Cultivating independent tenants can be a worthwhile investment, panel says
Publish Date: November 17, 2014
Although smaller, independent tenants can present challenges, shopping centers that make a focused, knowledgeable effort to cultivate them often find that the benefits outweigh the initial risks and hassles, panelists said last week in Chicago at an SCTLive discussion on “Nurturing Tenants.”
Although the share of independents among retailers overall has been declining, panelists said such tenants are worth supporting as an integral part of the shopping center ecosystem because of the local flavor and distinction they bring to the tenant mix.
Independent chains may not be able to offer the lower prices a chain can achieve, they can compete on service, panelists said. Even with a highly cost-conscious public, customers who receive excellent service from an independent are often willing to pay a higher-than-chain-store price, said Dwayne Rancifer, owner of more than 20 Boost Mobile stores in Illinois, Indiana and Missouri.
“It’s a good thing for the industry, long-term, to push independents,” stressed Conor Flynn, president and COO of Kimco Realty.
What’s more, added Thomas Lithgow, president of Inland American Retail Management, as opposed to three or so years ago, owners now can afford to give up a few dollars per square foot to get the additional “flavor” an independent adds to a center.
But getting that flavor sometimes isn’t easy, particularly concerning issues with financial transparency and accuracy, the panelists acknowledged.
Lithgow, who has substantial experience with due diligence, said that it’s harder to analyze mom-and-pop stores.
There can be ongoing difficulties getting accurate sales figures from independent retailers, added James Matanky, CRX, CLS, CDP, CSM, president of Chicago’s Matanky Realty Group, who mentioned inaccurate information submitted by would-be tenants as an occasional problem.
Making the reasonable assumption that most independent retailers are honest, though, the panelists described several means of attracting independents and helping them succeed.
Both Kimco and Inland American operate programs that offer free rent and other benefits to qualified retail start-ups. Kimco’s KEYS program has been under way for four years and currently operates in California, Colorado, Arizona and Nevada, Flynn said. Participants are often transitioning from a home-based or a solely online business.
Inland American’s In Business program is very similar to KEYS, said Lithgow, not least in offering a year of free rent, with the tenant paying only NNN expenses. “We don’t want to set them up for failure,” he said. Inland American also uses a short-form lease to make things simpler for tenants.
Matanky Realty Group maintains a variety of relationships, with Governors State University (in suburban Chicago), numerous independent grocers and the Chicago Community Loan Fund, said Matanky, adding, “There’s a lot of hand-holding involved” with nurturing new retailers.
More tactically, special events can help independents by getting customers next to stores they don’t usually see during their routine shopping at a center, Flynn said.
The pool of independent retailer categories has grown more diverse in recent years, panelists said. Lithgow mentioned yoga studios; a shop that sells dresses for proms, weddings and other occasions; a vinyl-record store; and a men’s shoe store that’s “all about the customer experience” and has scads of repeat business.
Matanky said post offices make great tenants. Healso cited a comic shop that seems to be doing well and a bakery that started as a home-based business and has now been in center space for about 15 years.
In general, said Flynn, good concepts are those that can’t be delivered online, like hair/nail salons, urgent-care centers or the gym that a military veteran opened to offer boot camp–style training.
If an independent is doing well, Matanky summed up, it’s in everyone’s interest to keep them going and growing.