Jun 25, 2023
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If you have a brick and mortar location, real estate is really important for your retail business!
Patricia Norins is my personal mentor, but she is also a retail real estate expert and cofounder of Blue Butterfly, where they bridge the gap between retailers and property owners.
We talk about common mistakes like becoming emotionally invested in a space outside of your budget or not working with an attorney.
Patricia also saves you time AND money with a list of red flags, including termination rights and rent escalation clauses.
And you’ve heard it…location, location, location. It really does matter and can play a big factor in your success.
Patricia has some amazing tips on how to do thorough research and find out if a space is the best for you with questions like, How close is it to your target audience? What does the local market look like? What’s your proximity to your competitors? And have you explored the property and neighborhood at all times of day throughout the week?
Maybe you’re thinking about buying property instead of leasing. To top off this FIRE conversation, we break down a short list of pros and cons to owning your retail space.
Whether you’re looking for a new location, unhappy in your current one, or not even considering a new lease yet, this episode is jam packed with tips you just can’t miss.
As always, I’m rooting for your success!
- Retail Real Estate; What should you know?
- Common mistakes Retailers make when leasing a space?
- Red Flags in Real Estate, what should you look out for?
- How to negotiate a commercial lease?
- The pros and cons to owning a space versus leasing.
- Does location make or break success?
- Research tips for the perfect retail space for YOU!
Mentioned In This Episode:
Crystal: In this episode, I am so excited for my guest, Patricia Norins, to share all things leasing. Now, Patricia is my mentor. She has helped me in so many aspects of my life, from my business and operations and scaling and team and marketing, and real estate, both personally and commercially, and that’s what we’re talking about today.
We’re talking about real estate in leases. She has red flags to look for in your lease agreements. Common mistakes she sees during lease negotiations. She breaks down such great advice on what types of research to do to find the right location. And even if you’re not looking to move or you’re not, you know, new and you’re doing your research to try to find a location, or you’re not expanding currently, listen to these things. I think you really should go through the research that Patricia lays out in this episode and really make sure that you’re in the right place because so much of your success can rely on the location if you are a brick-and-mortar storefront. I mean so much of your success, so she breaks it down for you in this episode. We talk about the pros and cons of owning the building, and Patricia gives great ideas on how to save on your rent without sacrificing the quality of the building or the location.
Before we dive in, here’s a little bit more about my guest. Patricia has more than 30 years experience in the retail real estate industry, with deep experience in both retail and leasing.
She started her career in retail with her parents’ seasonal retail business, where they owned and operated more than 300 retail locations across the country and leased space on behalf of hundreds of shopping centers. Patricia then founded her own publishing and trade show company. She produced two retail trade magazines, launched global conferences, and developed an accreditation program for specialty leasing professionals.
In addition, she has served as American Express’s Spokesperson for Small Business Saturday. She has spoken on stages around the world, has written a book about specialty retail, and has been quoted in hundreds of articles as a leading authority in retail. In 2013, she sold her business to the International Council of Shopping Centers and launched Blue Butterfly, a strategic consultancy focused on helping retailers and property owners achieve profitable growth.
She and her husband also own commercial and residential properties. She loves giving back by mentoring entrepreneurs and co-teaching MBA classes. You can learn more at bluebutterflyllc.com and let’s dive into this episode.
Welcome to Rooted In Retail, the show that’s dedicated to helping independent retailers thrive in today’s ever-evolving retail landscape.
I’m your host, Crystal Vilkaitis, and I’m thrilled to have you join me weekly as we explore topics that are vital to the success of your store. From marketing to mindset, money to merchandising, sales to leadership, we’ll cover it all. Each episode features interviews with industry experts and accomplished retailers who share their real-life insights and actionable advice.
Get ready for a great conversation on how to build your dream business with Rooted In Retail.
Patricia, welcome to the show. I’m thrilled you’re here.
Patricia: Great to be here today.
Crystal: Okay, so I just have to say that Patricia was one of my first guests on Crystal Uncorked, and to this day, that was like over two years ago, to this day, she’s still top three. You might still be the top number one position.
Patricia: Love it.
Crystal: It was such a good episode. No pressure for this one, you know. No pressure. But I’m so excited to have you today, and we’re gonna be talking about leasing and stuff that I really don’t know a lot about. So I’m gonna be here, a very beginner mind, curious mind, and I’m so excited to learn from you.
