Behind the Numbers: A Conversation with Chetan Kothari on Smart Retail Development

Behind the Numbers: A Conversation with Chetan Kothari on Smart Retail Development

To understand what drives the financial success of a retail development, we sat down with Chetan Kothari, Chief Financial Officer at McARTHUR Retail Development Specialists. With over 25 years of experience in financial feasibility and operations finance, Chetan has worked with leading retail developers and property management firms. He shares his insights on the key performance indicators (KPIs) every retail operator should be tracking.

Q: Why are financial KPIs important fora shopping centre?
Chetan Kothari: "A shopping centre is more than just a collection of stores—it’s a dynamic ecosystem where performance needs to be constantly measured. Tracking the right financial KPIs helps owners and retail operators make data-driven decisions to optimize revenue, tenant mix, and customer experience. Without them, you're flying blind."

1. Sales Performance Metrics

Q: How do sales metrics reveal a shoppingcentres financial health?
Chetan Kothari: "Sales performance is at the core of a shopping centres success. Strong sales mean happy tenants, which leads to lease renewals and higher rental income. If sales are struggling, it’s a sign to reassess tenant mix, marketing, or foot traffic strategies."

• Total Sales Volume: The total revenue generated by all tenants.
• Sales per Square Foot: A crucial measure of sales efficiency.
      Formula: Total Sales / Leasable Square Footage.
• Average Tenant Sales: Helps gauge the overall health of tenants.
• Year-over-Year (YoY) Sales Growth: Tracks progress and market trends.

2. Occupancy Metrics

Q: What do occupancy metrics tell usabout a shopping centres stability?
Chetan Kothari: "A high occupancy rate is a sign of a thriving retail environment. But it’s not just about being full—it’s about having the right tenants that complement each other and attract consistent foot traffic."

• Occupancy Rate: Measures leased space vs. total leasable space.
      Formula: (Leased Space / Total Leasable Space) × 100.
• Tenant Retention Rate: The percentage of tenants renewing their leases, indicating long-term stability.
• Vacancy Rate: The percentage of unoccupied leasable space, a warning sign if it’s too high or rising.

3. Revenue Metrics

Q: What revenue sources should retail operators focus on?
Chetan Kothari: "Beyond rent alone, successful shopping centres maximize revenue through creative strategies such as special events, advertising, even digital integrations. Diversifying income streams is key."

• Gross Revenue: The total income from rent, common area maintenance (CAM) fees, parking, and other sources.
• Net Operating Income (NOI): The remaining income after operating expenses but before financing and taxes.
      Formula: Gross Revenue - Operating Expenses.
• Rent per Square Foot: Benchmarks rental rates against competitors.
• Ancillary Revenue: Income from non-rent sources like pop-ups, sponsorships, and brand activations.

4. Tenant Performance Metrics

Q: How do retail operators ensure astrong tenant mix?
Chetan Kothari: "It’s not just about filling space — it’s about curating an experience. The right mix of retail, dining, and entertainment enhances customer dwell time and spending."

• Tenant Sales per Square Foot: Measures individual tenant performance.
• Tenant Mix Ratio: Balances various broad merchandise categories (retail, food and beverage (F&B), entertainment).
• Tenant Turnover Rate: The rate at which tenants leave or are replaced; high turnover can be an indication of deeper, unresolved issues.

5. Foot Traffic and Conversion Metrics

Q: Why does foot traffic matter, and howshould shopping centres use this data?
Chetan Kothari: "A shopping centre can look busy, but the real question is:are visitors actually buying? Foot traffic and conversion rates go hand in hand to determine success."

• Foot Traffic: The number of visitors to the shopping centre.
• Conversion Rate: The percentage of visitors who make a purchase.
      Formula: (Number of Purchases / Total Foot Traffic) × 100.
• Average Dwell Time: The average time visitors spend in the shopping centre; longer stays often mean higher spending.

6. Operating Efficiency Metrics

Q: How can shopping centres cut costs without compromising experience?
Chetan Kothari: "Efficiency isn’t just about slashing costs, it’s about optimizing. From energy consumption to maintenance, every cost should add value."

• Operating Expense Ratio: Measures operating costs relative to revenue.
      Formula: (Operating Expenses / Gross Revenue) × 100.
• Common Area Maintenance (CAM) Recovery Rate: The percentage of CAM costs recovered from tenants.
• Energy Cost per Square Foot: Tracks energy efficiency and costs.

7. Profitability Metrics

Q: What financial benchmarks should retail investors watch?
Chetan Kothari: "Investors want to see strong, sustainable returns. Profitability metrics provide investors with a clear sense of whether a shopping centre is truly performing optimally."

• Gross Profit Margin: The percentage of revenue remaining after deducting direct costs.
      Formula: (Gross Profit / Total Revenue) × 100.
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A key measure of operational profitability.
• Return on Investment (ROI): Measures the return generated from the shopping centres investments.

8. Lease Metrics

Q: How do lease structures impactlong-term shopping centre stability?
Chetan Kothari: "Short-term leases provide flexibility, but long-term leases provide stability. The right balance is key to financial resilience."

• Average Lease Length: Tracks the average duration of tenant leases.
• Lease Escalation Rate: The annual rent increase percentage built into leases.
• Lease Renewal Rate: The percentage of tenants renewing their leases, a sign of tenant satisfaction and market competitiveness.

9. Customer Satisfaction Metrics

Q: How does customer experience tie intofinancial performance?
Chetan Kothari: "Happy customers are returning customers. Theirfeedback—whether through Net Promoter Score (NPS) or spending data, tells us if a retail development is delivering value."

• Net Promoter Score (NPS): Measures customer loyalty and satisfaction.
• Customer Spend per Visit: Tracks the average amount spent by a customer per visit.

10. Capital Expenditure (CapEx) Metrics

Q: What’s the best approach to managingcapital expenditures?
Chetan Kothari: "Smart CapEx investments future-proof a shopping centre. Whether it’s sustainability upgrades or digital enhancements, every dollar spent should drive long-term value."

• Capital Expenditure (CapEx) as a Percentage of Revenue: Helps track strategic reinvestments.
• Maintenance Cost per Square Foot: Ensures spending is optimized.

Final Thoughts

Q: If you could give one piece of adviceto shopping centre operators, what would it be?
Chetan Kothari: "The retail landscape is evolving fast. Staying ahead of the curve means constantly adapting. The best shopping centre operators aren’t just landlords; they’re experienced curators. Track your numbers but never lose sight of the bigger picture, creating spaces where people want to shop, dine, and connect."

By keeping a close eye on these financial KPIs, shopping centre operators can make data-backed decisions, improve performance, and ensure long-term success.

Are you tracking the right metrics inyour retail development strategy?

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