Be Smart About Granting Concessions, Marketing Dollars to Retailers

The U.S. economy is clearly improving, but that doesn’t mean shopping center landlords can relax. As owners strive to improve the financial performance of their retail properties, a key question is this: How much should you help your tenants financially?

In our business, we often see this question play out in two ways. First, it arises when tenants tell you they are struggling and need rent concessions. It also comes to play when you consider whether it’s a good investment to support your tenants with marketing dollars.

Tenant transparency is crucial
The industry is seeing fewer rent concessions – a sign of the improving environment for retailers in general. But that doesn’t mean retailers have stopped asking for them. For us, the key is that a tenant needs to show that it is truly struggling by disclosing its financial situation to the landlord.

Then, the tenant needs to show what it is going to do with the money saved if the landlord decides to offer concessions. Will the tenant rev up marketing, or change its inventory to better match demand? Or will the tenant simply pocket the savings and try to keep hanging on?

Of course, the need for rent concessions needs to be assessed on a case-by-case basis. In Georgia, South Carolina, and Florida, where we own shopping centers, we are seeing sharp improvement in performance at well-located centers. Still, there are areas where the recovery is much slower.

Many centers built before the recession – in what seemed at the time like a certain path of future development – continue to struggle. In this retail environment, with budgets tighter and online shopping providing ever-increasing competition, prospects for such centers may not improve anytime soon.

Successful marketing methods
As an owner, you may also be considering whether you should supplement your tenants’ marketing efforts. In addition to increasing customer traffic, such efforts can go a long way in showing your tenants that you are taking an active role in making the center work.

That said, it’s critical that the tenants have some “skin in the game” if the landlord is going to undertake such promotions. They should either be paying part of the cost of the marketing outreach, or offering significant deals or discounts to help attract shoppers.

We have found that in order to successfully draw attention to a promotion, advertising needs to include an incentive to visit the shopping center – a “call to action”. Discount coupons can work, or consider offering a discount for every purchase in the center during a particular length of time.

Promotions can be advertised a number of ways, but we are seeing more landlords take a targeted approach to reach customers. For example, a direct mailing to residents of a certain income level, within ten miles of the center, might be a good idea.

If your retailers have quality email lists for their customers, e-marketing can be extremely affordable and effective. The key here is the list of email addresses. If you can encourage tenants to build lists and add to them over time, the time spent on that task is an excellent investment.

In addition to promotions tied to discounts, we have also had success generating traffic with family-themed events, particularly on holidays in rural locations.

As an example, a Halloween trick-or-treat event at a rural center may be a big hit for families who may live a quarter mile from their closest neighbor. In this case, the landlord can supply the candy and invite local police and fire departments to display vehicles for the kids to see. This approach is extremely affordable and, in our experience, has been well received.

As shopping center owners consider whether to help tenants financially, it’s important to take a long-term view, and to consider your center’s overall situation. Obviously, if your center is at full occupancy or close to it, and the neighborhood is doing well, it should be easier to replace a tenant.

Regardless of your center’s situation, take a hard look at whether you think a struggling retailer will make it. The, if you decide it’s worth the risk, don’t be shy in offering some support. This could pay off. After all, a leased space beats a vacant space.

– John Brozovic is the regional director of leasing of Atlanta-based Halpern Enterprises, which owns more that 3.4 million square feet of leasable space in 34 retail properties, including 30 shopping centers in Georgia, Florida, and South Carolina.