Your retail business has survived to date, thanks in large part to your guts and guile. You have slashed expenses, controlled inventory like never before, and cut deals with vendors and landlords.
As "rent relief" expires, however, retailers are finding landlords much less flexible. (They have financing issues of their own, and are feeling the same cold shoulders from banks as retailers do.)
So, here's an idea for you to use with your landlord. Create an agreement that allows you to pay your rent on the same seasonality as your sales. We are not talking about percentage rents (which essentially accomplish the same thing). Instead, we're proposing "seasonal rents."
That is, for retailers not paying percentage-only rents, monthly rent is a fixed, flat cost per month. Each month's rent payment is 8.3% of the year's total rent.
However, revenues from retail sales are not a flat amount each month. Retailers instead have exceptional seasonality. Each month's sales as a percent of the total year can range from 5% to 20%+.
Our recommendation? First, prepare a spreadsheet for your landlord that summarizes the expected seasonal spikes in your revenues. (You can easily develop this from your pro forma P&L for the year.) Here is an example from one retailer:
(Notice how not even one month calculates to the "average" of 8.3% per month!)
Monthly Sales as a Percent of Total Sales
Feb - 5.7%
Mar - 6.6%
Apr - 6.3%
May - 7.5%
Jun - 6.9%
Jul - 7.2%
Aug - 7.2%
Sep - 6.3%
Oct - 7.6%
Nov - 10.2%
Dec - 20.9%
Jan - 7.3%
Then, given the total rent for the year, agree to pay each month's rent on that same percentage scale. That's what we call "seasonal rent".
You still pay the same total rent for the year. You just are paying it on a schedule that is more suited to the realities of your cash flow.
Moreover, it may give you a better bargaining position with your lenders, because you likely will have a couple more months that show a profit. And it certainly gives you more flexibility with managing your cash flow.
This New Normal continues to demand flexibility. If you - or your landlord - aren't able to go to a percentage-only rent, then this "seasonal rent" approach may be a good alternative.
Let us know what you think of this idea. Your feedback is important to us.
What Do These Upbeat Retail Sales Results Really Mean?
Retail sales results for February have come out, and two major tracking services - Retail Forward and the International Council of Shopping Centers - report that comp store retail sales rose at least 3.7% in February: "their best monthly gains since the economy began its meltdown in November 2007." (In fact, we believe that is the sixth straight month of sales increases!)
Then, ShopperTrak reported that while sales were up in February vs LY (just 1.2% on their numbers), shopper foot traffic was down 3.1%. So, either average transactions were higher, or retailers were better at converting shoppers to customers. (Our bet is on the latter: motivated retailer meets purpose-driven shopper!)
What do reports such as these mean to independent retailers? Especially since they are reporting results of major national chains.
Well, we believe they do matter in several ways. First, they provide yet another benchmark against which to measure your own stores' performance. How were your February sales? You now have some context for assessing your own progress. (And maybe feel a bit better about what you did accomplish!)
Second, it provides insights into how consumers are feeling. Maybe "Frugal Fatigue" is in fact becoming more prevalent. For the 90% of the population that still have their job, they may be gaining some confidence that it is okay to spend.
No question, the spending that does occur will be much more purposeful and restrained than 2007. There is no going back to that! But those retailers who have edited their assortments to better match what their very best customers want will be well positioned going forward.
Even better prepared are those retailers who have been analyzing more than top line sales numbers. When sales are down, why? Fewer transactions? Smaller average transactions? Fewer items per transaction? These insights can be powerful for planning your store's progress in this New Normal.
Third - and perhaps most important about benchmarks - the financial community is reading these reports as well. Bankers and the credit departments of your vendors should be encouraged by these positive signs. In your discussions with them, be sure to have armed yourself with the most recent perspective on consumer confidence.
Remember, unemployment is a lagging indicator of the economy; consumer confidence is the leading indicator, particularly for retailers.
Then, ShopperTrak reported that while sales were up in February vs LY (just 1.2% on their numbers), shopper foot traffic was down 3.1%. So, either average transactions were higher, or retailers were better at converting shoppers to customers. (Our bet is on the latter: motivated retailer meets purpose-driven shopper!)
What do reports such as these mean to independent retailers? Especially since they are reporting results of major national chains.
Well, we believe they do matter in several ways. First, they provide yet another benchmark against which to measure your own stores' performance. How were your February sales? You now have some context for assessing your own progress. (And maybe feel a bit better about what you did accomplish!)
Second, it provides insights into how consumers are feeling. Maybe "Frugal Fatigue" is in fact becoming more prevalent. For the 90% of the population that still have their job, they may be gaining some confidence that it is okay to spend.
No question, the spending that does occur will be much more purposeful and restrained than 2007. There is no going back to that! But those retailers who have edited their assortments to better match what their very best customers want will be well positioned going forward.
Even better prepared are those retailers who have been analyzing more than top line sales numbers. When sales are down, why? Fewer transactions? Smaller average transactions? Fewer items per transaction? These insights can be powerful for planning your store's progress in this New Normal.
Third - and perhaps most important about benchmarks - the financial community is reading these reports as well. Bankers and the credit departments of your vendors should be encouraged by these positive signs. In your discussions with them, be sure to have armed yourself with the most recent perspective on consumer confidence.
Remember, unemployment is a lagging indicator of the economy; consumer confidence is the leading indicator, particularly for retailers.
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