But before we get there, let’s start with how you came to co-own Blue Butterfly and how your journey has shaped your understanding for retail leasing.
Patricia: Fantastic. Well, thanks for having me back. So I’m a fourth-generation retailer. We like to say in our family that retail runs in our blood. As a kid, family trips consisted of not only going to highlights of tourist destinations but also stopping in and looking at the shopping centers in the market, analyzing the retail.
So, I grew up with parents in the retail industry. They ran 300 seasonal retail locations across the country. As kids, we’d roll up our sleeves, ring up sales, and then as I grew older, I got my start in retail at a chain store. So, you know, very much, retail was part of my background. And then about 25 years ago, I started two retail trade magazines for the industry, conferences, and developed a professional certification program for leasing managers.
So, over those years, I got a lot of experience in retail. I did consulting for retailers during that time and for shopping center owners. And then, in 2013, I sold my business to the International Council of Shopping Centers. And little did I know that would be a wonderful opportunity to really expand my knowledge base, from retail primarily in the US market to really get an opportunity to work with retailers around the globe and leasing professionals around the globe. So that was a nice opportunity to broaden my experience and, being the entrepreneur at heart that I am, after that happened, I determined it was time to start another business, and my business partner and I launched Blue Butterfly.
So now what we do is really help to bridge the gap between retailers and property owners and we do a lot of work with property owners to help lease more space. At this time, we’re up to about 200 shopping centers across the country that we lease space in. And, we work with, a nice assortment of retailers, and we’re helping them to grow their businesses well, primarily through real estate.
Crystal: Awesome. Love it. So you are so such a good source to talk about leasing because I have so many questions for you, and I know that our retailers probably do too. So let’s dive in. What are some common mistakes you’ve seen small retailers make negotiating their leases, and how can these be avoided?
Patricia: Excellent question. And honestly, at this point, I feel like I was trying to calculate how many leases have I touched in the last 30 years. It’s thousands of leases, and I’ve seen thousands of deals. So, there are some common mistakes that have kind of bubbled up to the top. And I think the number one mistake really is not listening and finding out what’s important to the other side.
So, oftentimes a retailer will call and say, “Hey, how much is the rent at such and such location?” Instead of going in, making an appointment to meet with that potential property owner or if there’s a broker involved. Even with a broker, you can learn really invaluable information when you go and start to build that relationship. And I do feel like the leasing world is so much about relationships. So it’s an awesome opportunity to start the relationship from the very first phone call.
The second mistake, I’m gonna say high level, is not working with an attorney. So maybe a retailer says like, “Oh, you know, I’ve looked over tons of different agreements or legal documents, and I feel pretty comfortable. I’m gonna go ahead and do this on my own.” But I really do advise that it’s best to work with a real estate attorney.
And then I’ll say the last common mistake that I see is a retailer paying too much for space because they become personally and emotionally invested in seeing their business in that space, and they kind of get carried away instead of really understanding, what is my budget for rent, making sure that that rent parameter falls within no more than 10%, but nowadays we like to see around 8% of their total operating budget being paid on rent. And so, recognizing if you can’t get to that win-win, and I’m a pretty optimistic person in most of the deals that we touch, we do get to a win-win, even on really tough negotiations. But still, there’s an occasional time where you just can’t get to that win-win. It’s better to walk away instead of paying 30% of your total budget on rent and hoping that you’ll make it up on sales.
And then I’ll say lastly, not understanding all the expenses related to the lease. So there’s a lot of nuances when it comes to a lease, and there can be a lot of little hidden things and if you don’t know what you’re looking for, it’s not always just a rent number.
Crystal: No kidding. Okay. And so I wanna clarify, 8 to 10% of the budget should be rent, right?
Patricia: That’s correct. Ok, so that’s a general guideline. Some of it’s based on, what are those retailer’s margins on product.
So sometimes we work with retailers where we’re working on a deal right now on behalf of the property owner, where it’s an auction house, and their margins are really, really tiny. So, they may need to spend a little bit less on rent. And then we have other retailers that we work with.
Jewelry is a common category where the margins are a little higher. Maybe they can pay a little bit more on rent because they’re making a lot. There’s a lot more profit on the products being sold. But generally speaking, that’s about the ballpark that works for most budgets nowadays.
Crystal: Got it. Okay. Awesome. And then, yeah, devil’s in the details. You gotta really know what’s included in that lease. And then the emotional side. That’s such a good tip. I haven’t bought or leased commercial space, but have residential, and you find that like house that you love, but you’re like, oh, we can make it work somehow, and then your house poor, and then you are so upset.
