Small shops add diversity to tenant mix

Are the higher rentals worth the higher number of headaches?

"Klein houtjies kry die vuur aan die gang" - kindling gets the fire going - and so it is with small shops - filled with independent traders and mom-n-pop retailers, they offer the prospect of a diverse(r) tenant mix and higher rental rates/ sqm, but often end up only providing >headaches/sqm.

Small shops add variety to malls, more reasons for shoppers to visit (as more of their needs are met), and if the right traders are selected (dare I say “curated”) then a vibrant and differentiated tenant mix is the result. Happiness.

I’m a big fan of biltong shops, dry cleaning depots, internet/print shops, cellphone repair shops and hair salons, as they have relatively modest start-up costs and a largely inelastic nature of demand for their services. However, when considering hair salons, be sure to ask about the stability and tenure of the employees - the loss of a few stylists can severely disrupt a salon's revenue stream if customers follow departed employees to competing establishments.

What’s more, these operators don’t have hard-and-fast specs, so they tend to be accepting of the previous tenant’s fit-out (= no real capex to revamp the store for them), but analysing which traders to take on board should be rigorous.

You’re looking for tenants who:

• pay rent on time

• generate decent sales and traffic

• create community interest and enthusiasm for its business

• abide by operating hours, permissible signage, required advertising, and lease restrictions

• maintains an attractive store, well-stocked with products properly displayed for the current season

• understands that advertising and marketing costs (typically 2 percent to 5 percent of sales) result in sales gains

• What they lack in size and sophistication, they often make up for in hard work and a drive to see their businesses succeed.

Given a healthy financial profile, a sound customer base, and understanding of their market, mom-and-pop tenants can be a welcome addition to any center.