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onsumer spending is down and retailer bankruptcies dominate the headlines, yet budding retail entrepreneurs may find the business landscape more hospitable than most may assume.
Retail has never been for the faint of heart. Just ask Tom Stemberg, founder of the Staples franchise and a serial retail entrepreneur. In an interview with PLACES, he cautioned aspiring retailers "Don't quit your day job."
He's right, retail is not for everyone, but those undeterred by such expert warnings are exactly the type of people who are most likely to thrive. They are the ones who walk into a store and cannot stop thinking of ways to do it faster, cheaper, or better. They have a vision for a different way of serving consumers and have the determination to see their ideas through.
For many entrepreneurs, being fired or laid off was instrumental in getting their ideas off the ground. Take Bernie Marcus and Arthur Blank, who did not even know each other until they were both laid off on the same day. They went on to start The Home Depot. Stemberg too was let go just before founding Staples. Often when someone gets laid off, they place an increased premium on being able to control their own destiny. Retail entrepreneurship is one way to satisfy that desire.
New retailers will find surprisingly hospitable conditions right now. Established retailers are less agile than ever. They are generally more diversified, with multiple brands, numerous customer segments, multiple channels of operation including online and offline. While this diversification was intended to reduce the risk, today's far-reaching recession has left them distracted by cost-cutting, debt management, and inventory overages.
Upstart retail concepts can be far more agile. They can better react to evolving customer demands and seize opportunities as they arise. Niches once dominated by strong national competitors, such as linens or electronics, suddenly have voids that may need to be filled. Contractors and suppliers are now willing to negotiate lower prices and accept reduced margins. Landlords, most of all, are eager to identify and incubate these new entrants like never before.
Leases are nothing more than documents outlining mutually acceptable operating conditions. While the assumption may be that landlords are more willing to negotiate terms, that belief is not entirely correct. Rents are clearly down, but recent boom times witnessed lease negotiations becoming less about finding agreeable partnership terms than about winning. Now, circumstances have changed.
The greatest opportunity for new retailers is in vacant spaces where national operators have abandoned fairly new store build-outs. For nimble local and regional operators, these spaces help overcome the lack of standardized store designs. The ability to occupy space at reduced costs for both themselves and the landlord is what helps lower rents and increase profits. While national tenants priced out their competition in the past, that is no longer an option for landlords and the values they placed on creditworthiness now appears overstated.
Landlords now place a premium on small retail operators with several successful stores that are looking to expand. Their experience and track record make them attractive tenants. For newer operators, landlords must evaluate not just the concept's ability to attract consumers, but the entrepreneur's ability to execute successfully.
When landlords believe in a concept they will make unique trade-offs. If investment capital is required, landlords may be willing to take ownership stakes in the business, equating to higher rents in the long term. If less capital is required, a new business will be met with the ability to gain significant bargains on real estate. In some cases, landlords may be willing to engineer leases to almost entirely remove the risk for a new retailer in a way they never have before.
Since a landlord is, at the end of the day, nothing more than a diversified investor in retail operations, they too are interested in new retail concepts. They want to support these retailers and help them grow into tomorrow's retail giants. Entrepreneurs with a penchant for retail too should realize that times will improve. Now is the perfect time to set up, get back to the basics, not only to best capitalize on today's changing consumers, but to take full advantage of the upswing when it comes.
New stores generally do not expect profits in the first 9–12 months and it can take up to three years for sales to stabilize. That means the downturn can be an ideal time to set up shop and be uniquely well positioned for the economic rebound.
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