If centre landlords are to consider cutting service charges for struggling retailers the remaining funds need to be used more wisely to drive footfall, says John Ryan

Wander around almost any UK shopping centre at the moment and the chances are high that you will find voids. The number will depend on the scheme you visit, but their presence is guaranteed.

Over the past year, the reaction of many retailers to circumstances that have been almost entirely beyond their control has been to draw in their horns, stop spending and, in a number of high-profile instances, cease trading.

Given this backdrop, within the shopping centre arena, many retailers have pointed the finger of blame at landlords and owners for unrealistic expectations about the level of rents and service charges that can be exacted.

The question is, does a cut in the cost of services or monthly rents make much difference if shoppers aren’t shopping? Hammerson managing director of UK retail David Atkins says: “A short-term cut in service charges may flatter this year’s figures, but if customers aren’t walking through the doors, then there’s a longer-term problem.”

This might sound as if Atkins is ruling out reductions, temporary or otherwise, but this is not the case. Hammerson operates a variety of large shopping centres in the UK, with the Bullring in
Birmingham, The Oracle in Reading and Brent Cross in north London among its higher-profile schemes – a portfolio that equates to a vast number of retail tenants. Within these, discussions are certainly taking place. But as Atkins notes: “Service charges are something that everybody is talking about, but one of the consequences of higher vacancy rates is a higher rate of non-recoverable service charge.”

It’s a point not lost on Savills head of shopping centre management team Tim Leatham. “With some tenants, rental concessions are being given to those that are genuinely needy. But we need to look at evidence that this really is the case and that they’re not bluffing. Some really are bluffing,” he says.

This smacks of a degree of suspicion about the motivation of tenants asking for cost cuts and there is certainly a history of retailers, centre owners and landlords playing their cards close to their chest when it comes to discussing such matters. That said, many landlords today have much greater access to the trading status of their retail tenants than in the past, meaning that a reasonable assessment can be made about the success, or otherwise, of businesses within their centres.

Andrew Parkinson, centre manager at Bluewater, the UK’s second largest mall and part of the Lend Lease empire, says: “90 per cent of retailers report sales information to Lend Lease and that allows us to look at categories of particular retailers that are working and those that aren’t.

“We do look at rents, but we will always do this on a case by case basis. The landlord has got to see it as an investment in that business. So maybe as part of an agreement there might be an arrangement for a store to be refreshed.”

And it is understandings of this kind that provide a clue about the present direction favoured by landlords in their efforts to improve the trading environment for their tenants. Service charges, of course, incorporate a large element of marketing spend for the benefit of retail tenants. “At the consumer level, we’ve looked long and hard at the way in which we run centres and schemes and asked ourselves some difficult questions,” says Atkins. “In a recession, marketing budgets tend to be the first thing that gets cut back. Our view is to try and make our marketing more targeted.”

Practically, this means that Hammerson and most of the other big shopping centre owners want to get more bang for their buck when staging marketing events – not unlike their tenants.

Plan of action

What, therefore, is being done to achieve more with ever-shrinking marketing budgets? Ronan Faherty, commercial director of Land Securities, whose shopping centre portfolio includes Princesshay in Exeter, Cabot Circus in Bristol and St David’s in Cardiff, says: “It’s all about how to best use the cash that’s available. Some retailers have an immediate need for help to sustain them and we work with Experian on a battleground analysis to do this.”

Battleground analysis is a detailed demographic analysis of each area in which Land Securities operates, leading to a hit list of actions that will yield the best results for individual (and troubled) retailers. Faherty declines to name retailers that have benefited from help in Cabot Circus as he says this might prejudice people’s opinion about their relative strength. However, the generation of a marketing effectiveness list is a trait that Land Securities shares in common with other large landlords.

The range of activities found on such lists is very broad, but all landlords and owners share a desire to involve tenants as part of the marketing process.

Just a small sample suffices to illustrate the kind of novel temporary initiatives that are being put in place. At Southside, the Savills-managed shopping centre in Wandsworth, south London, a “summer pamper event” took place last month that involved support from retailers including Boots and Body Shop.

Similarly, Atkins highlights a food festival at The Oracle that ran from June 3 to 6. The event included a farmers’ market with music and a number of stands in the mall from which retailers could sell their wares. “On the data that we have got to date, footfall was up 15 per cent on the Saturday and 22 per cent on the Friday,” he says. Cosmetics retailer Lush used the event to stage a picnic theme in the main mall and experienced double-digit growth, according to Atkins.

Farmers’ markets, in certain locations, have been part of the centre event landscape for some years. At Mahon Point, the regional mall just outside Cork in the Republic of Ireland, the farmers’ market located in the car park is now in its fifth year and is regarded as a central element of the scheme’s marketing effort.

And mention should perhaps be made of the recent 10k run at Bluewater. This was an event for locals, but the centre management got the buy-in and involvement of retailers at the mall – making good use of the opportunity.

Does the recession and drop-off in the level of service charges mentioned by Atkins therefore mean that a sword hangs over centre marketing and are the days of feel-good events likely to be superseded by more targeted offerings?

According to Parkinson, Atkins, Faherty or Leatham the answer would seem to be a resounding yes. Leatham talks about the “balance” that needs to be struck between the cost of centre marketing and costs that may need to be reflected in the level of service charge levied. For Atkins, it’s a straightforward assessment of the relationship between marketing investment and return. “Events programmes have continued, but what we are doing is focusing more closely on spend and return on that spend,” he says.

Now, more than ever, it would appear that success in attracting customers to a shopping centre is dependent on a good working relationship between landlord and tenant, as well as a will to get things off the ground.

Lend Lease Europe head of asset management Mark Boor says: “Over the past year this close relationship with our tenants has become even more important. We have continued to seek direct contact with our retailers and store managers, allowing each of our centres to develop marketing ideas and campaigns that work for them.”

Boor lists a series of initiatives, among them fashion shows involving retailers, retailer contributions to monthly e-newsletters and using the windows of vacant units as additional display space for existing tenants.

And, of course, there is the online aspect to all of this. Every shopping centre in the country hais an online presence from which shoppers can get details of forthcoming events, promotions and suchlike. The trouble for centre management is that getting people to visit them is little easier than attracting customers into their real-world equivalent.

From a marketing perspective it seems there is much that can and is being done. How effective this proves remains, as ever, a matter of the willingness of retail tenants to get involved and not just leave it up to the landlord.

What is clear is making more of what’s on offer from a landlord should be an integral part of the local marketing strategy for any retailer operating in a shopping centre.