TY­ING THE RE­TAIL KNOT

Your lease is like a mar­riage that has the divorce al­ready fac­tored in.

Inside Franchise Business - - Contents - PHILLIP CHAP­MAN

Your lease is like a mar­riage, with a divorce fac­tored in.

Your re­tail lease is per­haps the most com­plex con­tract that a re­tail busi­ness re­lies upon as the foun­da­tion to the suc­cess or fail­ure of the busi­ness.

Although the prin­ci­ples of rent in ex­change for rights over land to mar­ket your wares has been around since BC, spe­cific re­tail lease leg­is­la­tion is only 25 years old.

In this short pe­riod of time land­lords have be­come more so­phis­ti­cated, re­sult­ing in re­tail prop­erty de­liv­er­ing con­sis­tently stronger re­turns than any other sec­tor, even though the leg­is­la­tion was orig­i­nally in­tro­duced to level the play­ing field.

And as re­tail prop­erty in­vest­ment has be­come more com­plex so too has the fo­cus on re­tail leases, with the con­se­quence be­ing the tech­nol­ogy, in­for­ma­tion and lever­age gap be­tween land­lord and re­tailer has widened even fur­ther.

Land­lords (large and small) in­vest heav­ily in the strate­gic and fi­nan­cial man­age­ment of their re­tail leases – it is no longer just about the as­set (the bricks and mor­tar) man­age­ment. It is far more so­phis­ti­cated, with con­stant re­views and as­sess­ments to ma­nip­u­late even higher and higher re­turns from the same bricks and mor­tar.

The stark re­al­ity is that re­tail­ers in­vest vir­tu­ally noth­ing in com­par­i­son – keep­ing the “lord” in land­lord.

Every lease has em­bed­ded within it con­trac­tual and op­er­a­tional events, not to men­tion es­sen­tial clauses that are crit­i­cal to your rights, on­go­ing op­er­a­tion and the fu­ture of your re­tail busi­ness.

Treat­ing the lease (and more so the land­lord) as part of the sup­ply chain is a fun­da­men­tal change needed in re­tail­ers’/ lessees’ mind­sets be­fore you can be­gin to in­flu­ence the out­comes along the crit­i­cal path of the lease.

Some of the ar­eas of in­flu­ence that are manda­tory to strate­gi­cally manag­ing your lease are:

The crit­i­cal path – map­ping the time­lines and events with the lease and plan­ning the lead times and re­sources re­quired at each event to in­flu­ence out­comes.

• Bench­mark­ing and key per­for­mance in­di­ca­tors (KPIs) – reg­u­larly re­view­ing and com­par­ing against in­dus­try norms and re­act­ing in a timely man­ner to align oc­cu­pancy costs.

Pro­ce­dures to deal with no­tices and day-to-day op­er­a­tional is­sues – who deals with these when you are not avail­able?

Re­la­tion­ship man­age­ment – keep­ing the com­mu­ni­ca­tion pro­fes­sional and two way.

So when think­ing about your lease and the pro­cesses of first en­ter­ing into it, and hope­fully re­new­ing while in­flu­enc­ing the out­comes along the way, liken this to a mar­riage.

Where at first the cou­ple meet and com­mence court­ing, they get to know each other bet­ter and start to un­der­stand what each wants from the other, and hope­fully they de­cide to for­malise the re­la­tion­ship.

Although there is much ex­cite­ment about what the new re­la­tion­ship can bring, soon the hon­ey­moon is over and the stark re­al­ity sinks in. This re­la­tion­ship, much like the re­la­tion­ship with your fran­chisor, will have its roller­coaster mo­ments. The best re­la­tion­ship emerges when both par­ties un­der­stand the need to work to­gether.

And as your busi­ness de­vel­ops and grows, there’s the knowl­edge that there is a use-by date on this ar­range­ment. If the land­lord–fran­chisee re­la­tion­ship is sta­ble and sturdy, de­spite the ups and downs, a re­newal of vows could be a pos­si­bil­ity – this of course is de­pen­dent on the other part­ner in this ar­range­ment, the fran­chisor.

Even if things get tense, though, it’s bet­ter to avoid a messy divorce. And that means manag­ing bet­ter out­comes for the re­tail lease.

The take­away for any­one look­ing to en­ter or re­new a lease, or buy a re­tail busi­ness, is to look be­yond the cur­rent lease term and have a strat­egy for the next lease term, as this is where you will re­alise the true value and ROI of your busi­ness. And re­mem­ber ...

"Re­tail­ers don't get what they de­serve … they get what they ne­go­ti­ate!"

Phillip Chap­man is a re­tail in­dus­try ex­pert with a spe­cial­ist fo­cus on the leas­ing chal­lenges and op­por­tu­ni­ties faced by ten­ants in the re­tail sec­tor. He is the founder and chair­man of Lease1, Aus­tralia’s only na­tional re­tail shop lease con­sul­tancy that pro­vides a ten­ant-only rep­re­sen­ta­tion ser­vice and a lease sim­u­la­tor MiLease – New Rules of Leas­ing.

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