The American Dream
Struggling in the Strip Malls
Joan-Marie Moss
Location, location, location....
That's the formula for investing in real estate. But local property managers and owners of small businesses agree there's much more to maintaining a successful business than just being in the right location.
Dr. Keith Suchy, president of the Westchester Chamber of Commerce, pointed to two malls, one at 31st and Wolf, in Westchester, and the other at 22nd and Wolf, in Hillside. Although they are located within a few blocks of each other, they are very different. The first, which includes a Dominick's and a Burger King is well managed and thriving. The second, whose major occupant happens to be an Ameritech Cellular office is on the other end of the spectrum and suffers from poor occupancy, he said.
"A business can be located in a perfect mall -- one that offers convenience and easy access -- and still be in trouble if it relies on visibility and high traffic," said Dave Petruncio, broker owner of Stacey Management Services. He recalls a recent visit to Marshall Fields in OakBrook with his wife. "We decided to walk around and came across an out-of-the-way area in the mall that my wife didn't even know existed even though she frequents the mall on a regular basis and her mother works there. It was nearly deserted although the rest of the mall was very busy."
Bryan Barus, of Suburban Real Estate Services, property manager of Brighton Commons in Naperville, said the other extreme can be equally hazardous. "A corner fronting onto two major streets is not always best either, particularly if potential customers are always tied up in traffic jams and can't easily get to your establishment. You want a good location with easy access from all directions at all points of the day," he said.
Bruce Hershman, property manager of Midland Enterprises, handles Villa DuPage, Glendale Plaza and others. He has seen the widening of a major thoroughfare, North Avenue, play havoc with his strip malls. "It was a disaster. We lost a lot of tenants, Venture and Payless Shoes among them. It's going to be a struggle for the few small businesses that survived. It may be several years before that area begins to prosper again. The North Avenue corridor will take off again, but what it needs is one or two strong tenants like WalMart to bring people back into the area."
The resale of a mall and establishment of TIF (Tax Increment Financing) districts may ultimately bode well for a strip mall but what happens in the interim while the transitions are being put into place can also be most difficult for small businesses.
Renee Page, owner of the Tub House in Addison is located in a mall that has been available for sale for some time. "I have a destination business. People come to me from Chicago and from out of state," she said, "We're in a great area but there are only two open businesses in this mall and several vacancies. Everything is on hold here. Customers do ask about the condition of the area, but they know I'm here for the duration. It hasn't hurt me as much as it might someone who relies on lots of local traffic. It would help if we had more foot traffic, but I don't rely on that for survival."
John Berley, Assistant village Manager of Addison said there are two TIF districts in Addison involving both commercial and residential areas. "Although the TIF does not directly tie up development in the commercial area, there is a state of flux. Every property presents a different scenario. Army Trail Plaza had been run down. While the Village was negotiating with the owner for improvements, he became ill and died. The various heirs ultimately put the estate up for sale. Meanwhile the mall became even more blighted and now we have a 100,000 sq. ft. mall that is now only 20-30% leased. We would most likely have had the problem corrected long ago with the original owner. Buyers are coming to us looking for TIF funds; but, what they're asking is unreasonable, " he said.
This area has become really run down, and now and it will require a major effort to correct the problems. Lots of businesses have been adversely affected.
"Under normal circumstances we would hope to complete a project of this kind within five to seven years. A TIF can only be in place for 23 years and because funds of other taxing bodies are frozen, there is a lot of pressure to move quickly," he said. "This, the death of an owner is not a normal situation."
The current trend in managing malls is to appeal to larger establishments that are stronger financially and that can draw on seasoned managerial experience, said Tim Tiel, property manager of the Villa Oaks Center. Thriving businesses like Factory Card Outlet are constantly seeking larger spaces and we design spaces to accommodate them. Newer malls are being designed to fit the needs of larger businesses. Spaces in older malls, once fitted to accommodate smaller businesses, are frequently combined to accommodate larger businesses. Spaces for smaller businesses are becoming obsolete."
Petruncio said, "Even a simple face lift and construction delays can present a real hardship to small businesses. Strip centers need to be trendy to attract new tenants. While putting on a new facade will ultimately be a benefit to tenants, it does affect the number of people coming into the stores during the construction and may seriously impact the income stream of smaller businesses."
According to Tiel, "New political attitudes are pretty much anti-small business...the 'ma & pa' is effectively being driven out."
On the other hand, small businesses can do well, he said. One of his smallest tenants is a nail salon, a 'ma & pa' that occupies 800 square feet. "It's a highly specialized business. It's success is dependent on the owner providing personal service to clients. It's not offering an impulse item and it's not a retail shop trying to compete with 92,000 other retailers."
Tiel said that businesses that offer services, those that require little more than a phone and the skills of the owners, and destination businesses, which the buying public specifically seek out because of their highly specialized product or service can do quite well in strip malls, when the owner stays on top of the business."
"Retail stores that serve a tightly defined niche can do well, too," said Tiel. He cited two tenants, a door store and a specialty gourmet pantry, which delivers high quality food to local offices. These kinds of businesses don't rely on foot traffic or impulse buyers to generate business."
Barus said, "There's a world of difference between an impulse store and a destination business. Businesses that do particularly well in smaller strip malls include dry cleaners, video stores, pizza delivery and other similar convenience businesses that have competition. Intense competition among retail businesses seriously limits the success potential of small retail shops."
Petruncio said a comfortable mix of small businesses might include a real estate office, a dry cleaner, a computer repair and a convenience food store.
Barus also noted that all strip malls are not created equal. Some are landscaped and designed to generate foot traffic while others offer a little more than a building with several storefronts on a piece of land. When he represents tenants in search for space he advises them to weigh carefully their choices not only for the cost but also for the type of customer that they will be appealing to.
