Many retail CFOs are seeing that occupancy costs as a % of sales have grown significantly in the last few years and are seen as a major obstacle to achieving the profitability targets CEOs desire. According to Paul Kinney, executive director of the NRTA, in an environment of weakened in-store sales and occupancy costs as a % of sales, it’s a critical time to adopt a clear lease audit strategy.
He explains that retail CFOs who have stores coming up for renewal will find it pays to get as much leverage for upcoming negotiations as possible.
Landlords typically pursue rent increases and relocations of underperforming stores to secondary locations–but if a store is underperforming, chances are the center is underperforming. Once a retailer audits the center it can either exercise existing lease terms, or use audit findings to negotiate more favorable terms. Additionally, an effective audit strategy helps to check a landlord who may be pushing harder for allocating expenses to make up for shortfalls in base rent at the tenant’s expense.
Kinney encourages CFOs to audit all stores after the first full year of opening. It’s great to audit a store after it has been open for five years and discover a substantial claim–that is, it’s great for the landlord. They settle the claim for some discounted value and they’ve used your money for five years. By auditing a store after its first full year of operating, your recoveries may not be as dramatic, but landlords are on notice that you’re watching them.
NRTA hosts the Expanding Knowledge conference, which attracts about 500 commercial and retail real estate lease professionals concerned with controlling occupancy costs.