The recession and the real estate downturn have created the perfect environment for entrepreneurial spirits to enter the retail arena because of the record amount of vacant retail real estate in centers across the country. (For more on how landlords are taking an active hand in developing new retail concepts, go to p. 80.)
One of the most important transactions a would-be retailer completes is the lease for that first store. Retail Traffic sat down with Scott Fawcett, president of Newport Beach, Calif-based Marinita Development Co., Matthew Harding, president and COO of North Plainfield, N.J.-based Levin Management Corp., Eric Hohmann, managing director of property investments with Washington, D.C.-based Madison Marquette and John Bemis, executive vice president and director of leasing with Atlanta-based Jones Lang LaSalle Retail to talk about what they look for when meeting prospective tenants.
What do you look for when you get a call from someone looking to open their first store?
Fawcett: If they haven't had experience in what they are planning to do, we would ask them first of all for a business plan. Secondly, we would ask about their ability to finance the opening of their business. Another thing, of course, is it's nice if they've already been in the business. If the guy is looking to open a bagel shop and he has never been in a bagel shop to see how it operates, in good conscience you have to say “Are you sure this is something you want to pursue?”
Harding: If they don't have another store, we look for a business plan that outlines the general parameters of what they are trying to do. And also get a little budget from them on what they plan to spend on the business and on improvements, which can tell you how much homework they've done.
How do you evaluate whether the concept is successful and how long does it take to get a new business off the ground?
Harding: I think it takes a couple of years — first year, they are building the business; second year, they are stabilizing it. Between the second and third year, it should be operating successfully.
Hohmann: We'll evaluate results on a monthly basis. Are they generating sales? Is there traffic? Are the managers on site reviewing the business on a daily basis? After the first year, we'll look for progress.
What are some of the biggest misperceptions people have about opening a retail business?
Bemis: One of the biggest pitfalls with local retailers is they don't necessarily have the proper capitalization in place to fund the store, merchandise and staff the store and operate it on an ongoing basis. We tell people they should be ready to put their money back into the business for three years in order to give the retail unit a fair chance at success.
Fawcett: Most mom and pops don't have any idea that it requires six to 12 months of no income [to open a store] and they have to have money to live on. We've turned down a number of tenants because we just knew there was no way they could continue to be in business with the little bit of savings they had.
Hohmann: Having a good idea is only part of the way there; the execution part is more of the [key]. And with an untested idea we would also probably not be talking about a prime location, but an incubator location. If they succeed and prove themselves, we'll relocate them.