How Retailers and Landlords can resolve ‘critical’ tenancies

There are several proactive solutions going back to sourcing and qualifying the prospective retailer, ongoing support and training, as well as good marketing initiatives. But occasionally, despite these proactive strategies (our preference) some retail tenants underperform and/or fail.

It is this issue that concerns me.

 

And, truth be told; by the time the rescue squad is called in, it is too late because the tenant has exhausted all resources and even goodwill to effect the recommended changes.

 

(I am writing this not to antagonise or criticise retail consultants. I don’t know anyone’s business well enough to do so. I am however proposing a departure from an approach that is very common in the industry, for this particular type of engagement.)

 

It is a catch 22 because until it goes so badly that it is obvious to all, it is too late. Even if there are early warning signs, the requisite investment in consulting services are prohibitive.

 

In essence, I believe landlords have to find a way to get specialist resources involved before the retail business becomes terminal and the only way to do that is to make those resources more accessible.

 

The cost of a tenancy failure can easily run into $100k – with vacancies, make-good, subsequent fitout period, leasing fees and possibly even a fitout contribution – with no guarantee that the replacement tenancy will succeed.

 

Is there a way to (a) add more value and (b) to improve the success of these projects and (c) be more cost-effective. All admirable objectives I am sure you will agree?

 

Whilst our own methodology has been different in the past, I propose that a new approach may make more sense in the current climate. A more equitable outcome is possible if:

  • The consultant is there to help solve the problem, not to make the client dependent on their IP
  • You can eliminate the paperwork (which only gets glanced at anyway)
  • Ensuring commitment from the retailer/tenant before we proceed to the following stage
  •  Adopt a brutal approach: if they won’t cut it or won’t cooperate, we cut our losses and move on…

This is the approach we recommend:

 

 

Stage 1: Diagnosis

This initial assessment can be done ‘on the fly’, without excessive documentation and in a consultative manner between landlord, tenant and consultant.

  • Initial visit and store assessment
  • Immediate feedback on the potential and possibilities of stage 2.

The feedback includes outlines of the expected costs/benefits of two types of strategies:

 

Category A actions:

  • Free or very cheap to implement
  • Immediate impact

Category B Actions:

  • The scope of the long-term actions and strategies

This should be an important decision point.

 

Typically a proper analysis is included in the initial assessment, and this is what I propose to change.

An experienced consultant will ‘know’ with a high level of certainty what the key issues are. Many obfuscate at this stage because all the tools and models and proprietary frameworks make everyone feel comfortable with the structure – and it is a way to pad the bill.

 

These models and frameworks may be necessary, but the point is that they should be applied after the retailer has committed to the probable solutions and understands the costs, the nature of the process and the likelihood of the outcomes.

 

Centre and tenant enters into an agreement about whether stage 2 should be pursued. If the tenant refuses or is unable, an exit strategy for that retailer should be put in place. (Brutal, but necessary.)

 

Stage 2: Strategies


Should the decision about the viability of stage 2 be positive, proceed on the condition of the agreement reached.

 

The consultant conducts a more detailed assessment and this stage would include the feedback which can be structured as:

  • Verbal feedback (keeps the cost down)
  • Written feedback (depending on the complexity of the issues), and
  • Metric analysis (if the data is available – which it often is not if it is a new retailer or one with inadequate systems, or they are simply unwilling.)

By providing the above options, costs can be kept down and the consulting resources can be spread wider – to the retailers who may not yet be critical.

 

Another decision point is reached.

The landlord and tenant negotiate the recommendations and determine if the resources are available, and whether continuation to Stage 3 is viable.

Stage 3: Actions & Implementation

 

Detailed plans and concepts and proposals and quotes are generated detailing HOW the issues are remediated.

 

The consultant commits to the process and in fact should (in my view) charge a success fee. There is an ongoing relationship over several months.

 

During this process, IP is transferred to the centre teams and (often) the retailer. The project should be scoped properly, with a finite involvement from the consultant.

 

What do you think?