Shopping Centres vs Strip Locations... is one better or just different?
by Julian Mero
Shopping Centres vs Strip Locations... is one better or just different?
From my experience some types of businesses work well in a shopping centre environment and others do not, likewise for strip locations.
Both types of locations offer a variety of benefits or disadvantages depending on the type of venue in question.
A shopping centre will deliver a measurable amount of people to their space, their greater patronage is underpinned by major retailers, known as anchor tenants, such as Coles, Woolworths or Aldi, and in some cases all three and usually a K Mart, Big W or Target are a part of the attraction.
A shopping centre provide benefits like ease of parking, public transport hubs and a variety of retailers and retail products to attract a repeat customer with diverse shopping requirements. Though the convenience of having a wide range of customers guaranteed in one destination comes at a price, the privilege comes at a higher gross rental.
More recently, shopping centres have been updating their food and beverage spaces allowing them to really define their precincts. A good example being food courts predominately housing franchised based businesses, whilst there are many franchised cafes spaced throughout the centres the explosion of coffee specialty retailers has opened this market up and you would now be hard pressed to find a shopping centre without a coffee roaster in it.
This expansion into food & beverage entertainment precincts has given shopping centres the ability to attract independent operators, those who previously would never have entertained the idea of having their brand represented in a shopping centre environment. Most centres will now seek inspiration from independent operators located in strip locations and try and bring them into the centres as a way of providing new retail concepts to their customers and also to get one up on their competition.
Strip locations on the other hand offer different benefits and are generally more flexible in how one could enter and operate in this type of location. Strip shop locations offer food and beverage operators a chance to build their own identity by being part of the fabric of a local community. They give the operator the freedom to adapt their menus and their operations at will with minimal interference from the landlord. By not having the stringent lease requirements that a shopping centres does, businesses are able to enter the market via a lower cost of entry and lower ongoing fixed cost.
In a strip location you have the freedom to deliver your own marketing strategy at your costs and can control when and how the marketing is delivered – whereas shopping centres will have a monthly marketing fee payable by each tenant. Strip locations on average will have a lower gross rental as these marketing fees aren’t included in the lease, the outgoings are cheaper and the per square metre lease rates are far less.
How do I choose between the two options?
Whilst there are cross over markets that will frequent both shopping centres and strip locations, you need to focus on the habits of your core target market to define whether you are best looking at a shopping centre or strip location.
If your core target market is the local community, early adopters or a younger demographic then you will be more suited to strip location. You will find that these customers are looking for alternatives to the mainstream shopping centre, they prefer destinations they can discover and call their own, something they feel a part of. This type of market is usually extremely loyal.
Whilst these customers will frequent shopping centres when necessary, they are less likely to go to a shopping centre specifically to seek out food and beverage experiences. However this is the exact customer shopping centres actually desire, so they chase the retailers that can provide this kind experience into their centres.
The clearest example of this is the introduction of coffee specialty retailers, these are now scattered throughout most shopping centres. The second major shift is the emergence of entertainment and dinning precincts within centres that have been specifically built to feel like you are not in a traditional shopping centre environment.
If your core target market is families, a middle age to older demographic, a mainstream customer that follow the trends not start them, then your brand will typically be more suited to a shopping centre.
This is generally why franchised businesses have been successful within shopping centres, their customers know what they are going to get, they are family orientated and they follow products trends not create them, they make safe choices.
Since the early 2000’s shopping centres have developed strong night-time entertainment precincts that attracts families and a younger demographic looking for a fun night out. Nevertheless, this younger customer is a mainstream customer and again, is following trends not setting them.
You simply cannot underestimate what effect the planning and research of your core target market has on making an informed decision regarding what location is best suited to your business. Essentially the site selection process is one of the most important aspects of building or buying a successful café or restaurant, and an in depth look into this topic would require a whole separate article.
To further understand the decision of a shopping centre versus a strip location you need to understand some of the key lease terms. I have listed some below, but this is a specialised area and seeking legal advice is advised.
Strip Landlords are more likely to accept a longer lease as they would like to lock in the property income and do not have the stringent refurbishment requirements that Shopping Centre Landlords do.
Strip Landlords are more likely to accept options on your lease - options are set time extensions on your existing lease if you wish to make the term of the lease longer. Always be aware that you have to exercise the option by a specified date, or the landlord may choose not to except it.
Refurbishment: this a Shopping Centre requirement. It will be form part of your lease that at the end of your tenure you will be required to refurbish your premises. This can range from minor upgrades to a full refurbishment that will have you closed for a short period of time. Whilst the extent of the refurbishment is negotiable this needs to be factored into your long-term plans and financial position.
Strip Landlords are not likely to have as stringent requirements on a refurbishment during the term of your lease, this clause is generally for Shopping Centre Landlords only.
However in my experience as both an ex-restaurateur and a leasing executive you should be planning on spending money on a refurbishment around the 5-7 year mark, the size of the refurbishment will depend on wear and tear and brand upgrades. Your customers both internal and external and your staff expect to see you spending money on your business and will reward you with their loyalty on doing so.
Permitted Use: As Shopping Centres have a large number of food and beverage tenants, they maintain some level of control as to what items each tenancy is permitted to sell, this will be done through the ‘permitted use’ clause within the lease. Although the permitted use clause can be somewhat generic at times such as ‘café serving breakfast, lunch and dinner trading as xxxxx’, your menu will be an attachment to the lease which will have the items that you are permitted to sell. You may negotiate or amend the menu items at the beginning and during your lease term however the final approval sits with the landlord. This is often a juggle as they will need to be mindful of fairness between all the food and beverage operators within the centre.
Whilst this may seem onerous and controlling, this is designed to protect tenants from cannibalising each other’s sales by selling the same items, in effect it’s an umbrella protection.
Strip Landlords take less control over your usage of the venue allowing tenants to make unfettered choices about menus etc with ease. Regardless, you need to be aware of what your permitted use is within your lease at all times.
The lack of interference via the permitted use clause from Strip Landlords isn’t all good news though in this type of site you will be exposed to whatever other types of food and beverage businesses the Landlord signs on. Other landlords in the Strip may have a different agenda to your landlord and that leaves the possibility of having a competitive business being signed on directly next door without any regard to the success of either businesses. Currently in my own neighbourhood there have been 3 new Indian restaurants open in the same street as an existing Indian restaurant - the existing restaurant is an institution and will be hard to compete against, but the newcomers want to try! Not all these similar businesses can survive so physically close to each other – there’s only so much target market to share.
The question you need to ask is has my business completed the appropriate planning to make the most informed decision as to whether the site should be in a shopping centre or strip location?
The most common traits of successful food and beverage businesses in both shopping centres and strip shops is they know who and where their customer are, they know their numbers and can access them in real time, use best practice operations and exceed their customers’ expectations.
As food and beverage trends continue to evolve and landlords continue to chase the next new thing, retailers need to educate themselves as to what arena they want to play in and what the framework in each arena is.
Julian Mero MBA
With over 20 years experience in Senior Executive roles, Julian is experienced in retail partnerships and has extensive knowledge in what it takes to run a successful business. Associate of Food Beverage Logic helps you acknowledge the gaps in your knowledge and teaches you to plan your journey so that after you leave here, you can execute your plan with full confidence that you’re on the right path, making informed decisions because you’ve taken all the guesswork out of it.