I never even thought about that from a commercial perspective, but it makes sense. You have the perfect building, the perfect location, but if you’re really stretching yourself, you’re set up for failure. I mean, you really have to know the numbers.
Patricia: Yep, exactly. And give yourself a little bit of cushion, especially if it’s a new location for yourself. It takes time to establish your business. So we hate to see somebody so maxed out on that rent number, and the sales don’t follow for a while, and it takes time to build that momentum.
Crystal: Great point. Okay, so from mistakes, let’s go to red flags. Can you share a few critical red flags that retailers should be aware of when examining a potential lease agreement?
Patricia: Absolutely. So in terms of red flags, I would say that a lot of times a landlord will work into the lease that they have termination rights. So, what does that mean? That means that they can terminate the agreement for any time, at any reason, with a certain amount of days. So it might be that they have the right to terminate the lease, and give the retailer 10 days notice or 30 days notice.
Patricia: Now that might be okay for some businesses they go in knowing that they’re doing a shorter term deal. They’re getting an incredible rent number because the landlord does maintain termination rights. But if you don’t realize that the landlord has the right to terminate the lease, give and only give you 10 days notice, that could be something A: that’s hidden that you weren’t knowing that you needed to look out for. And B: it could be a red flag. If you are making extensive investment and investing in fixtures that aren’t so easy to move, are you okay with only having 10 days? You know, termination rights? Another right that a landlord will build into a lease oftentimes is relocation rights. And this is pretty common at an enclosed shopping center. So they’ll write in there that they have the right to relocate your business to another space in the shopping center. Again, that may be fine for some retailers, but for others, they might want a certain notification period, or they’re gonna negotiate as part of their negotiation process that they don’t want the landlord to maintain termination rights or relocation rights.
But again, that might impact the total cost that they’re paying for the space. So just some red flags to be aware of if those timeframes are really short. Another red flag is the landlord may want the retailer to maintain the condition of the space. So they’re taking the space as is, is what the lease language will say.
And we just ran into a situation with a retailer where this really turned into a challenging situation. They had rented space in a food court and didn’t do the due diligence that we recommended that they do a renting space on behalf of the property. So it’s really the retailer. We give ’em a heads up, have the space inspected, know what you’re getting into, and the retailer thought they would cut some corners, not pay for a professional contractor to come in and inspect the space. Once they took possession of the space, they had a company come in to help them install some equipment. And that company then notified them that the ventilation system and the hood system was not up to code and that they’d have to install two pieces of equipment, essentially an $8,000 fix, in order to get the space up to code.
So, you know, doing your due diligence on the space and knowing if you are going to be, maintaining the space as part of what you’re taking on in that lease, then, you know, definitely really understanding everything behind what that includes. And then I’ll say lastly, a lot of times, landlords will build in some sort of rent escalation over the years.
So maybe it’s a 2 to 3% increase per year. That’s standard. If the landlord is building in a 10% increase in rent per year or something more aggressive, then that would be a red flag for me too.
Crystal: Okay, retailers, you maybe saved yourself a lot of hassle and issues and money down the road by listening to these red flags, so that’s so helpful Patricia. Thank you so much.
Oh my goodness. I had no idea that those things existed. When it comes to location, what factors should small retailers prioritize in their decision-making process?
Patricia: So, I like to say choosing the right location is both an art and a science. And I say that with a lot of things in business because I think it’s true, like both factor in.
You know, I’ll say first and foremost, I think that a retailer should be aware of kind of the trends within that community. So what’s happening within the community? How’s the housing market going? How’s the job market going? What’s going on with the local economy? Are things on the uptick? And there’s, you know, lots of new families moving in, lots of new construction or, is there sort of a downturn where things aren’t going as well?
So that’s the first thing to be aware of is how strong is that community and what’s going on. Secondly, does your target audience live there? And if your target audience does not live there, then how far are they? And thinking that like, hey, you wanna sell to a younger demographic, maybe you have a baby store, and you’re selling products to new moms and locating your business in a community with senior citizens may not be the best move for you.
So how far is your target audience and would they be willing to commute for your store? And how hard would that commute be? Can you benefit from walk by traffic at the store or is it an isolated location where it’s really all on you to drive the traffic for that store? Something to consider as your thinking these things through.
