If your company's retail occupancy costs are out of control, don’t panic! There are three quick fixes that can stem the red ink and get your operations back to solvency. Priority one is getting out of your worst spaces. Once you've done that, you can aggressively manage your operating expenses and work on returning your rents to market for every location that is overpriced.
Correlate Rent to Sales and Co-Tenancy Clauses
Some of your locations are underperforming. Some of them are in centers where the anchor tenant has gone dark. The union of those two data sets may represent your best opportunity to immediately lower your occupancy costs. Assuming that you have the software or staff to generate these reports, building a correlation is a simple process:
1. Rank your locations by rent to sales ratios. Focus on any locations that are failing to hit your company's goal.
2. Correlate those locations with a list of properties for which you have "go dark" or co-tenancy clauses that let you vacate.
3. Identify which locations are in a center where the clause has been triggered.
Just because you have a site that you can move out of doesn't necessarily mean that you should. Your co-tenancy clause could also be a golden opportunity for you to negotiate your lease down to a very low level. This will let you manage your retail occupancy costs, bring your rent to sales ratio back in line with your goals and leave yourself positioned to take advantage of the increase in traffic that should return when the dark anchor space gets re-tenanted.
Attack Operating Expenses
The next step in controlling retail occupancy costs is to attack operating expenses that you can quickly control and reduce. While you can frequently go after every line item and find savings, two areas of focus for many retail operations are property taxes and lighting costs.
If your landlord is paying the property taxes and billing them through to you, he's probably not as hands on as you'd expect. After all, it's not his money. With this in mind, work with him or an attorney to quickly see if you can achieve savings through an appeal. If you can, move forward.
If your landlord bills you for property taxes, there are steps you can take to achieve savings.
Even if the light produced by high-efficiency fluorescent fixtures is inadequate for your retail operation, the high quality light offered by LED fixtures may surprise you. While the cost of replacing all of your in-store lighting may be too high to refurbish all of your stores, strategically replacing your most heavily used lighting elements can help reduce your retail occupancy costs and carbon footprint.
Rank, Research, Renegotiate, Relocate
After making the easy changes, the next step is to strategically examine your portfolio, site by site to determine which locations are at, below and above market value. Rank your locations by rollover date, focusing on the soonest ones first. If you don't have the resources to do a market survey, work with a commercial real estate broker that has them handy. Once you've identified which sites need to be adjusted, you'll have the tools you need to persuade your landlord.