Abstract
Retail property management teams neglect the influence of occupancy costs and the resultant profitability of different retail formats when assessing their decision to expand. The aim of this research was to provide an easy-to-understand profitability equation for shopping centres and stand-alone outlets to guide retail property management teams in their decision-making process. A quantitative study, using secondary data obtained from a single retailing group and analysed using a simplified profitability formula, was conducted. The research endeavoured to determine the influence of rent on profitability to provide financial guidance to property management teams when benchmarking different retail formats. This included an investigation into the relationship between size and rent value besides the comparison of the profitability of different retail formats. Although financial considerations form an important part of the decision-making process, retail property management teams should continue to combine the results of financial benchmarking with consumer preferences to achieve optimum results.
Highlights
The arrival on our shores of Wal-Mart, the world’s largest retailer, has challenged the local retail industry and placed much needed emphasis on the future of retail formats in South Africa (Alexander, 2012)
Understanding the costs for the different retail formats would allow the property teams to determine the affordability of each format and incorporate the findings into their recommendations regarding the choice of a specific format
The research was undertaken within a positivist paradigm by means of a quantitative research methodology, in an attempt to find an answer to the problem, namely that ‘management neglects the impact of occupancy costs and resultant profitability of different retail formats when assessing expansion decisions’
Summary
The arrival on our shores of Wal-Mart, the world’s largest retailer, has challenged the local retail industry and placed much needed emphasis on the future of retail formats in South Africa (Alexander, 2012). The increase in popular retail formats is adding pressure to property management teams who have to make recommendations to their operating partners These property management teams have to be well informed about the preferences and needs of the consumers with regard to the specific market in which they operate, as well as the financial influence that these formats might have on the bottom line of these retail businesses. Understanding the costs for the different retail formats would allow the property teams to determine the affordability of each format and incorporate the findings into their recommendations regarding the choice of a specific format. Because both tenants and landlords strive to maximise profits, property teams will be better equipped during lease negotiation procedures if they appreciate the determinants of rent and other occupancy costs
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