Re-Negotiating with Your Landlord? Consider This Innovative Concept

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.