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Feb./March
2002

"Regional malls and strip malls are two different animals," says Jay Fox, owner of Up In Smoke, Inc., Dallas, Texas, which operates five regional mall stores and two strip mall stores in Dallas, Irving, Lewisville, and Frisco.
Location, location,
Location!

It's the age-old adage of siting a retail business: Location is everything. But tobacconists face both common and unique challenges in selecting from regional malls, strip malls, or stand alone stores. But which is best? Each have their own merits, but even industry veterans disagree. It all depends on what type of tobacconist you want to be.

By Bob Ashley

When Ted Clark moved his smoke shop - Briar & Bean - out of Eastland Mall in Evansville, Ind., it wasn't by choice. Although he'd occupied an 800-square-foot store near a major entrance to Eastland for 18 years, he and nearly three dozen other small shop owners found themselves searching for new quarters to make room for an Old Navy store.

Clark had few options. He could close down the shop, something he wasn't about to do. Or, he could move to a less inviting location within Eastland Mall. His third option - the one he chose - was to move out of the mall into a strip center. He took the thought a step further by building his own strip mall a mile from Eastland.

Clark was thrust into the position of having to make the decision that every shop owner makes at one time or another. Is it better to be located in a high-traffic regional mall, a local strip center, or a free-standing shop? Clark chose to relocate to a strip mall, but there is no unanimity in the smoke shop industry about which is the better course.

"Regional malls and strip malls are two different animals," says Jay Fox, owner of Up In Smoke, Inc., Dallas, Texas, which operates five regional mall stores and two strip mall stores in Dallas, Irving, Lewisville, and Frisco.

Rent is often higher in mall stores, and the landlord usually wants a percentage of gross sales over a specific amount. Malls generate more foot traffic but also dictate stores hours. Customer parking is more convenient at strip malls, and they typically don't have the smoking restrictions that are in place at many malls. Mall sales during Christmas, spurred by impulse buying, can be triple or quadruple what they are in other months - although per-customer sales are likely to be routinely higher at a strip mall. Strip stores can focus on selling tobacco products, while mall stores aren't likely to succeed without also selling gifts and collectibles, which requires a higher degree of inventory management.

The tradeoffs can be many.

"Moving out of the mall was not something that I wanted to do," Clark recalls. " I was doing more than a million dollars a year, and we were the No. 1 producer per square foot in the mall. We shoved a lot of product out the door. They offered us another spot, but it was pathetic. So, we got out of Dodge."

At Clark's strip center - Burkhardt Corner - he was not only able to increase the size of his cigar shop by a third, but also open an adjacent specialty coffee shop. The small shopping center is also home to a hobby store, Subway sandwich shop, and Beltone store. "It was not something that I wanted to do," Clark recalls. "But in some ways I'm happy that it happened. We were too comfortable in the mall."

Among the chief differences between mall and strip center smoke shops, says Fox, is the basic difference in character.

"The mall stores have to be more gifty, while the strip centers are 70-80% cigars," Fox offers. " In a mall store, it's usually 50-50 or 60-40 in favor of gifts and collectibles.

"And the mall stores are more work because you have to carry so many different items. It can get to be too much at times keeping track of all the inventory. But we couldn't make it in the mall without the gifts. We absolutely could not."

Although satisfied with sales at two of his mall locations, Fox intends to replace two others with strip mall shops within three years - chiefly, he says, because some older regional malls seem to have lost their attraction. "I've noticed that mall traffic is down," Fox says. "The trend already was established before the recession and before the terrorists attacks on Sept. 11. People are getting more and more reluctant to fight the traffic and the parking problems.

"I like having a couple of mall stores because at Christmas, they do three times the business that the strip stores do. And that is really big. Mall stores appeal more to women and families because of the gifts. Strip center stores are more male oriented, which is easier and more fun to run."

Nonetheless, Fox opened his most recent store in August 2000 at Stonebriar Center, a regional mall in Frisco, 20 miles north of Dallas. Of his mall locations, the Stonebriar store has become his most successful because he negotiated the installation of a small smoking room into his lease. "That is the only way I would agree to build," Fox says.

To keep the smoking room from being overrun by mall employees on their break, customers have to join a club and pay a $25 annual fee.

"That store sells more cigars than the other stores because of the smoking room," Fox says. "Wives are off shopping and guys can come in and watch TV or get a soda and smoke a cigar."

Higher rent costs caused A. Fader and Son, Inc., which operates six stores in the Baltimore, Md., area, to move four stores out of regional malls in recent years. Faders operates four stores in strip malls and two stand-alone downtown shops in Baltimore (pictured, at left) and Towson.
Cigar smoking isn't allowed in his four other mall stores, he says.

