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Happy New Year everyone.  I know that it has been a while. In the months that have passed, the new blog was supposed to be launched, but it did not turn out so well…especially after it was hacked! Focus was lost! And the retail industry started to get a little…wild. But it is time to get focused on the retail real estate industry again and get people in the know. So I dedicate this blog post to consistency, quality content and retail.

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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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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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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.

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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I get mixed feedback on the proliferation of national retail chains in the Washington D.C. area (my hometown) and around the rest of the United States. I have heard people say, ” Oh my, its the doom of homegrown retailers” or ” This is great, names I recognize and I can get service wherever I go”. Personally, I can see where both people are coming from in today’s retail real estate environment, but is the end of the local hardware store and bakery here? The answer is yes in some places, but no in others.

I think it is important to remember that all of the national chains one can find around the country were once independent homegrown businesses. Fortunately, the owners went through a metamorphosis and created a real business system(key word being system). Probably the world’s best known example of an organically grown business that developed into a multinational business empire is McDonald’s (to get the whole story behind McDonald’s click here!).

You may or may not want to grow your retail business into a multinational business, but I do think it is critical to business success to have systems in place. Ideally, you want to have systems in place allowing you to expand your retail concept across your town, state, region or country.

Landlords tend to prefer working with retailers that are organized  and have a bonafied structure and business system. Operators that are wishy washy and not systematic have a hard time impressing landlords. Additionally, they are subject to paying higher rents and greater security deposits because they are deemed a greater risk.

The other thing to remember is that Co-Tenancy is such an important aspect of the retail site selection. Sometimes, it works to your advantage to be next to certain national chains.

By focusing on working on your business, you will have a true business system up and running.

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Let me start out by saying that I recommend everyone work with a broker when procuring a site for your new business or having someone lease your retail property. One of the great things about the retail real estate industry is that most brokers(agents) are active on a full time basis. Working on a full time basis allows brokers to really be in touch with the industry and market. In addition, if they are very active, they should have a good amount of experience and contacts to draw from in procuring a site for your new business.

One thing that I really value is working with specialists or experts. When I want to find out about tax laws, I work with a tax attorney. When I want to get my teeth checked, I go to a dentist as opposed to going to a optometrist. And the point of this is to say, it is really important to work with a specialist. There are all types of commercial real estate brokers. People specialize in land, retail, industrial, office, and investment sales. The guy that works in the office sector is likely to have a surface knowledge of the retail sector, but is not the expert that you need if you are looking to open a store in a strip center. The office broker is about as much a retail specialist as the optometrist is a dental specialist – he knows the basics of biology and the human body, but not enough detail beyond that to really do his job moderately well.

Now, you might be saying, “That’s an extreme example, my sister is an office broker and she can help me open a store just like any other real estate agent.” Well, to a degree that is true, but you are not likely to get the expert service needed when opening your first store. I imagine it would be very hard for someone unfamiliar with the rental rates in the retail center around the mall to really know if the price you are being quoted is competitive or if the pricing is ridiculous. The other thing is that people tend to like working with those whom they like, trust, and know. The retail real estate community is very small and people in each market know each other and often do deals with the same people over and over again, so being represented by an outsider is not going to ease the process of getting that winning space.

There are some Jacks of All Trades out there that can do office deals, industrial deals, retail deals and land deals. One of my mentors has worked in all sectors of the real estate business and seems to have a grasp on many markets due to his resources, but in my experience these people are few and far between. You are much better off working with a specialist who knows retail real estate in your specific market.

Too many people do not get professional help when growing their business. One of the professionals that you MUST have is an attorney. Although it is very important to understand the contents of a lease, it is in your best interest to find a qualified retail real estate attorney.  I have had clients hire Mergers and Acquisitions Attorneys, Entertainment Attorneys and everything else between. I have always advised that they seek an attorney that specializes in retail real estate/shopping centers. This will save you  headaches and problems as you grow into your business and retail location. Getting an entertainment attorney to review a retail lease is like getting a dentist to do plastic surgery – they might know what to do, but that is not their specialty. You want to work with some that has experience and is going to do a good job explaining the nuts and bolts of what is likely to be a 35+ page document.

This advice might be disappointing because you wanted to hire your cousin or best friend’s sister, but I cannot stress enough, spending the money up front will save you boat loads of money in the future.

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