By Lee Trevena

Only in America! 

It’s a phrase you’ve certainly heard and one you’ve probably used, perhaps with a degree of sarcastic or dismissive tone attached. Ah, look at the beautiful tall poppy.

Over the past week I have had the opportunity to meet, listen to and visit some of the leading retail chains in North America. It is obvious that whilst in Australia we wait for the next ‘retailer in administration’ headline, the recovery in the US and Canada has well begun and there is a lot we can learn.

The National Retail Tenants Association (NRTA) National Conference and International Council of Shopping Centres (ICSC) Canadian Convention are two of the best connection points to find out how these markets are adapting post GFC, or as they call it – The Great Recession.

The NRTA supports finance and real estate teams from specialty and big box retailers and at ICSC you have the deal makers (leasing agents) from both sides of the tenancy divide. Speak to those that do the deals and pay the rents and you can get a frontline perspective about where the market is at.
In North America, big is big. Consider Dollar General (discount variety), which will record 11,000 stores in Q1 2013, or CVS, RiteAid and Walgreens pharmacies that each have in excess of 5,000 outlets. How about YUM Brands with 15,000 or Enterprise Rent-A-Car with 10,000 or Regis Corp with nearly 13,000 hair & beauty salons? It’s hard to fathom sometimes.

Whilst in Australia and New Zealand, a very large retail chain has more 500 outlets, in North America there are more than a thousand in this category. Size is not just about the number of outlets or size of the box but also network growth. Take Five Guys Burgers & Fries with over 1,100 new outlets since 2008 – what recession?

Another mega story is Chico’s FAS, a 1,300 plus $2.6 billion revenue mid-upper female fashion chain that has achieved nearly 20 per cent comp-store growth over the past two years, launched two entirely new brands, plans for  50 per cent network growth by 2018 and has zero debt.

So after the head stops spinning I look towards what they are doing to stay or become more successful. ‘Big is best’ is not always the rule but if billion dollar retailers are making changes to stay ahead then that’s a pretty good place to start looking. A good concept, good buying and smart marketing are all core to successful retailing, are highly brand specific and frankly if you don’t have these then stop reading now and get to work.

So where is the market at? Well, as I am writing this, it has just been announced that US retail sales have grown more than expected in July and August, further reinforcing that indeed the market is moving forward and probably at a sustainable level.

So with prospects of a better market, the big takeaway for me this year has been the level of innovation taking place in North American retailing. These businesses are aggressively finding smarter ways of doing things that are giving them a competitive edge in so many ways.

Make no mistake; from a market perspective the same key challenges are still the same – high cost of occupancy, international competition and the internet threat. However, in a market where growth is now achievable, the smarter and more innovative retailers are taking a larger slice of that growth, whilst the weak will not survive.

From talking with senior finance and real estate executives at some of the smarter retailers, a great deal of innovation is currently focused on how they manage occupancy costs, primarily in three key areas – space reduction, space adaptation and lease flexibility. All of these initiatives are aimed at continuing to drive network growth, sales volumes and profitability.

How can we generate the same sales volumes from less space? How can we adapt our store design to take advantage of new formats? (i.e. pop-ups, stores-in-stores); How can our leases give us more flexibility? All are top of mind questions for these execs.

Here’s an example to think about: If shop space can reduce by 25 per cent then you can save up to $250.000 on an average mall lease. Alternatively, in a new negotiation or renewal, this strategy directly discounts the ‘value’ of the back quarter of the space – forcing the landlord to work harder.

What about a lease that splits that space on a co-location storage license at a significantly less rate? Will the landlord risk losing your tenure? Another gem is the ability to ‘force’ relocations, where you renew for just 12 months and give the landlord a fixed period to ‘work the mix’ and find that smaller site or you ‘walk’.

Space adaptation can often involve the entire business, working as a team to find new ways to retail. Going ‘outside the mall’, interactive pop-up stores, hi-viz outlets, co-tenant sub-leases and ‘brick-to-click’ kiosks are all ways where the smarter retailers are driving brand, sales growth and becoming more profitable.

There is no question that many challenges exist for Aussie retailers – some unique, some global. But retailing by nature is a very dynamic business and at this time in the business lifecycle, innovation is the number one offense to some of these challenges – being smarter right across the store network.

So from witnessing some of the biggest and the best retailers, there are fantastic learnings to enjoy.  So much so that perhaps the phrase “only in America” should not be seen as a payout but rather a payday to what is possible.

Lee Trevena is the CEO of LeaseEagle