Real estate lessons from the mall

Yesterday was one of those few Sundays when we were in town, not working, and without house guests, so we grabbed the kids and headed over to the mall in Laughlin to check out Kung Fu Panda, the new animated movie starring Jack Black and Dustin Hoffman. We had a great time, although we only made it through the first half of the movie. It’s always an adventure when there’s a toddler involved. Anyway…

After the show our early exit, we took a lap around the mall. With gas and food prices climbing pretty much daily, it was refreshing to see some great deals out there on something besides real estate!

Here are three lessons for your consideration:

Lesson #1: Retailers with good prices attract more attention than their higher priced competitors.

Many of the stores in the mall were running 40% off everything sales. Lots of products (with sticker prices already below retail) were marked down an additional 10-30% on top of the 40% off. As we circled the mall popping into stores to scope out new deals an interesting thing happened. The stores that weren’t competing, those with the same old deals, just sort of became invisible.

It just didn’t seem worth our time to look inside the stores with old prices because they weren’t competing with their neighbor’s new prices.

Lesson #2: Retailers have to move their inventory because not moving it costs too much money.

Think about what it costs a retailer to carry a product (“carrying costs”).

First, they have to purchase the product. If they pay cash, their capital is tied up in that product and therefore not available to invest elsewhere, whether it be in more profitable inventory or in the bank earning interest. If they finance the purchase of the product, as many retailers do, it costs even more (interest). Other costs include damage, maintenance, insurance, labor, and so on.

When a retailer puts a product for sale in most cases, each day it doesn’t sell takes away from their bottom line.

Lesson #3: Retailers look at the cost of keeping a product that hasn’t sold instead of looking at how much they paid for the product.

Consumers don’t care how much is costs to bring a product to the market. They care about how much that product costs them. Given this reality, it’s critical for the retailer to first decide if their product is one they really want to sell.