How To Lease Good: How to Grow a Retail Network Successfully & Sustainably

In this edition of How To Lease Good (#HowTLG) we explore why, when and how retail businesses can grow and expand their store footprint. 

In-store shopping remains vital for retailers, with over 85 percent of all retail sales still come from bricks & mortar locations (Capital One, 2023). Australians are especially partial to the ‘old school’ experience – 73 per cent say they prefer shopping in store, much higher than consumers in the UK and US (Australian Retail Report, 2022). 

Counterintuitively, the growth of e-Commerce and warehouse-to-consumer logistics has in some ways boosted in-store demand: stimulating traffic via click and collect; and accelerating the rise of different shopping missions and traffic characteristics (for example, ‘experiential retail’). On the other hand, new store openings will often generate an uplift in online sales in addition to in-store revenue, as noted by L.E.K. Consulting partner and retail specialist Jonathan Simmons. 

Done right, physical store presence can increase market penetration and create impactful, memorable experiences that build brands, sales, and customer loyalty. Be they high-street properties, retail concessions, or part of a wholesale distribution network, shops and sheds go hand in hand. Hybrid strategies can be extra effective, as exemplified by innovative distributor Agence de Parfum and it’s glam retail brand Libertine Parfumerie, who recently opened a flagship store in Paddington, Sydney. 

Landscape research: unique offer, target market, competition, and thresholds/benchmarks 

Any approach to store network expansion should be considered and measured. 

Retail consultant Marco Castelán argues “the biggest question an entrepreneur needs to ask himself/herself is simple: Can I provide the customer a new experience?” (Business News Daily, 2024). Novelty and uniqueness are essential for growth.  

Do you have a clear idea of who your target market is, what they want and where they are?  

Think segments, demographics and behaviour or ‘psychographics’. Estimate the size, growth and quality of the market in the areas you are considering for expansion – this can be informed by census, industry reports, online databases and other secondary data, as well as primary market research, focus groups and customer feedback. 

Then identify and evaluate your competitors in each of the potential markets. SWOT analysis, Porter’s five forces, and competitive matrices can help assess opportunities and risks.  

Finally, establish thresholds with clear metrics for when the business is financially positioned to add new stores, what benchmarks those new stores should be reaching over different time-frames and plans for if they don’t meet them (Retail Express, 2024). 

Location, location, location 

This can make or break an expansion plan. Consider traffic, zoning, amenities, the space, and its compatibility with brand image among other factors. Analyse your existing and potential store catchments in terms of demographic data like age, income, family structure, dwelling type, population changes and household expenditure. And always consider where existing high performing stores and potential new locations are in relation to competitors. 

Geographic Information Systems (GIS), location scoring models, and gravity models can help with this sort of market research, but it also comes down to more granular things – what street you’re on, which part of the suburb or CBD that you are in, visibility from the road or pavement, and who your neighbours are. Remember: poor access or awkward positioning can cost you potential customers. 

Property strategy: cost-benefit analyses 

Sustainable expansion strategies consist of balancing the turnover and other benefits of given stores with associated costs. One thing some retailers overlook is how this relationship changes in different places – for example a higher fit-out cost in one area may be offset by it having a larger or denser target market segment. Alternatively, a location with less desirable location with lower lease and maintenance costs may prove more profitable over time.  

Rent, fit-out costs, utilities, labour, lease exit fees, and make good obligations are as essential to consider on the cost-side as projected revenue, Gross Margin Return on Investment (GMROI), demographics and brand value are on the upside. Weigh-up both initial investment, or ‘up-front’ costs, and ongoing expenses, against expected revenue based on the market size, potential, and share, as well as the pricing, promotion, and distribution strategies.  

The relationship between different stores: performance monitoring and network optimisation 

What maximises profit margins for one location may not do the same in another. Successful multi-site retailers are adaptable, and willing to lean into specific market dynamics in different store locations. First and foremost, this is about performance measurement and reporting across the store portfolio. Then it’s about pinpointing the most important factors driving individual store performance, and the relationships between sites. 

The minds behind Australia & NZ’s #1 Retail and POS software, Retail Express, share are a couple of performance monitoring tips: 

• Identify best and worst performing stores using a measurement tool and a range of KPIs such as turnover, GMROI and customer sentiment 

• Test, measure and compare practices and outcomes across all stores and geo-demographic categories (eg CBD, city-fringe, neighbourhood shopping centres) 

• Standardise proven practices that have the best results across the store network, through training, process implementation, and technology integration. 

• Build accurate, live data streams on company and individual store performance and benchmarks, customers, products, inventory levels, and other performance metrics to help with store decision management. 

Data-driven decision making like this can drive profitable expansion or pivoting to focus on better performing locations and allocate resources more effectively. 

The nitty gritty: long-lists and negotiations 

Store growth ultimately rests upon the question of property sourcing and lease negotiation. The best retail expansion plan can fall over if new sites are poor quality or lease terms represent a raw deal for the expanding retailer. At the pointy end of things, experience in negotiations and expert property sector knowledge are invaluable. In some states in Australia (thanks WA) this is acknowledged in official government advice to seek professional advice. 

Tenant Leasing Group (TLG) bring over half a century of combined experience in retail and industrial property – we specialise in making sure that innovative, growing retailers and other businesses get the best deals on new sites and mulit-store roll-outs.  

We make sure you know who you are dealing with, where the leverage is, what your legal rights and obligations are, and how to negotiate calmly and effectively with the landlord.