The value of the retail shopping property lies in the retailer’s ability to generate sufficient sales to pay rent and make a profit. Some retailers generate low sales per square foot of retail space but operate successfully on very high profit margins. Others, such as food stores, operate on extremely low profit margins but have tremendous turnover in merchandise, so the volume of sales makes up for the minimal profit margin. The retail shopping center is an important point of contact between both kind of retailer and the purchasing public. The retailer’s success determines the success of the shopping center, and the center’s ability to draw the proper mix of the buying public spells success or failure for the retailer.
An analysis of retail sales facilities must focus on information about shopping patterns, the economics of retailing, traffic flow, and retail design.
The term shopping center is used here, as defined by the Urban Land Institute, to designate “a group of commercial establishments planned, developed, owned, and managed as a unit related to location, size, and types of shops to the trade area to which the unit serves.” Shopping centers are often classified by the market area they serve–region, community, or neighborhood. As a result of recent trends toward specialization in retailing, however, shopping centers may also be classified by the type of shopping offered in the center. For example, specialty centers may offer high-fashion or high-tech shopping, while discount or outlet centers offer continuous discounting in all stores.
A lender’s analysis of the shopping center operation and expenses often focuses on the design of the center and the location of tenants within the center. For successful operation of a shopping center, it is not enough simply to fill a center with tenants and offer their wares to the public. Leasing retail property requires knowledge of products, customers, and the relationship between them. If the retailers, architect, leasing agent, and developer cooperate closely, the retailers can gain the maximum possible exposure to the proper customer mix at the most reasonable cost to the developer and at a reasonable operating expense for each. The rest is up to the buying public.