Returning to street-front shops

Over the past two decades, malls and covered shopping centers have sprung up across the country. Whereas most retail space and shops used to be at street level, preferably on each city’s main streets, most shops today, especially major chains, seek to operate and are actually located inside malls.
Shop owners now face a difficult question: should they rent premises on a central city street or in one of the crowded covered shopping centers?
Several dramatic changes over the past year, both in the economy and in mall owners’ business preferences, make it advisable for entrepreneurs to consult specialists before renting on the street or in a mall and to choose wisely. Here are some considerations:
A mall shop typically involves high rent and management fees, opening and closing hours dictated by the mall owner, a particular tenant mix and direct competition with large, well-known chains. A street shop typically involves rent reflecting the area’s positioning, relatively low management or building-committee fees, opening hours chosen by the shopkeeper, and a clientele living nearby.
Not every shop belongs in a mall. Shops without the financial backing of a large chain, or without high product margins, would generally do better on the street or in an area where their target customers live, taking advantage of personal relationships between the salesperson and regular customers.
Operating in a mall can impose an unbearable financial burden on small shops such as boutiques, designer stores and bakeries. Very long opening hours, including Saturday evenings, require long staff shifts and particularly expensive overtime. Combined with costly interior design, rent and management fees, these expenses can undermine the shop’s economic viability.
In our view, designer shops gain no legal or business advantage from renting in a mall. Their entrepreneurs typically have limited equity and low turnover; if the shop wishes to maintain attractive consumer prices, it will struggle to carry the mall’s rental, management and staffing costs.
In addition to high rent, management fees and labor costs, most large malls do not wish to lease small retail spaces suited to boutiques or to entrepreneurs without a major chain behind them, because they want substantial assurance that the tenant can meet rent and management charges throughout the lease. Mall owners also want to maintain good relationships with chains renting many properties from them across the country and therefore give them priority in choosing attractive locations. Small shops are pushed into inferior positions that, despite their high cost, keep potential customers away.
Another reason for small boutiques to stay away from malls is that they carry relatively few items and their suppliers have more limited production capacity than large chains. Small shops also cannot transfer stock among branches nationwide when demand falls or rises, and lack the flexibility to adjust product prices to changing economic circumstances.
Large malls have set high standards both for shop design and atmosphere and for customer service. To avoid falling behind, anyone opening a shop in a mall must invest heavily in renovation and design to meet the standard established by the large chains.
The final characteristic we will mention stems from changes in mall management practices in recent years. The variety of shop types in malls has recently been shrinking. Businesses considered “unattractive” by mall owners are visibly leaving, while international and large domestic chains willing to pay high rents and draw customers are entering. This creates intense competition that will certainly challenge independent businesses outside a large, established chain.
Furthermore, growing demand from major chains for attractive retail premises produces waiting lists lasting many months. An entrepreneur must wait a long time before opening, during which the shop is inactive and provides no income. Without financial backing and substantial self-financing capacity, surviving that wait is difficult.Conclusion Large, expensive malls are not suitable for every business. Opening in a sought-after mall may ensure an almost continuous flow of customers throughout the day, regardless of weather. But moving into a mall generally entails fierce competition and heavy expenses, including rent, extra staff, larger inventories, renovation and waiting for possession of the premises. An entrepreneur who chooses a major mall without first preparing financial projections and sensitivity analyses that account for unexpected circumstances may find themselves in financial trouble very quickly.