As the national economy begins to work its way out of a significant recessionary cycle, commercial developers everywhere are coming to grips with some sobering new economic realities. While some industry analysts who have been tracking tenant sales numbers have begun to see a few tentative signs of a turnaround, in the short term, the prospect of a sustainable and robust recovery is still in doubt.
While some regional and local markets have performed better than others, the overall state of the national leasing landscape has been relatively grim during the last year and half. In the face of these new challenges, commercial developers and shopping center managers who simply hold their breath and hope for a turnaround are unlikely to emerge in a position of strength when the marketplace does improve. On the other hand, savvy industry professionals who are willing to innovate, be creative and flexible, and adapt to the current circumstances, are finding that there are ways to operate more efficiently and effectively – even in a downturn. Especially in a downturn.
Some of the most successful developers and managers are focusing more time, money and energy on effective tenant retention techniques, recognizing that there is enormous value in a known quantity and understanding that the best way to avoid facing the uncertainty of a lean marketplace is to minimize your exposure and reduce turnover.
Industry professionals who are willing to take a step back and evaluate their tenant retention practices are discovering that sound tenant attraction and retention practices can be a critically important pillar of any comprehensive commercial development and center management strategy. They are discovering that tenant retention is not just about making prospective and existing tenants happy, but about building a sustainable framework for long-term mutual profitability and success.
While the specifics on how to attract and retain quality tenants might vary depending on specific circumstances, there are a few important general principles to follow when building an effective tenant retention program:
Commit. Building an effective and collaborative tenant retention program requires a certain mindset: an attitude and a commitment to a day-to-day operational reality where owners and managers take a hands-on approach and become more involved in their tenants’ businesses. Professional advice and assistance with product placement and things like in-store marketing can be a significant benefit, particularly to local and regional “mom and pop” tenants. In the long run, hands-on owners and developers who are able to build, develop and nurture strong tenant relationships are discovering that an open and honest dialogue about how the tenant and landlord can work together to achieve mutually beneficial short- and long-term goals can yield productive results for all parties.
Associate. Establishing a strong and effective merchants association or marketing fund is an enormously important part of an effective tenant retention program. When negotiating a lease, developers who prioritize tenant retention and routinely engage in collaborative engagement with retailers make a point of discussing the obligations and benefits of a merchants association with prospective tenants. Some developers may promise to match tenant contributions to the merchants association fund by up to 25 percentor more. A strong, well-funded and well-run merchants association will use its resources efficiently and effectively to develop a vibrant and cost-effective mix of marketing, programming, special events, activities and promotions that both highlights individual tenants and promotes the shopping center brand in a way that draws interest and drives traffic.
Invest. In tough times, it can be tempting to pull back on the purse strings for what some might mistakenly view as non-essential spending. In fact, it is precisely the opposite strategy that many developers and managers are finding to be most effective. Not only are there very real and sometimes immediate economic benefits to be realized, but owners and developers who have institutionalized tenant marketing programs are finding that the productive relationships they have built over the years with their tenants become even more significant assets during a recession.
While the cliché that “you need to spend money to make money” generally holds true in practice, there are always opportunities for developers and managers to work with their tenants to be creative and develop marketing programs on a shoestring budget. Viral marketing and social and electronic media are particularly promising areas for these kinds of programs.
Advise. Coordinating energy, effort and enthusiasm to develop new tenant marketing initiatives and drive retail traffic can make a noticeable difference in all parties’ bottom lines.It is often more efficient and effective to pool funding and coordinate promotional activities for the benefit of all tenants. Providing supplemental marketing funding and expertise is a great way to work with tenants to alleviate sometimes unavoidable economic hardships outside of rent reductions, and it's a strategy that is also likely to have a positive and enduring impact on tenant loyalty. This kind of collaborative engagement is typically most effective and beneficial with smaller local and regional tenants who may not have the requisite resources or experience to launch an effective marketing campaign.
Whether it is going into a store as a “secret shopper” and reporting back to the retailer or something as simple as helping a tenant build a website or expand their social networking programs, collaborative marketing and promotional commitment on the part of the developer or center management can go a long way toward improving both tenant profit margins and tenant retention.
Believe. While every commercial developer understands that the bottom line is thebottom line, it is important to recognize that the value of tenant attraction, marketing and retention programs extends beyond dollars and cents. Anecdotally, industry professionals who engage in effective tenant marketing and retention programs report a profound sense of satisfaction with their work. It simply feels good to help a struggling tenant pull themselves up and weather the storm – and you cannot put a price on that. This is true shopping center development and management: not just cashing rent checks, but leveraging people, talent, resources and relationships to bolster both the retailer and the shopping center. Two brands working together in synergy to complement and reinforce each other.
With the very public struggles experienced by many national brands in the last year or two, there are some signs of a general trend in retail back toward a renewed appreciation for the benefits of a local/community-based business model. Local insights and relationships are becoming more important, and with the retail consolidation going on right now, those commercial developers and managers who are best able to navigate through the recession successfully will likely find themselves with a bigger piece of the pie once the market ultimately improves.
Developers who spend the time, money, energy and resources to implement and engage grass-roots marketing and tenant retention are finding that the resilience of the format and the effectiveness of the strategy in the face of current economic hardships is prompting a renewed appreciation for innovative tenant-landlord collaboration.
— Howard Paster is president of St. Paul, Minn.-based Paster Enterprises.