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May 1, 2009
Q.: How do small businesses react when they hear an anchor store in their shopping center is closing?
A.: Often a sense of panic sets in when this happens. This situation calls for a level headed approach to dealing with this occurance. Knowledge is power, so the key thing is to try to understand what this is going to mean for you as a small operation. It could be devastating, or it could have a relatively minor impact.
Q.: Where should a small business facing this situation start?
A.: They need to get some information about what market the large retail anchor was pulling in from a geographic and demographic standpoint. Who did the store bring in, and how far were these customers coming from? They also want to learn how the traffic drawn by the anchor was benefiting them and other smaller operators.
For instance, if a shopping center had a Circuit City on one end and a supermarket on the other, it could be that the customer going to the Circuit City that's now closing was rarely, if ever, shopping at the smaller adjacent retailer, while the supermarket shopper did so regularly. As long as the supermarket stays in place, smaller retailers probably won't see a big drop off in customers.
Q.: How can you get this information?
A.: The landlord may be compiling that information about the large anchor tenant to use in advertising the vacant space. If it's not available, smaller retailers can conduct informal surveys at their cash registers. When customers come in, ask them which other stores in the center they visited that day. Really good store managers probably have an idea about this already, but they may not have quantifiable information. So, take a full week of weekdays and the weekend to jot down the responses.
Ask if they honestly would have come to your store if they weren't visiting another tenant. If half of your customers say they wouldn't come to your store if they hadn't already been making a trip to Circuit City, you'll need to brace for impact. If the majority say they came to your store specifically, or they shop at other small tenants in the center regularly, you may not see as large an impact as you're fearing.
Q.: How should the small retailer react if it looks like the impact of a nearby closure will be difficult?
A.: They need to recognize that the large tenant was acting as a marketing influence for them, as far as advertising the location and bringing people in. A good counter strategy is to increase marketing efforts and keep the location top of mind. If you're a unique retailer, make sure your marketing features your one of a kind merchandise or points out that your store is the only place in town to purchase a service or designer label.
If you don't have specific products or services that no one else is selling locally, you'll have to provide incentives, perhaps partnering with the landlord and/or the other small tenants, to make it worthwhile for customers to drive that extra distance, even if the anchor is no longer there. Bundled services and cooperative advertising do help. For instance, the small businesses might put out joint coupon books or have a deal where customers who show a receipt from one store get a discount at another.
Q.: It's hard not to worry about blight when you see a dead spot in the middle of a shopping center. How do you mitigate that reaction?
A.: We associate blight with retail vacancies because the reason for the closure is often the declining population and demographics around the center. But this time around, it's different. The storefronts that are going empty are often in centers that are in otherwise vibrant communities. Fears of blight may not be as well founded now as they would have been in the past. But the small tenants should work together with the landlord on maintenance, lighting, keeping their own spaces as clean and bright as possible, and perhaps using the empty storefront as a place to advertise for the remaining tenants. Good landlords should be cooperative, because they want to lease the space quickly.
Q.: When does an entrepreneur have to bite the bullet and relocate?
A.: If they're in a center that was already suffering a decline, hadn't kept pace with changing demographics, or had been outpositioned by a newer center nearby. The good news for ancillary tenants in those kinds of centers is that a lot of commercial rents are depressed right now. If their lease comes up any time soon, they might move and benefit from getting into another commercial center where the demographics fit their target market better in the long run.
This article was edited from an interview with Purcell by Karen E. Klein, a Los Angeles writer who covers entrepreneurship and small business issues. It appeared in Klien's Smart Answers column of Business Week.
Topic: Business Strategies
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