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Store Location and Lease Negotiation Part I: Location, Location, Location Clicks-and-Bricks Used Bookstore Series by Jill Hendrix #113, 28 January 2008 In your business plan you determined whether your city or town as a whole would support your store and perhaps you even decided upon a particular section of town. Now it's time to get down to the nitty-gritty and look at specific properties. As with buying a house, the rule of thumb is location, location, location. If you can afford to purchase your building that it is usually the best long-term investment for your business, but for the purposes of this article, I will assume that most of my readers will be renting their spaces. It's best to think of your rent expense as part of your marketing budget. If you pick a bargain-basement-priced unit way off the beaten path, you're not really saving that much money since you'll have to spend more in advertising to let people know that you exist. Whereas if you have a huge building with a gigantic sign right on the main thoroughfare, you may not have to advertise at all. The ideal location for your business is most likely going to fall somewhere in the middle of the two as you try to find a visible, easy-access spot whose rent doesn't break the bank and still leaves some money left for advertising. Writing your business plan should have given you a general idea of the size space you need. For the average used bookstore, 1400-1700 square feet is probably adequate. My shop is 1600 square feet with 2 bathrooms, a back hall, and a back office. We could have easily gotten by with 1500 square feet with a better configuration. Keep in mind that the larger the shop, the larger the expense. Commercial real estate is often divided into different classes. Class A is the best and usually refers to top-of-the-line new construction in the best locations. Think the Fifth Avenues of your city. My city, Greenville, South Carolina, has at least three Class A areas: Haywood Road (the city's primary enclosed mall is on this road), Woodruff Road (home to the newest open-air shopping centers), and our revitalized downtown. Class B real-estate is usually a bit older and in a commercial retail area, but not on the very main drags. For example, my shop is located on a 4-lane street that runs for a couple of miles from an older, affluent neighborhood to our downtown; I'm near its intersection with Haywood Road (a class A area) in a small shopping center anchored by a well-known restaurant that's been around for 10 years. Class C real estate is the bargain-basement stuff that's offered at a discount price for a good reason - it's impossible to turn in and out, it's not visible from the road, it's on a little-traveled road, it needs major repairs, etc. I would suggest telling your real estate broker - if you don't have one, see this article - that you wish to look at non-mall Class B real-estate ranging from $12-14.00 per square foot per year. This amount should include your base rent and any charges for common area maintenance (CAM), taxes, insurance, etc. If you are in a big East Coast or West Coast city you may have to pay more, and in a small town you may find even cheaper space, but the above figure works in Greenville, South Carolina and even in St. Louis, MO (per the proprietor of a 5-store comic shop chain) if you negotiate well enough. If you don't like anything in this price range, look a little higher but be prepared to negotiate hard. After six years in business, I'm paying just under $15 per square foot, and if I'd known all the lease-negotiation tips I'm going to share with you in the second part of this article, I'd be paying even less. When I first opened Fiction Addiction, my shopping center had two well-known restaurants that had been open for 6-10 years, a Medicine Shop drugstore, an independent kitchen shop, a Papa John's Pizza, a well-known kid's haircutting salon that brought people from the next town over, and a couple of other shops. I'd have preferred a few more retail shops but this mix worked quite well. The pizza place, drugstore, and haircutting salon were all places that customers expected a bit of a wait and so often wandered around the shopping center and into my store in the meantime. The restaurants and kid's haircutting salon were destination businesses that brought customers from all over and could be used as landmarks when giving directions. The kitchen shop's clientele were older, affluent women - a good customer base for me. When evaluating shopping centers, consider not only their location and price but also the synergies you can expect between the other businesses there. Some businesses may even have negative synergy - for example, grocery stores also sell books and their customers usually have to run right home to put the refrigerated/frozen goods away and so are unlikely to stop in your shop. When evaluating different locations, here are some other factors to take into consideration: Does the location match up well with your goals and objectives from your business plan? For example, an upscale look was an important component of my business plan, and thus Fiction Addiction is in space on the high end of Class B rather than the low end. How easy is it turn into and out of your location, especially turning left? Is it located at a traffic light so that people can see you while they are sitting in their cars with nothing else to do? How visible will your store be from the road? Does the shopping center/building have adequate signage? What kind of signage will you be required to purchase (one center may require more expensive signage than another)? Does the shopping center/building look well maintained? Is there adequate customer parking (monitor the parking lot at various times of the day)? Is the parking lot safely lit at night? Do your proposed hours mesh with the other businesses in the center? Is it easy for customers to wander from shop to shop in the center? If there is a separate employee-parking area; is it adequately lighted? Is the center/building handicap-accessible? Does the space you're considering have a publicly-accessible restroom? Or is it only accessible through back-office space that you don't want customers walking through? Is this space you're considering in move-in condition, or will it need work? How close or far will you be from your nearest competition? Sometimes it's helpful to be nearby (many towns have streets with used bookstore after used bookstore) and sometimes it's better to carve out an area of your own. Does the location have adequate area for window displays? Ideally, you want some window display and still have room for customers to be able to look into your shop and see your rows and rows of books, but you probably don't want more than one wall with windows. Does the location have a covered sidewalk that you can use for bargain book carts? Once you've narrowed your list down to two or three locations, try to interview some of the owners of the other businesses in the shopping center (or if a stand-alone building, some of the other clients managed by the managing agent). Here are some questions to ask them: How long have you been in business in this location? How many square feet do you have? How much longer do you have on your lease? Do you think you will stay here or move to another location when your lease expires? Was your lease negotiation pretty straightforward or is the landlord picky about specific things? Have you had any maintenance issues? If so, were they fixed promptly or did it take some back-and-forth? Does the shopping center have a merchant association? If so, what are the dues and what has it accomplished over the past year? Have your customers had any problems parking? Have you had any security problems. Break-ins? Vandalism? Would you share what you are paying in rent? (If they will, make sure to find out if this includes CAM, etc.) Do you know how much your utility bill usually runs? (Only ask non-restaurants whose power needs are likely to be similar to yours.) If they'll share this info, make sure to clarify what that figure includes - electricity only? Electricity, gas, water, etc. Keep in mind that an open space is not usually good for the existing owners, and so they may try to gloss over any negatives. If you have any questions about choosing your business location, please email me at fictionaddiction@juno.com or post your query to the BookThink Open Shop Bookstores forum, and I'll do my best to help: Once you have one or two prime candidates for your storefront location, it's time to start negotiating. Stay tuned for Part II of this article: Lease Negotiation. Want to read more articles by BookThink's Contributing Editor Jill Hexdrix? Click here. Questions or comments? Contact the editor, Craig Stark editor@bookthink.com Copyright 2003-2011 by BookThink LLC