Much as one would like to have the best location for a store, one would like to have the right prem- ises too, in terms of its suitability to carry on with a successful retail business, That means, now that the right location is obtained, the next responsibil. ity is to get the right property. How does one select the right property and what are those key factors that may impact the choice of a property? What are the factors that one should consider before signing a lease agreement? These may sound basic but these are the two questions that We are now going to deal with in detail so that the retailer gets the best of both worlds — the right location and the right property! The physical characteristics of the property need to be critically analysed and it is important to get the right choice assessing those premises you May shortlist for final selection, The Choice of Property should be Based on the Following Key Considerations The Building Facade The building where the store is going to be housed should have a good facade. It should have a facade that is visible and long enough to make a deep impact. The fagade is very important because it is the facade where the store's signage is going to get mounted and this is going to be the first ‘moment of truth’ tor the customer, The store brand's identity hinges upon how prominently the signage is done. A well done signage in the fagade of a store in a high street performs the role of a billboard which, as you are aware is worth a great deal of money! Just as the saying goes that a job well begun is half done, in retail parlance, a store that has a great facade is already in its suc- cess abode! In a mall, care should be taken to study a store position which will be advantageous to bring in the maximum number of footlalls. The traffic flow and its direction among other factors should be studied carefully before deciding on a location within a mall, The Floor Level The floor plate of the infrastructure often plays a determinant role in getting maximum number of ee aa Road footfalls and this needs to be studied weit standing, high street location i located on the ground floor, Store a: ground floor becomes very easy and no one would think twice before enter store. By nature human beings would and be unwilling to put in an extra effort te toa higher floor while shopping, unless compelling reason to do so. anty sense to be in the ground floor, Reseg that customers would not even tik: steps even if the store is housed in the ground floor! Companies like Bata, when they dec the property see to the fact that the premises not have more than two to three Steps at entrance. In a mall, the categorization and the zoning rationale need to be studied before making a decision on which floor the store should bs located, Well managed malls always hay ings LIN a free is advisable ys Ss le to be Nee liens thereis a PakeEs more ch shows @ to climd mone ede on do e kd be: AVE a good rationale behind. their category protiling ang zoning, One must think twice before deciding upon a property lease if a mall sells its space to Prospective retailers. This may throw the mall mix and zoning out of gear, resulting in problems of wrong adjacencies in future. Clean Interiors The interior of the property must be void of un. able comers. Sometimes there may be narrow cor ers in acute angles, rendering the space useless. I more such space is there in a store premise, the total usable retail space will become less, Similariy it the property has less number of pillars, it gies more visible space for retailing. Room for Expansion there is an opportunity in the premises tor fui expansion, then it may be an ideal property. In many situations, the existing premises may be well detined with adjacent premises too occupied. But, if one has the right luck, some promises come with the necessary room for future expansion. In the case of destination retail properties, this any be an available option, tn the case of malls, this may be a tarfetched scenario, The point to drive home here is that one should keenly look tor & property. that has enough ‘tom’ for tether | expansion as one’ retail business grows in fut |Check the Landlord’s Reputation The reputation of the landlord is significant to the successful operations ofa retail store. Unfortunate! some landlords come with the bad reputation of not allowing retail tenants to put up their desired size of signage or they may ignore the common maintenance standards of the property, Some landlords may not have the discipline of maintain. ing adjacency standards and may rent out the adjacent properties to competing or incompatible businesses. Check the Carpet Area Having considered the key factors of visibility and suitability, as a retailer you ought to move towards looking at the affordability of the premises. That means you must see how the rentals per square foot would fit into the business plan for the loca- tion. Most of the properties in India come with a loading factor of the common area and the prop- erty is measured in terms of its carpet area, built-up area and super built-up area. In simple terms, super built-up area is the area for which you pay the rent, which may include all the facilities areas too. Built-up area includes the common areas such as aisles and customer walk ways. Carpet area is what is used at the end of itall as a net retail usable area. The rental per square foot of this carpet area is considered for calculating the store profitability. Once the above key factors are considered and measured for their efficiencies, you should go ahead and finalize the lease terms. There are a few points to essentially consider while deciding on the lease terms. They are: The Rent and the Rent Free Period The basic point about rent is to make sure that it, is the current market rate for the type of premises in the location you have chosen. For retail prem- ises it makes sense to keep the deposit amount as low as possible. It is also advisable to have the rent in two forms such as a fixed rent and a variable pay out based on sales, if the landlord is agreeable. Further, it is only appropriate that you negotiate for a rent free period with the landlord so that you get the required time at hand to fit out the store. The retailer should negotiate to his advantage the "amounts to be paid as Common Area Maintenance (CAM) charges if any and this is applicable more to the premises in a mall. It is jocularly said that CAM rnapter re + etait Location marageniei 1 mee charges often become a SCAM if not defined well and agreed appropriately! Other pay outs if any also need to be well defined and agreed upon. The current argument of tenants with the landlord’s centre around why mall managements do not consider to pay back the tenants if they have ‘Common Area Incomes (CAI)! Lease Term Ifthe lease term is for a long period, it will be acom- fortable scenario for the retailer and one does not have to worry about frequent lease renewals and related negotiations. If the term is too short, you may need to move too soon involving you in fre- quent spends on fitting out too. You may negotiate for a long period lease, say for 10 years with a pro- vision for stepped increase in rent, say 10 per cent increase every 3 years. During this time, it is the responsibility of the landlord to always maintain the premises in a ‘wind and water tight’ condition. Lease Deed The lease deed must be prepared and approved by a legal counsel and it should be registered duly paying the required stamp duty. This will avert unnecessary litigations in future and both the retailer and the landlord are insulated from any problems that may otherwise arise. Insurance It is a common practice that the landlord will pay for the building insurance. The retailer must ensure that the contents and fit outs are insured for all liabilities caused by fire, theft, calamities, acts of terrorism, etc. In case the building is damaged and rendered not fit for occupation, since the land- lord's insurer will take care of such liabilities as the suspended rent not payable by the retailer during the time occupation of the premises is temporarily suspended. However it is the retailer's responsibil- ity to calculate the ‘uninsured risks’ and cover the same in insurance for restoring the business back in its normal course. De-risking from ‘Lock-in’ Period In order to de-tisk the retail business to a certain extent from the ‘lock in’ period (normally a year from the lease date when the retailer cannot vacate the premises or exit from the agreement), the retailer must negotiate lease terms in such a way that the group companies also are entitled toeae | nota manageiient occupy the premises or have the right to sublet the premises within the agreed terms. Check for Clear Title of Ownership Check for the landlord's clear title of ownership to the property under consideration and its legally authorized signatory and go through along with the legal counsel for any encumbrances in the ownership of the property from where leasing the premises to ensure that the lessor has the authority to enter into the lease agreement. Check for Property’s Legal Compliances The local planning authorities may prevent the use of the premises later if all compliances to the “| QUESTIONS FOR DISCUSSION 1. Discuss the physical characteristics of a prospec- tive property a retailer may like to sign up on lease for running his store, municipal or the corporation laws are not adhered to in terms of all space norms and ratios specified such as the Floor Space Index (FSI). One must check whether the property has all commercial approvals to run a retail business as otherwise it may land the retailer in trouble as it happened in Delhi recently to many retailers who erroneously occupied non-commercial buildings. ‘Any efficient property lease consideration will be in tandem with the retail company’s long term business plan. However in any eventuality, one may use the exit clause to relocate to a better loca- tion if it would make better business sense. 2. What are the terms of lease a retailer must con- sider before hiring the retail space?