During the last property downturn only two projects were being developed in Auckland – Westgate and Skycity.
Although not quite as grim this time, Colliers International’s national retail manager Ash Hira says developers, owners and retailers can’t sit on their hands as the country grinds its way through a credit crunch and recession brought on by a global meltdown.
While the country’s commercial property sector has taken a big hit as developers struggle to find finance, Hira says the most successful operators, who have been around for a decade or more, know how to do well in a tough market and have some valuable lessons to pass on.
“The outstanding developers and retailers usually have a couple of things in common – flexibility and a spirit of entrepreneurship.
“Developing big retail projects in this sort of market is not for the faint hearted but the “ballsy” operators are prepared to put their money where their mouths are.”
Hira, who has 20 years of experience in the retail property industry, says the very successful shopping centre and mall developers and owners dare to be different. “In all cases their planning is about attracting the right retailers for the catchment’s demographic profile.
“The more discerning national and international retailers absolutely understand this basic tenet of retail and will go where a developer is not interested in being the biggest at any cost, but is able to work smarter within a mall’s or shopping centre’s footprint to target the retail to the demographic.
“The successful centre and mall developers and owners don’t produce one size fits all premises. They don’t work to formulas but are totally aware of where their product sits within the market.”
Hira says during a retail slump the more astute mall and centre owners will also take the time to understand the financial performance of their retailers and their trading returns. “This gives them the room to tailor commercial deals to suit tenants rather than just saying ‘this is the rent, take it or leave it’ and risk losing good operators.
“As the retail market and attracting the consumer’s dollar becomes tougher the more innovative mall and shopping centre owner will attract the business.
Hira says there is no substitute for good planning. “And there will definitely be tough times ahead for retail developers and operators lacking that skill, because they will not be able to catch up overnight.”
While mindful of the economic conditions, he says the outstanding mall developers and owners push on and finish projects. Those developers have honed their skills and produce projects that prove to be resilient in good and bad times. “Many carry the legacy of what they develop and are not in the sector to produce a quick buck.
“Organisations that have their investment plans tight, with clearly defined growth strategies and are managing them prudently will continue investing in areas that matter and see them through difficult times.”
Hira says a lot of opportunities are going to come about in the next year to two years. “If developers have an outstanding provincial location, large format retailers without stores in the area, will go there and survive. However, most of the retail expansion in New Zealand is likely to be in Auckland, Wellington and Christchurch where store sizes can be substantially increased.”
The only cost, he says, will be additional rent. “Staff costs won’t rise significantly, but turnover could lift with prudent management and profitability go up.
“The next three years will be exciting in terms of product, location and the way developers present and control their properties. There won’t be a lot of rental growth, but there will be little downside.”
The good retailers survive in difficult times, says Hira by carrying on product development and innovation alongside brand building. “If innovation stops completely, it can be difficult to get the momentum going again.
“We have seen a lot of retailers who don’t understand their market, product and customer base set up businesses. Some are too focused on fine tuning their stock control systems instead of worrying about keeping the shelves stocked with the products their customers want. Retailers that don’t pay attention to the basics get into trouble when times are tight.”
It is surprising, says Hira how many businesses do not operate to an operational plan. “The most important element of any development, product or service is a plan.
“Prospering during a recession means focusing relentlessly on the most basic notions of running a business.
“Identify what the business is doing; where money is being made; determine what products draw clients and which sit on shelves for a while; know customer flow patterns; learn about the sales skills of staff; review the supply chain; and, understand the benefits the business is producing. In other words, learn how you currently do business in order to determine how to improve it.”
Hira says across-the-board cuts are not the answer when times are tough. “Only make cuts when it makes sense to do so. Make sure there is a purpose in how you make them, such as pruning a product line and reinvesting the money in a higher growth area. Deal with the reality fairly.”
For shopping centre and mall owners, Hira says communication with tenants is essential in tough times. “Get information out fast. When the economy slows down the pace of decision making has to speed up. Devise co-ordinated plans to keep staff and clients informed. When the facts change, so must your strategy.”
Hira says staff, in particular, deserve candour. “Emails, intranet letters and meetings – the form does not matter; the frequency and honesty of the communication do. Outline the problems, explain plans, ask for advice. Listen. You will be amazed how much good simple courtesies can create.”
Hira says being on the downside of the business and property cycle is not fun. “But the slump can also be an opportunity if you use the sense of urgency to improve strategy, management and discipline.
Research has shown that when people have thought through their reactions to high-stress scenarios they are much more likely to survive it. “It’s the same for business. The companies that take charge and compete hard will win.”
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