Should You Buy a Store in a Mall?
By Richard Parker: President of The Resource Center for A Retail Business™ and author of How To Buy A Good Retail Business At A Great Price© .
Are you thinking of buying a store that’s located in a mall? Well, that could be a very wise decision. After all, tons of people shop in malls. All those shoppers will pass by your door. And a certain number of them are bound to come into your store.
Yet, I need to add that that buying a store in a mall location is really a good idea under the right circumstances. What do I mean by that? Let’s take a close look.
Your ideal customers should already be shopping in the mall. Look at the other retail tenants in the mall. Do some of them cater to the same customers that your store will? And are those stores successful, or not doing well? Remember, you don’t want to be the only store in a mall that caters to a particular demographic - be it upscale suburban women, tweeners, or anything else.
The anchor stores in the mall must be healthy. There might be a Best Buy in the mall, or a Sears. Sounds good, right? But stop and think. What will happen to your store if one of those mega-retailers decides to close that store? Or files for bankruptcy. It’s not much fun to be in a mall that is dying – or has a large, boarded-up store in one of its most prominent locations. For this reason if you are considering stores in large malls, gravitate toward those that have not just one, but several, major retailers. It might not guarantee that your business will be protected from economic downturns, but it reduces the risk.
Lease terms MUST be favorable. (OVERLOOK THIS AT YOUR PERIL!) Mall landlords are notorious for issuing leases that provide very disadvantageous terms to tenants. Some of the problems can be:
- A clause that states that the mall has the right to demand that you move your store at any time, for any reason. Do you want to give up a prime location on the main concourse and move to a boxy store behind the Sears automotive service department? Read the lease carefully and negotiate hard on terms.
- Dictatorial restrictions and policies. Some of the restrictions make sense (signs must be of a certain size), but others can be crazy. For example, do you want to be required to use the mall’s construction companies and electricians for all of the renovations you need in your store? (Wouldn’t it be better to be able to get competitive estimates from several companies?) Do you want to be prevented from placing “Sale” signs inside your store windows? Do you want to be prevented from placing sale items outside of your doors? Read carefully and be sure you can live with the terms.
The mall must be in robust financial health. Before you buy a store in a mall, you and your attorney must get the financial data on it – about tenancy rates, gross revenues and more. (Because the mall in question is almost certainly owned by a corporation, this information will be available in annual reports and filing statements.) Look at the owning company’s Website and/or obtain a copy of its annual report. If those approaches do not bear fruit, ask for your attorney’s help to get more data.
And remember . . .
A physical inspection offers another way to assess the mall’s financial health. Are all exterior elements of the mall (entrance doors, sidewalks, landscaping, masonry, and roofing surfaces) well maintained and clean? How about the parking areas? These are the areas where malls typically cut costs when profits are not good. The information you get on your visual tour might not be as definitive as what you will get from reading the mall’s financial statements – but it can offer you a quick way to eliminate some possible malls from further consideration.
Visit the bathrooms in any mall you are considering! Poor restroom maintenance is often the first sign that a mall is in decline.
This article represents a fraction of what you’ll learn in How To Buy A Good Retail Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a retail store. Read a detailed listing of what you'll learn.