Sheila Turney, partner owner of the Signery in Villa Park had been in business for three years before she began to feel comfortable with her business situation. She said, "Having the backing of a franchise operation helped. It was at their suggestion that we went into a strip mall.
The condition of the mall isn't all that important. We rely on signs both at the entrance of the mall and above our door to provide visibility and convenience to people who are coming to us for the first time. But our business has been built by direct mail, telemarketing and referrals."
Debbie after three years in business as owner of Craft Connection in Addison said that her biggest headache is visibility and signage. "I've easily put $20,000 per year and countless hours into advertising and building the business. People come from miles around to shop with us. But we constantly have problems. For a while we couldn't get our name on the mall's signboard. We sit back from the road and aren't easily spotted by people driving by. Now that our name is on the mall's sign board, it's easier. But there are other businesses here that don't and they're hurting."
Debbie tracked the effect having a sign on the road had on her business. "When we were able to put a tent sign out by the road we found that we easily generated $2,000 in sales in a three hour time period. When the sign wasn't up, we were lucky to generate $500 in six hours."
Petruncio said, "Although national statistics report that six or seven of every ten businesses fail, that rate hasn't changed in the last twenty-five years. America was built on the dream of owning one's own business. As a result of downsizing many are trying to achieve that dream, using their 401K or life savings and rolling the dice. You can still open the door if you're looking for a modest profit. Sometimes being hungry is a strong motivation for staying power."
Petruncio said malls that require that tenants remain open specific hours can present a hardship on small businesses. While this requirement might be good for the overall business, it may create a real hardship on certain businesses. A hotdog stand, for example, whose business is limited to a lunch crowd may find the requirement to remain open until 9 pm a serious hardship.
Some other the problems that play havoc with the well-being of small businesses, according to Tiel, include inadequate financial backing, increasing competition and skyrocketing costs of doing business. Even something as simple as changes in the minimum wage law impacts the well-being of small businesses that operate on too tight a budget.
It's a tough world out there. In many suburbs, like Bollingbrook and Romeoville, most of the businesses are located in strip malls of various sizes and descriptions. The influx of newer malls and larger retail operations like Walgreens, JewelOsco and Sears Hardware tend to be viewed as a serious threat to small established businesses. Intense competition for the local market coupled with an increase in rents that naturally follows challenges even the most steadfast of small businesses.
Holy Family Religious Goods in Bollingbrook was just one of many small businesses that have shut their doors in recent months as a result of rent increases. Karen Koven, owner of Karen's Floral Expressions in Bollingbrook, said some of these cases are particularly sad because we can see that if the shop owner could just hold on a little longer they would have a good market.
Some small businesses prefer to locate in malls that have a major tenant such as JewelOsco, WalMart or others because of the traffic that these larger establishments generate. But Debbie said it's a two-way street. "I bring a lot of business to Dominick's. My advertising always mentions that I'm located next to Dominick's and customers frequently tell me, 'While I'm here, I'll stop in at Dominick's."
There's pros and cons to every situation. What works for one small business will not necessarily work for another. In any event, those who have been there agree that the decisions are not to be taken lightly. Business leases generally are long term contracts. It's important that
prospective tenants know well the politics, projections for the area and the mall itself, the economic and marketing mix of the area and more, before entering into negotiations for leasing a business location. A typical lease may take as long as three or four weeks to negotiate, according to Hershman.
Barus, Hershman and Tiel all strongly urge small businesses to remember that property managers work for the owner. Their first responsibility is to strike the best deal for the landlord and to increase the value of the property. They caution that leases are one-sided documents that need to be negotiated and that prospective tenants should have an attorney or a broker represent their interests.
Tracy Tsou and June Kuo, owners of the Peking Mandarin Restaurant in Glendale Heights, learned this the hard way. They negotiated the purchase of their restaurant with the owner last year. Business has been very difficult. They weathered the North Avenue construction, but are hard pressed when dealing with other problems including, weeds, surrounding vacancies, interruptions in electrical service, kids hanging out in the area who area scare off customers and less-than-desirable customers that frequent a local liquor store."At first I was blaming myself," said Tsou. "But we were getting compliments for our food and our service. We began to realize that no matter how good we are, if outside of our door is wrong, our customers will be scared away."
Koven said, My location has been good for us. It's what allowed us to take off as well as we have but we do know that we are paying a substantially higher percentage for facilities than trade publications indicate we should be. It appears that owners are less willing to negotiate rents and fees with small businesses than they might be for larger tenants. Our rents seem to be set at whatever the market will bear and in many cases we aren't able to move readily without seriously damaging our business. There's too much involved in moving heavy equipment and coordinating with suppliers to move readily. As a result, we often find ourselves restricted in our ability to expand."
"We find, too, that customers tend to expect much more from smaller businesses than they might a K-Mart. It's not uncommon for us to stay after hours for a wedding consultation or to accommodate a customer who is shopping for prices. And it's not uncommon for customers to try to negotiate with us over our prices though they wouldn't dream of negotiating with a larger business. Sometimes they don't realize that our prices reflect the fact that our products are a fresher and better quality than they might get elsewhere. Then too, because they talk directly to the owner, they seem to feel freer to be more outspoken. K-Mart and other large businesses don't bend to accommodate customers to this extent; but, small businesses do because we can't afford to offend potential customers," said Koven.
The American dream is still alive. A small business owner can still make a living but must realize that potential for survival is directly proportional to the amount of energy and time that the owner puts into the business. Property managers and business owners agree, customers won't come just because you've opened your doors. Survival in a small business depends on location, financial strength, marketing savvy, clearly defined marketing mix, drive and sheer determination.
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This is one of many articles Joan-Marie Moss wrote for Press Publications newspapers. For information on this and other work, contact Joan-Marie Moss.
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