Retailing’s Favourite Whine

You hear it more in Australia than almost any country in the world. "The landlords have too much power and our occupancy costs are killing us!" A whine with a strong vintage every year since retailing began over three thousand years ago with the world's first entrepreneurial landlord in Lydia (Asia-Minor). While there are undoubtedly areas for concern and issues that need to be resolved in individual retailer-landlord relationships, the lemming like whine is too simplistic and undermines the real business opportunity.

One of the greatest contemporary issues facing retail is the need to concentrate foot-traffic - not fragment it.

Scale has and will always win in commerce. With the disintegration of mass-media, reaching customers cost effectively is becoming increasingly difficult. Concentration of foot-traffic now sees the shopping environment emerging as both a promotional communication channel and a place to sell.

Concentration of commercial activity also brings stronger investment and re-investment in the asset to keep it growing and prospering, to make it deeper and richer and more desired by customers. Meaning that the good shopping precincts keep getting better and the poor performers eventually turn into home units.

Now - as always - the cost of being where the customers shop becomes a matter of supply and demand. The more people concentrate their shopping activity, the more retailers will want to be there and therefore the higher the rents. Apart from the occasional fool who - out of desperation - pays way over what they can really afford and sends themselves broke, the market itself actually sets the rent based on vacancy levels.

But the key point is not the cost. It is the opportunity.

Space productivity is the new focus. How do we change our retail model to drive increasing profit from the space we occupy?

For specialty retailers, this demands a move away from price competition and thinking like a volume retailer. A mode of thinking that is way over-represented in Australian specialty retailing. To succeed into the future, concentration of customer shopping behaviour will need retailers to have a greater understanding of brand management principles, more nimble organizational structures able to react and change faster, a greater focus on profit drivers and the investment in customer experiences which are deeper and recognised by customers for the value they bring to the customer's lives rather than cheap "me too" price.

In the 21st century communication era - where acquisition of customers will more likely come from where they shop than what they watch on television - rent won't be the issue. Meaningful differentiation capable of generating increasing profit levels will be and once this dawns on many retailers the whine will change to "How long do I have to wait to get a good spot in that shopping centre?"