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Specialty Leasing's Place In The Sun

The proliferation of open-air centers has created new challenges in an often overlooked area: specialty leasing. Temporary tenants want exposure in these properties, but putting carts outdoors creates problems for both owners and retailers that require foresight, planning and additional cash.

Retail merchandizing units (RMU) have become integral to the shopping center industry since their introduction in the 1970s. They can generate 10 to 15 percent of a mall's annual revenue for the shopping center owner by capitalizing on high-traffic common areas and allowing fledgling merchants to get a toehold in the market before they get their own storefront.

Specialty leasing, which encompasses retail merchandising units, has grown into a $12 billion business today from $3 billion a decade ago, says Nancy Tanker, managing editor of Specialty Retail Report. And the rents RMU operators pay can rise above $4,000 a month, depending on the size of the center, and spike to as much as $10,000 a month during the holiday season.

But while the sunlight and seasonal breezes may entice strolling shoppers to stop and pay a visit to an outside retail merchandising unit, those elements, as well as other external factors, increase the units' operating costs. Having carts outdoors leaves them exposed to the elements (and vandalism) 24 hours a day. In addition, there are design concerns, as carts in open-air centers need to match the aesthetics of the property.

All these factors can double, or even triple, the cost of an outdoor cart by comparison to one designed for indoor use. Sharon Loeff, director of sales with Creations at Dallas, a firm that makes retail merchandising units, estimates that the prices of interior RMUs range between $10,000 and $19,000. Exterior cart pricing, on the other hand, only starts at $20,000 and can exceed $100,000.

Battling Mother Nature

One of the biggest obstacles to running a successful specialty leasing program under the open skies is Mother Nature. Rain and salt-heavy sea air can undermine product quality, extreme heat makes it uncomfortable for salespeople to remain inside the cart all day and extreme cold drives away customers.

“Regional malls can offer a much better service with specialty leasing units because they continue to operate all year round,” says Dan Sullivan, senior vice president of development with GK Development, a Barrington, Ill.-based real estate acquisition and development firm. “The customer doesn't want to stand outside during wintertime somewhere in Minnesota.”

Protecting carts against the elements and vandalism (since in open-air centers they are vulnerable 24 hours a day) are important factors to consider, while the units also need to conform to the aesthetic guidelines imposed by the design of the center. Security devices used for external retail merchandising units include roll-down shutters and gates that allow cart owners to leave the light on after hours, spotlighting the merchandise.

In addition, exterior retail merchandising units require a thorough maintenance program — cloth awnings need to be changed approximately every 18 months, lighting fixtures have to be replaced and the owner might have to repaint the cart every couple of years.

In some climates, it may be necessary to limit the operation of the RMUs to six or nine months a year. But there are features manufacturers can add to address moderate cold and heat, including heaters and overhead fans.

The exterior retail merchandising unit requires a roof and awning to protect it from the rain and has to be made from a material that doesn't rust or rot easily. Manufacturers commonly use metal, fiberglass or marine grade plywood, says Loeff.

Weather conditions also dictate the merchandise an outdoor cart can sell. Jewelry will tarnish fast in a location close to the seashore, while apparel will fade when exposed to extreme sunlight all day long.

Second-class status

A retail merchandising unit owner has to determine whether the open-air center is amenable to specialty leasing. Owners must strike a balance between maximizing the earning potential of the carts and acquiescing to the demands of the centers' in-line retailers, whose contracts usually insist on no sightline obstructions.

This is a major concern for Matt Sebree, director of specialty leasing with Caruso Affiliated, a Los Angeles-based firm that currently operates 1.5 million square feet of open-air shopping centers in California and has another 2 million square feet under development. At Caruso's properties, in-line retailers' needs come first.

“We try to position the carts out of the direct line of sight of in-line retailers, so they are not obstructing the views for the guests,” Sebree says. “We are also very concerned with our guest experience, so we have our carts in self-contained locations.”

Many developers require that retail merchandising units blend in with the background as much as possible, out of concern that bold displays will detract from the center's ambiance. This strategy can go too far, however, and result in units that don't generate enough cash, says Deborah S. Kravitz, principal of Sherman Oaks, Calif.-based consulting firm Provenzano Resources, Inc.

Inside malls, the carts bask in the ambient interior lighting and benefit from steady foot traffic as customers meander from store to store. But making a cart inconspicuous in an outdoor setting, where it might be located on the fringe of the primary traffic flow and out of direct sunlight, is counter-productive.

As an example, Kravitz cites the Third Street Promenade in Santa Monica, Calif., a three-block shopping destination where Provenzano manages the specialty leasing program. When Provenzano first got the assignment, the firm decided to go with understated carts that were dark in color and blended in with the surrounding streetscape. At the time, Kravitz got many compliments on the designs. But since the units were undistinguishable from their background, shoppers passed them by.

“They almost looked like the trees,” Kravitz says. “We've gone back and now the displays are colorful and well-lit, so they pop. The units can still match the surroundings, but they should be visible.”

Site selection

Placement of carts is also an economic consideration for developers as they need to know where to install power and phone lines to maximize their return on investment.

“It's a lot less expensive to put down the electrical and the conduit before all the slabs are poured,” says Rob J. McCoy, principal of Stak Design, Inc., a Carrollton, Texas-based kiosk design firm. “All of the merchants now have computers, printers and fax machines and they demand a lot of power.”

Developers ued to enclosed malls' straightforward racetrack layouts often approach specialty leasing as an afterthought, says Provenzano's Kravitz.

The units are situated on the first available corner, or on the side of a common area that may not see a lot of customers.

“The common area program should be thought of as an integral part of the design of the center,” he continues. “You need to choose the locations and where the power outlets are going to go and we also like to cluster our units a bit, so a merchant is not all by himself somewhere.”

TAGS: News Leasing
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