Higher rent costs caused A. Fader and Son, Inc., which operates six stores in the Baltimore, Md., area, to move four stores out of regional malls in recent years.

"Mall locations are expensive," says Fader president Rex Snyder. "The rent associated with them is usually higher by a significant amount, and the malls require that you pay them a percentage of your gross annual sales. That alone makes a mall location unattractive."

Fader operates four stores in strip malls and two standalone downtown shops in Baltimore and Towson. "Those two locations have inherent parking problems, and then, because they are downtown locations, it's hard to stay open at night because the foot traffic goes away at 6 p.m. That said, both are viable locations because of the amount of traffic they get during the day."

Most of his customers, Snyder says, prefer the convenience of small shopping centers to a mammoth regional mall. "Most people don't like to drive to a mall and fight the parking and the crowds just to get to their tobacco shop," Snyder says. "They prefer easier access. At a strip mall they pull in, park, and walk into the store."

In addition, smoking is allowed in most strip centers whereas in most regional malls smoking, if not banned outright, is discouraged, Snyder noted.

Gary Pesh, president of Old Virginia Tobacco Co. (formerly Tobacco Barn), Woodbridge, Va., which operates smoke shops in three strip centers and four regional malls in Virginia, says that although traffic isn't as heavy in strip mall stores, the revenue per sale is higher.

"In a regional mall you have the opportunity to get the occasional customer, but you are only going to hit him for $5 or so," Pesh says. "That compares to the guy who drives into the strip center and spends $45 or $50 because he's having some friends over for a barbecue on the weekend. In a mall, you are going to have more people coming to your shop, but you are going to have to create the impulse for them to make a purchase."

Pesh points out that regional malls typically promote themselves heavily while strip center malls do not. "As a tobacconist, you have to decide what you want to do," Pesh says. "If you are going to be in a strip center, you are going to have to be good at advertising, staging promotional events, and keeping up with your mailing list. If you are not good at that, the malls do those things for you.

"You pay the mall for the service, but if you are in a strip center, you pay to come up with an advertising plan and you pay for the advertising yourself anyway."

Gary Blumenthal, president of Tinder Box International, Bala Cynwyd, Pa., disagrees that strip malls are easier to operate.

"It's gotten tougher for stores outside a mall to make it work," Blumenthal says. "To open a store outside a mall, the competitive analysis is critical. There's not much room for a mistake."

Tinder Box has about 160 franchised locations and three company-owned stores. About 80 percent of Tinder Box stores are located in regional malls.

"The advantages of the mall is that you have a built in flow of traffic, which cuts down on your outside advertising and marketing costs," Blumenthal says. "If you are in a good mall, you have both a large amount of female - not just men - so you have to cater to a wider audience."

Typically, Tinderbox stores are well diversified, with a large percentage of space dedicated to gifts and collectibles.

"Our merchandising mix shifts according to the location," Blumenthal says. "Outside mall locations - in addition to cigars - we are very much focused on gifts for the man. There might be a grooming section, or a golf gift section or a small leather goods display, whereas in the malls, they are more into collectible items that appeal more to women.

"We try to tailor every store to the market it is in. The formula for being in a mall is much more straightforward. Outside the mall, you have to tailor more and more to the specific market you are trying to reach. It's trickier to do.

"In the malls we can take advantage of the fact that we are exposed to a lot of people who are interested in more than just tobacco products," Blumenthal says. "The advantage of the strip mall is that, in most cases, you lower your occupancy costs, and in some cases you may have increased convenience for your customers."

Blumenthal says circumstances should dictate whether a store is located in a regional mall or a strip center. "I don't have an overall preference," Blumenthal says. "I have specific preferences, based on the actualities of the marketplace. You have to analyze the specifics of the deal - the tenant mix, how the tenants are doing, traffic patterns, competition, and other things."

When Ted Clark moved Briar & Bean, he installed a seating area for customers and equipped the store with a refrigerator and television set and began to hold cigar events once a month, something he was prohibited from doing at Eastland Mall. "Our customers love it," Clark says. "They flock in for our events. That's one of the real benefits. We didn't have enough room at the other store for in-store events.

"We don't have quite the number of feet coming through the door, but if they do cross the threshold, they are at least remotely interested in what I am selling."

Initially, Clark thought he would close the store on Sunday, but his customers objected and he remained open.

Clark says that whether a shop owner opens in a regional mall or strip center is a personal choice. "I don't have a recommendation," Clark says. "There are pluses and minuses to everything. Would I go back to the mall? No. It's just so much better having control over everything."


SMOKESHOP - February/March, 2002