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Mall Talk

Developers are trying to tempt more independents into taking space within their shopping centres. Marino Donati asks what steps a retailer needs to consider before taking the plunge

The next few years will see a glut of prime retail space coming on to the UK market, with shopping centres due to open in cities including London, Exeter and Liverpool, and major redevelopments taking place in half a dozen other towns and cities.

Landlords are increasingly keen to avoid the accusation that they are creating clone towns populated by the same well-known retail names, and are now trying to attract smaller businesses and independent retailers. With incentives including rent-free periods and hundreds of thousands of pounds worth of fit-out costs, the temptation for indies to join the big league in a shopping mall is considerable. But what happens when the reality of rents, rates, service charges and intense competition kicks in?

When upmarket kidswear mini-chain Bratz went into administration in April, high occupancy costs in high-profile locations was given as one of the reasons. The six-store business had stores in shopping centres in Sheffield, Manchester and Birmingham. It has now salvaged three stores, in Liverpool, Solihull and Leamington Spa.

Sheffield designer independent Sakis closed its store in Sheffield's Orchard Square shopping centre 18 months ago after three years of trading. It now has one store in Division Street.

Owner Saki Razaq says that shopping centre retailing is a fast-changing environment. "We were creative with the store, but when the likes of Clarks and Schuh started moving in, the footfall and type of customer changed. Also, with rent reviews, a rent of £15,000 on a 500 sq ft unit can suddenly become more than £40,000," he says. "Landlords and retailers should be able to get council subsidies if they want to support independent businesses."

Developer Grosvenor has about 25 units at its Liverpool One scheme that are targeted specifically at independents. Head of retail leasing Neil Barber says indies work better in centres where there is some variety, or which have different zones. "If you have a typical town centre shopping mall with an anchor and standard units, it's harder for landlords to offer a few soft deals for small businesses because it will impact on the rental values of the centre," he says. "We do the same kind of deals we'd do with multiples. We want indies to be able to trade long term; we don't want to have to re-let the units a year later."

According to Barber, a typical 250 sq ft unit could have a rent of about £25,000 per year, and the store would need to be turning over about £200,000 to £300,000.

"On a store of about 1,000 sq ft, the rent could be about £60,000, so you are talking about between £500,000 and £700,000 turnover," he says. "The location may not be prime, but you're just around the corner from a multiple that might be paying more than £200,000."

Specialist running chain Sweatshop launched a new concept, SheRunsHeRuns, at Bluewater in Kent last December, which managing director Hugh Brasher believes has potential in shopping centres.

"The specialist running market is growing massively, especially the women's side," says Brasher. "SheRunsHeRuns is for shoppers who are into running but wouldn't feel comfortable going into a specialist shop. So the offer is a bit more mainstream and the shop is merchandised like a fashion store."

Brasher says that although the Bluewater site is not premium, the 2,400 sq ft store is close to the likes of Marks & Spencer, H&M and Schuh.

He adds: "The standard of shopfit, graphics and merchandising in a mall is higher than on a small high street, so you have to take in excess of £800 per sq ft for it to work. We're looking for more centres, but you must be careful - the cost of getting it wrong is astronomical."

CENTRE OF ATTENTION: LIFE IN A SHOPPING MALL

COSTAS CONSTANTINOU, managing director, Kate Kuba

- Why should indies open up in shopping malls?

Because you are guaranteed the footfall. It means you can build relationships with landlords and increase the power you have with suppliers. We have nine stores, in locations including Brent Cross shopping centre in London and Metquarter in Liverpool. Brent Cross is well established, so it has traded well and consistently right from the start. Metquarter is a new scheme, so it is a bit more up and down.

- What are the differences between a mall and the high street?

Apart from the increased competition and increased occupancy costs, there are service charges and tenants' association charges. You need more staff and the opening hours can be longer.

- How do you make it work?

You have to make sure that the product offer is good enough to stand up against the increased competition. In a shopping centre it has to be different and at the right price.

- What should your turnover be?

I think for shopping centres such as Brent Cross and Metquarter, the shop has to turn over in excess of seven figures. You have got to do your homework on who else is in the centre. Don't be tempted by any deals on offer, and trade it as you would a secondary or high street location.

What's next?

We are planning two more shopping centre stores for next year.

MARK GRANDITER, managing director, Base Menswear and Boys Base

- Why should indies open up in shopping malls?

It is economies of scale - we have to step up to go forward. We have 17 stores selling men's and boys' casualwear, including shops in Manchester's Trafford Centre and the Bullring in Birmingham. The average store size is between 2,000 sq ft and 2,500 sq ft.

- What are the differences between a mall and the high street?

You have to be aware of the overheads, such as rents, rates and service charges, and be confident you can achieve the turnover and margin you need. There's a lot of competition and less individuality in a shopping centre, so you must work hard to do your own thing.

- How do you make it work?

The boyswear is our point of difference, as we sell mostly for ages eight to 16. With brands such as Ted Baker, Diesel and Ralph Lauren, it is a little more upmarket than the men's offer. It's tempting to take some of the deals that landlords offer but flexibility on leases is the best strategy.

- What should your turnover be?

It is all down to profit margins. Your typical mark-up from a lot of brands might be 2.5, but it is difficult to run a business with just that in malls. We have our own label, Simple Truth, which makes up about 25% of sales and helps give us a good profit margin.

- What's next?

We're opening four more stores as well as launching a website.

RUSSELL LOVELAND, HEAD OF LEASING, LEND LEASE

- Why should indies open up in shopping malls?

We are aware of many of the "clone town" accusations thrown at malls. We have special areas in some schemes, such as West Mall in Bluewater and Poplar Arcade in Touchwood in Solihull. We want indies because they bring a point of difference.

- What are the differences between a mall and the high street?

It is a very competitive environment and you need to think about things like staffing, long hours and service charges. However, there are generally no repair or cleaning costs.

- How do you make it work?

Independents that try to compete with multiples won't make it work. They might survive in a small high street but not in a big shopping centre. The middle market is the most difficult for indies to compete in.

- What's your attitude towards indies?

We have areas in a centre that are like a testing ground. They might not be prime, but they are not totally tucked away, and shoppers will seek out those areas. We never go into a new transaction thinking it will be short term. It isn't necessarily beneficial to offer rent-free periods or other incentives at the beginning, unless a business will be able to cope later on.

- What should your turnover be?

An indie should expect to spend between 10% and 20% of turnover on occupancy costs, on a store of 200 sq ft to 800 sq ft.

HOW TO SURVIVE IN A SHOPPING MALL

DON'T:

- Be tempted to sign up for long rent-free periods

- Immediately go for special deals - does the landlord see you as a long-term prospect?

- Try to compete with the multiples

DO:

- Factor in all the extra expenses arising from longer opening hours, service charges, tenants' associations, contributions to promotional activity and so on

- Make sure you can afford a top shopfit - the standard in shopping centres is generally higher

- Check out the centre's existing retailers and make sure your offer is different and relevant.

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