Unshackle from long-term real estate

Articles
June 18, 2013

Unshackle from long-term real estate

Supermarkets could go pop-up with shorter leases and more flexibility to relocate in case trading areas turn bad.

Imagine food stores giving shoppers an ultimatum to ‘visit and buy from us or we’ll leave.’

That day could come soon if retailers—certain of the rightness of their store concepts—lease sites for the short term (say, two to five years) rather than the long term (say, 20 years or more).  By messaging people within a trading area that demand would dictate a store’s commitment to a location, The Lempert Report believes retailers could create a sense of urgency among shoppers who like a store and prefer that it stay.

Why do this?  Why not try to lock in low rents for decades at a time?  In our view, the past few years have reinforced the risks retailers face when neighborhoods change, laws change, demographics shift, and economic fortunes in specific markets make them either good or bad places to operate in. Retailers might be better off to have an exit strategy in case a situation worsens—so they could pop up, say, a mile or a few away in a much more favorable spot.  This approach isn’t for every site, but it could be part of every chain’s portfolio.

By being nimble in real estate, supermarkets avoid having to chase trends with different pricing, marketing and merchandising strategies to suit changes in trading areas.  They could stay truer to what their marquee brand stands for and to the operating philosophies that brought them success.  We don’t see this idea as extreme as pop-up restaurants or Halloween shops that last for months or weeks at a time—but it does bring a desirable retail freedom.  

Brick and mortar remains more important in food than in many other trade classes (such as apparel and electronics).  But as food retailers gain expertise in online sales and home delivery, and consumers increasingly opt for this service, the drive to have an ideal high-access location may become less meaningful to some.  This might be years away.  But the need for real estate flexibility is here today.  We urge that operators look at any increased rental costs within the context of being able to operate the way they want, in a manner they know appeals to a certain targeted audience.