THE GREAT UNKNOWN

Before taking on a franchise in a shopping centre, make sure you understand the facts, figures and terminology so you can make an informed decision.

Shopping centre facts, figures and terminology.

Many franchise businesses operate a high percentage of their retail stores from shopping centres. Many are very successful, some are okay, and quite a few have been failing over the last few years – and additionally the impacts of Covid-19 have presented many other issues.

Shopping centre management is charged with getting the best returns for space, and this can be at the expense of the survival of the franchisee. Historically these locations have been profitable investments, and in many cases sold into super funds and other financial institutions where the return may no longer be meeting the landlord’s expectations.

This article is not aimed at scaring you off retailing in shopping centres, but rather to explain the information available to the franchisor and the franchisee, and how this can be interpreted to help in your decision-making.

Shopping centre owners have many resources available and they are very good at placing a positive spin on their premises, and it is your job to sift through this to see reality, and how that will hold up in the future.

RATIOS

Things get interesting when you look at a shopping centre in terms of dollars per square metre or dollars per customer – and a variety of other possibilities – and see how they compare.

For instance, if you divide a shopping centre’s MAT number with the GLAR total, the equation gives you dollars per square metre. To work out the dollar value per pedestrian in the centre, the MAT is divided by the number of pedestrians.

I think you can see why Chadstone would be charging higher rents than Shellharbour and the other locations.

If you are looking at some of the ratios, make sure you look at similar centres for a reasonable comparison. Sometimes a neighbourhood shopping centre may have a great supermarket and this combined with a few small specialty shops increases the dollars per square metre ratio above the bigger shopping centres, but the available market through the specialty stores may be low.

The MAT/GLAR is one of the best comparisons that shows a strong, high turnover shopping centre compared to a low performing centre. Whether it be justification for rental, or assisting in quantifying your sales forecasts for the future, this is a great way to broadly compare shopping centres and to reflect your interest in going into them.

DEMOGRAPHICS

Before committing to a shopping centre site you need to consider who lives and works nearby, you need a base population, and some alignment to your product.

If you are selling expensive clothing, high-priced jewellery and Tesla cars, you would be best in a high socio-economic area. If you are selling discount products, under $5 wares and discount grocery lines, you would be best in a lower socio-economic area.

We can measure this in many ways, including understanding SEIFA – socio economic index for areas – or maybe by looking up the average household income on the ABS website for the area you are considering.

OTHER FACTORS TO CONSIDER

You may wish to consider the working population in the area: a CBD or inner city area, for example, is more likely to have a daytime working population visiting the centre than an outer metropolitan shopping centre.

You may want to understand the forecast population growth. The ABS has issued population projections by gender and five-year age groups from 2017 (after the last census) to 2032. This gives us very good information on where the population expansion is expected to come from in all major areas across Australia.

A shopping centre-based franchise is a major commitment in lease rental, fitout costs, stock, staff and working capital. Before you make what can be a life-changing decision, you may want to understand the factors influencing the success of your business.

Using mapping and data should give you the best chance of having a strong business future, and whether you are a franchisor or a franchisee, due diligence should be a requirement of your decision-making process – investing in minimising the risk of failure makes great business sense.

Spectrum Analysis offers web mapping services and data, including the new MallSelector as a way to view all this information from one specific data source.

Peter Buckingham is the managing director of Spectrum Analysis, a geodemographic and statistical consultancy and is both a Certified Franchise Executive (CFE) and a Certified Management Consultant (CMC).