No one has to say that economic times are tough, it’s all over the news and it’s in every conversation taking place out there.  I personally see a trend forming in the retail markets that I predict were long in coming and this economic downturn was simply a catalyst for a change that was already on it’s way.

Shopping malls are changing.  Have you noticed?  More and more malls are losing stores as they close up and leave.  Store owners no longer wanting to keep their doors open just so they can pay the exorbitant rents being charged by the mall owners.  Many, like Big Dogs and others, are changing their business model to keep up with today’s world and the demand.  No longer can speciality stores and small businesses afford to keep expensive store fronts open and still make a profit worth staying in business for. 

Frankly, the market and the philosophy for retail marketing is changing to one of “adapt or die”.   I foresee shopping malls continue to thin out to the point of non-existence in some cases.  Small businesses, especially specialty shops, if they are smart, are packing up and going to an on-line model.  Some are closing all but their most key stores and refocusing their business model on their on-line business as their source of income.  As well they should, customer bases are changing.  From what I have heard on the radio, television and print, consumers have been shifting to on-line shopping methods for many reasons, convenience and price being the biggest two.

One of the biggest problems I see facing many shopping mall owners and the loss of their paying rental/leasing base is their failure to face reality.  Many property owners of malls and strip malls and even office space are not changing with the times fast enough or are changing when it is too late.  Not negotiating with your tenants when times are as tough as they are now is just BAD BUSINESS!  

The alternative to many of these small businesses to not getting their rent/lease reduced is to simply close up shop and go out of business.  Some simply go elsewhere where the rent/lease is more reasonable.   The problem for many of these property owners is they realize too late that they need to negotiate with their tennants much earlier than when they hit hard times and the tennant comes to them.  If the tennant is coming to you asking to renegotiate their rent, they are most likely already having financially rough times and are in most cases likely to not survive them.

For longer term success, the landlords should approach their tennants early in the process, offer them a break during these hard times and help them stay in business longer.  In the long run, it helps both parties out and helps the tennant stay in business and the landlord is able to get some form of revenue for the property.   Landlords need to face the reality of the concept that “the more open space you have, the harder it is to attract new tennants” and “a tennant paying something is better than a empty store front paying nothing”.

I have lived in Oxford, Michigan since 2001.  In my eight years of living here I can say I have seen stores come and go, some of them in the exact same spot.  Landlords need to stop thinking “I have premium space” and instead think “I need stability” for both their future and the future of their locale.  No offense to landlords in Oxford but, get real!  You can’t expect new businesses to open, rent expensive space from you and expect them to stay in business long.  Most businesses need time to get going, make money and become known.  If the new business is already dying before anyone knows they are there, they have absolutely no chance at success and exorbitant rental rates and leases do not help at all.  It might be a short term gain for you but it is a long term loss in the end.

This by no means to limited to Oxford, it is happening all over the place.  Great Lakes Mall is a great example.  I have been living in the area long enough to have seen GL open and saw how vibrant it seemed to start out.   Very shortly after it started I noticed a number of stores that had closed up within the first couple of years.  In going there now (2009) I have observed even more empty stores with many more stores displaying “clearance” sales and “going out of business” sales. 

I by no means can tell you how much store owners are being charged for rent at GL, but I will make one observation; whatever they were/are charging, it’s too much and if you don’t change your business model, you may find yourself with a mall full of empty storefronts.  The more stores that close in a mall, the less attractive the mall becomes, the fewer people go to it and the fewer new businesses want to take a chance with opening a store there.  Squeezing more out of those who remain is no way to stay in business and no way to keep tennants.

Ok, I’ve had my rant.  Landlords, you need to get real, you can’t keep charging the rates you are and stay profitable in the long run.  But hey, I’m an information technologies guy with my specialty areas focusing around the web, by all means, push more businesses to an all web-based model to do business.  You are definitely helping out people like myself in the long run because don’t be surprised when there are no more mega malls.  Sure, there will be stores out there still, where people can try on the clothes before they buy them, but please make sure you are taking stock in how many of your tennants are specialty stores who could probably do better with an on-line model and no store front to pay high exorbitant rents for.

Oh, by the way, landlords, it only costs a store owner approximately $100-$200 per year to host an on-line store front, and another couple thousand PER YEAR to have someone manage it for them.  Think about that the next time you want to raise a tennants rent to compensate for the tennants you’ve lost because rent was unreasonable.

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