Why Retail Owners Are Focused on Service-Based Tenants

It is no secret that the retail market is undergoing a transformation, and just as retailers need to adapt to attract shoppers, retail property owners need to adapt as well. Successful retail owners are focusing on retail tenants that are resistant to Internet shopping. Michael Koss, owner and operator of the Malibu Country Mart, is bullish on service-based tenants to find success in retail.

“I am a strong believer in service based tenants because the internet will continue to erode sales of goods.  Services, however, will continue to be needed,” Koss, CEO and chairman of Koss Real Estate, tells GlobeSt.com. “People will always use restaurants and seek services like salons, massage, dance, exercise facilities and training, auto repair, and countless other desired and needed services.”

Service-based retailers include restaurant tenants, which have grown rapidly in popularity this cycle. “In the service category, restaurants are king,” explains Koss. “Most people have increasingly relied on food service for a good part of their dining.  The public enjoys the variety of ethnic and varied food choices and the convenience. Also, some categories of restaurant choices have been able to provide their food at prices that are competitive with the markets.” Grocery stores are the next most popular in this category, especially as home delivery options grow and mature. “Markets will continue to be an important retail force,” explains Koss. “Although there is an increase in home delivery, the markets will still need to have a retail presence to use for convenience and for distribution of their products to their respective neighborhoods.”

In addition to restaurants and grocery, health and wellness are the other service-based tenant categories that Koss favors. However, retail owners need to look at the needs of the area demographics. “Health and wellness tenants are a very strong category of retail service,” says Koss. “Shopping center owners must be mindful, however, of their demographics to match the uses with the needs of the neighborhood.  Gyms are generally a good use in any area but some of the more sophisticated and expensive types of facilities, such as Barre and Pilates, may achieve more success in higher income areas.”

Koss has implemented this strategy at the Malibu Country Mart to great success.  “In Malibu, we serve a largely sophisticated and affluent customer,” he says. “Accordingly, Malibu Country Mart’s tenants offer very high-quality merchandise and services. We provide a unique mix of tenants that best serve the needs and interests of the community.”

While service-based tenants are a strong tenanting strategy, Koss says that creating a synergistic tenant mix is crutial. “The most important consideration in choosing retail tenants is the synergy with the other tenants and the neighborhood.  A center needs to offer diversity and should be targeted to the needs and shopping patterns of the customers that visit the property,” he explains. “If owners are considering capitalizing on retail trends to grow their center, they should keep in mind that the latest trends don’t always translate to long-term retail success. Instead, stores should focus on tailoring their marketing and store offerings to their specific market.”

However, Koss says that combining a strategy of service-based tenants and a strong tenant mix is a winning formula. “Shopping centers that offer more activity, entertainment and uniqueness will experience greater success,” he explains. “Many shopping center owners are turning their properties into entertainment destinations that attract people irrespective of stores. Movie theaters, comfortable lounge areas and beautiful grounds with art installations are all popular upgrades that encourage people to spend time at a center.”