Years ago the newspaper was our primary source of news and information. But today we have many more avenues and the newspaper has lost its relevancy. Sales per square foot is like the newspaper – still around but for the most part not significant in today’s world. Yet the industry continues to measure, judge and value malls and shopping centers by this metric but there is a different way we should be looking at performance.
The gross volume being generated by a center is much more telling than sales per square foot. Customarily we have excluded anchors in calculating sales PSF. Now we not only exclude anchors, but we also
carve out tenants over 10,000 sf, Apple and non-traditional uses. How can we evaluate anything if we exclude key performance factors?
There is a small lifestyle center that traded at a cap rate so small it looked like a rounding error. The sales per square foot were nearly double the industry average. Eye-popping numbers and investors loved this center. Now a new center is being built in the trade area and this new center will have a gross volume in the neighborhood of $300 million. The high gross volume center will be the new darling and the lifestyle center will begin its swoon to mediocrity. I suspect the investor that acquired the small lifestyle center wishes they weren’t seduced by sales PSF.
Many industry folks want to exclude Apple because Apple skews a center’s sales per square foot. They sure do, but you would rather have them in your center than not. Yes, Apple skews sales per square foot but why are we excluding a $30 million volume like it doesn’t matter or contribute to a center’s success. We also strip out tenants over 10,000 sf. Wouldn’t a successful Forever 21, Restoration Hardware or a flagship Victoria’s Secret be a positive contribution to a evaluating a center’s performance? Of course, but we overlook these success stories and are blinded by sales per square foot.
Relying on PSF
sales may be masking problems at your center. A rosy PSF number may look good today, but the true performance is hidden and we run the risk of being lulled into complacency. Redevelopment or repositioning decisions may be delayed or worse yet not even considered because the current sales per square foot appears decent. But look a little closer.
In today’s world, we are incorporating a number of non-traditional or non-retail uses into our centers, including medical, entertainment, residential and hotel uses. All of these uses drive traffic and contribute to our center’s success. Yet if we relied on sales per square foot only, we would overlook these vital contributors to a center’s strong performance.
Gross volume tells a better, more complete story. What is more telling – the total gross volume generated from a property or a sanitized sales per square foot which excludes Apple, tenants over 10,000 sf, department stores, anchors, junior anchors and non-traditional uses? Historically, if a mall was doing $300 million or more in gross volume it was in the top 5%; $200 million or more placed the center in the top 10%. These benchmarks are a bit old, but still provide a great frame of reference. Our focus should be on gross volume.
Except for the select A Malls, every mall in America should be redeveloped. Gross volume is a better indicator of when we should be repositioning or redeveloping a mall or shopping center. If we rely on sales per square foot, we may react too late or not at all, putting the mall in a perilous situation.
Gross volume tells the whole story. Like the newspaper, sales per square foot provides some information, but has lost its relevancy.
Image courtesy of Jon S at Flickr Creative Commons.