The Rules of Retail

Everybody needs a little (or big) space.

September, 2001

In real estate, the axiom goes, the three attributes that most determine a property’s attractiveness are “location, location, location.” The same can be said for retail space, where “location is always the main thing,” according to retail analyst Stephany Sofos.

But there are also other factors to consider.

“There’s also the quality of the building,” cites Sofos. “Is it clean? Is it secure? If you’re out at Waianae Mall, for example, you know that even though you’re out in the boonies, it’s going to be a clean and secure property because it’s considered a regional center for the area.

“The three things you look for are the location, security and maintenance. Those are the things that make a retail space more desirable.”

According to Sofos, desirability doesn’t necessarily equate to higher rent prices. “With the exception of Ala Moana, the rent for almost all of the stores around Hawaii is around the same price,” she explains. “You start at ‘X’ amount, and then you negotiate.” (Ala Moana Center, Hawaii’s largest shopping mall with 1.8 million square feet of leasable retail space, charges a base rent of $5 per square foot and goes as high as $29.)

Dwight Yoshimura, general manager of Ala Moana Center, lists available parking as another key ingredient in choosing a retail space. “Parking is always a premium,” he says. “It’s a convenience item that you have to include in any mall setting.”Adds Sofos, “Mainland retailers like Hallmark or Old Navy often get a better rate than local retailers because they’re a national brand, and (landlords) know they can produce. If you have a high-quality image and a proven track record, landlords will seek you out. If you’re a local retailer, you’re fighting prejudice, in a way.”

Anchor stores often play a large role in determining the attractiveness of a retail space. “Anchor stores will always be a dominant player,” says Yoshimura. “They’re an attraction point, and they have greater financial strength to do sales events and promotions to draw customers to the center. And the smaller merchants usually benefit from that draw.”

Before you even begin to look for available retail space, says Yoshimura, you need “to decide who your customer is. That’s the most fundamental step. Once you make that decision, then you look at location. In the ideal world, perhaps, you might want to be somewhere like Ala Moana. But you might have to start in a secondary market—maybe a strip mall or somewhere out in the country—then work your way in.”

Do shopping centers cater to certain niche markets? Sofos says no, although she points to Kahala Mall (“they target family groups in the community”), Waikele Center (“for value shopping”) and Victoria Ward (“they have their ‘main street shopping experience’ where they provide family entertainment as well as shopping”) as possible exceptions.

Yoshimura agrees. “In Hawaii, niches are difficult to identify because we’re a small, intense market,” he says. “We have a million residents and five million tourists. That’s a different kind of situation that you won’t see too much on the mainland. There are a lot of variables in terms of what their needs and buying patterns are because we have such a skewed type of customer base.”

Sofos predicts, “It is going to be a very interesting next five years because (Hawaii’s retail industry) is going through a catharsis right now as to who and what they want to be. Liberty House was the last of the Island-branded stores. You have a lot of mainland competition now, including Wal-Mart, Kmart, Macy’s, Sears and JC Penney. To be a successful local retailer today, you really have to have a niche market—have something that people want.”

In today’s economy, it takes more than some money and a creative idea to survive in the retail business. It also requires patience, perseverance and a “defiant-flower-in-a-hurricane” type of determination.

“It’s a tough business,” says Yoshimura. “Everybody will tell you that the lifespan of a retail business is generally short.” He smiles appreciatively. “But retailers are just a different breed of people.”

 

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Lance Tominaga