site selection. If any of the team members are weak it could result in delays and problems down the road. I would suggest getting several bids from architects and contractors before settling on one person until you know the quality of the work and are sure about the relationship.

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GOING GREEN is and will continue to be a moajr trend around the world. Municipalities are creating grants, tax credits, density bonuses and reduced fees for development projects that comply with national green standards. Right now, only about 5% of developments are green, but the green movement is going leaps and bounds. Definitely an emerging market!

The Green Movement is not just confined to automobiles, development and construction, its spread to grocery stores, clothing stores and even pet stores. Green is becoming a way of life. More and more vegan and organic restaurants are opening up such as Organic To Go, Java Green, etc. Green is also shaping the way retailers merchandise their stores. Conscious Corner is Clarksville, Maryland based group of retail operations focused on green living. They operate an organic pet store, clothing store, deli and grocery store.

Green living is just starting and it is likely people are going to continue to adopt more green living standards as cities and governments offer more incentives to save the environment and live healthy. Being green is likely to help your retail business make more green!

I thought this article might be helpful for people going into the New Year to get a perspective on things in the financing markets. Enjoy and Happy New Year.

Commercial property loans are used by many sectors of the business world to finance future investments and expansion efforts to grow a business.

With the recent collapse of the U.S. sub-prime mortgage market, credit is increasingly difficult for consumers to come by. Lenders are reducing their exposure to high-risk ventures. Lingering uncertainty about the credit market as well as the stability of the international money market causes widespread reluctance to finance ventures.

Fortunately for investors seeking commercial real estate financing, the commercial sector is not directly affected by these developments. Although riskier ventures will still be more difficult to finance with credit, the current economic climate has not stalled lenders.

With the recent developments in both the U.S., and across the international credit market, debt is becoming a well known concept.

While economic uncertainty would demand that all investors be prudent about entering into debt, most Organization for Economic Co-operation and Development countries are not in recession. In fact, they have actually experienced record growth and prosperity over the past decade. This lends some robustness to the major western economies.

Most business expansion is financed using commercial loans, so provided debt is entered into for purposes of investment, building, and expansion of the business (rather than a fundamental cash-flow problem). Debt is not in itself a negative thing. It is the return on that debt that is the problem.

Commercial real estate financing can be secured to fund the purchase of land for infrastructure and services development. Power plants, streets, utilities, shopping complexes, office or apartment buildings, parking facilities, parks, resorts, and golf courses, and even medical clinics or private hospitals are just a few such real estate investments.

Frequently, commercial property loans are sought as a means of refinancing existing debt to increase the total value of the investment. It is possible for private investors and companies to make a career in the reiterative process of reinvestment. Financing the cost of expansion against the projected profits of the venture can be quite lucrative.

It is true that there is still some volatility and uncertainty about the stability of the western economies. Consequently, investors should be as vigilant as ever about entering into unprofitable arrangements. Such factors influencing profitability include cost blowouts, too little potential return, or inherently risky ventures.

Investment consultants have made a market for themselves in advising smaller scale investors on commercial real estate financing, and providing them with the means of determining which projects are worth entering into, based on the available information. This includes taking into account the possible blowouts, and considering what might go wrong with any given project.

By applying basic rules of thumb, and not investing beyond certain thresholds, investors can increase their chances of sticking to projects that are within their means.

With the use of specialized software, this process can be further streamlined, allowing financiers to quickly weed out which projects are potentially unprofitable. Based on the available data and taking into account uncertainties and potential threats to the project, financiers can make smarter lending decisions.

Taking advantage of commercial real estate financing in the current market can be lucrative for you. If you are looking for a way to grow your business, investing in property is a potential solution. The professionals at KISCL offer software to make the task easier. http://www.kiscl.com </a

Article Source: Articles island – Free article submission and free reprint articles

There are many different business models used in the retail world and the business world. People sign leases in their personal name or in the name of a corporation. There is no right or wrong way to do things, but it is advised that a corporation sign the lease. I am not an attorney, but I am involved in lease transactions and have bought real estate before and the general rule is to use some corporate structure for asset protection and liability. The best thing to do is speak with an attorney before entering in lease negotiations about how you should structure the business. This goes hand in hand with the attorney reviewing the lease, so you can fortunately “kill two birds with one stone.”

Here are some sources to find out more about  Legal Entities and Corporations:

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