Retailer Transparency and Landlord Agility

Retail Performance

Landlords typically measure retail performance by requiring tenants to report gross sales (used in percentage rent formulas) and comparable store sales. Occasionally, retailers will report sales per square foot (however, the calculation for this metric varies, depending on whether the retailer includes the square footage of the stock room in the denominator). Much of this information, while somewhat helpful on a relative basis, is not meaningful in and of itself in analyzing the retailer's business, or otherwise evaluating or predicting the future success of the retailer. Alternatively, comparable store sales should be viewed in conjunction with gross margin, inventory turn and conversion rates. These metrics are used throughout the retailing industry, and indeed, often broadcast and shared through publications of trade associations, and reported quarterly to securities analysts. In turn, shopping center and storefront landlords and their own trade associations, such as the International Council of Shopping Centers, assume that the retailers themselves are intensively reviewing this wealth of information, and adjusting their business operations accordingly. In the real world, this is (sadly) sometimes not the case: Many retailers spend a large portion of their time and effort attending to their best stores, and the worst performers lag behind until meeting their ultimate and predictable fate. An old retail adage is the “80-20″ rule ' 80% of the total business is done in 20% of the stores.