And then I also would like a retailer to think about what kind of proximity do they have to the competition in the market and does that hurt or help them. So, as an example, maybe a bridal store might wanna be located next in close proximity with three other bridal store locations, right? Because when a potential bride is going out shopping for dresses, and they can make consecutive appointments, and they’re actually helping each other by having that close proximity.
On the other hand, there’s some categories where too much competition can actually oversaturate the market and none of them are gonna succeed when there’s too much competition in a in a really small area. The next element I like retailers to look at is any center data. So asking the landlord, “Do you have any demographics for your center?”
Now, if it’s a more traditional type of shopping center, like a lifestyle center or an enclosed shopping center, they might have this data, and some of that includes how much daily drive by traffic is there for the property. Some of the property owners will do an assessment of what’s the average dwell time of a consumer at a property.
We want the dwell time to be higher. The more customers are spending time at a shopping center, then the more likely it is that they might stop into your store and do some shopping versus a destination type center where if dwell time’s, you know, five minutes, somebody’s running into a store, grabbing what they need, and then leaving, versus an average dwell time of 45 minutes where customers are kind of perusing in the center for a bit longer.
And then let’s say no center data exists. The retailer can definitely Google what is the average household income in the market just to kind of get a sense of how much disposable income people have in the community. So, you know, just really grabbing whatever kind of center data you can or doing your own research to understand what the economics are of your community.
And then, lastly, I’ll say another huge piece of choosing the right location is market research. What do I mean by that? We encourage retailers, when they’re looking at space, go spend time at that location, go on a Monday, at 10:00 AM go on a Wednesday at 5:00 PM, go on a Saturday prime time, and you know, really take that location in.
Like, don’t just go for two minutes, like sit on a, a nearby bench. Spend time at that location and really understand what is the traffic flow at that location. Is it a weekend property? Is it, you know, there’s lots of workers in the community and they’re coming for lunchtime. Maybe it’s just a standalone store.
And so you don’t have this kind of walkthrough traffic, but you certainly could figure out what’s going on from a drive-by standpoint. And then, the other thing that retailers should do is research market rents in the area. And they can do that by checking out LoopNet or Googling properties for rent in their market so that they have some sense of if a landlord is quoting a price per square foot, how is this in alignment with other properties in the market?
And use that as part of their negotiation strategy. Super eye level. Those are some of the elements they should be thinking about as they choose their location.
Crystal: Yeah, I mean, you gotta do your due diligence. Take the time. This is, it’s a big chunk of your expenses every month. And it’s really critical too to the success of your business, especially if you’re gonna rely on that kind of traffic and being in the right place.
One thought I had too, just because I’m so in the social media world, is you can also use Facebook ads to research and you could drop the pin on where you’re looking for your store to be and put in your demographics and income, and Facebook will tell you how many people are in that area that match the demographics that you plugged in, so use that as a research tool too. You don’t have to pay to do that. You just go to ads.facebook.com.
But your point about like if there’s other bridal shops, it might make sense for you. I love that. I think we often think, no, my competitor, anyone that’s listening to this, you might be thinking could you be right next to the same type of store? Like it might actually be a really incredible opportunity. And then Patricia, I have the question like, what if somebody’s in a spot right now and they start doing their research now based off of what they just learned from you, and they’re like, man, we’re really not in the right place, and I think it’s hurting our sales, and they wanna get out of their lease.
I mean, I’m sure it probably depends and there’s a lot of variables, but is there a couple of tips that you can give for breaking a lease?
Patricia: Absolutely. So I do wanna back up to your Facebook comment because I think that’s huge. Oftentimes retailers don’t spend enough time thinking about how they’re gonna market their new location.
And so using that as a test to kind of see, “Hey, do I have a big enough audience that I can access through Facebook ads when I open up my doors?” Part A is understanding the local market and using that, and then part B is then can I turn on Facebook ads to use that to build my brand and build, you know, promote my new location.
So I think that’s a huge tool that you’re talking about that we haven’t used. So I’m excited to use that as part of the leasing process really. I mean, you know, I’m a huge fan of Facebook advertising and our clients use it all the time for the marketing piece, but I love the idea of integrating it as part of the leasing piece too.
In terms of lease termination, the first thing I would suggest that is, that the retailer pull out their lease and look at, there should be a termination section. So what are their rights as it pertains to lease termination? So it may say that they don’t have. Termination rights. It may say that. That it’s a three-year lease and only the landlord can terminate it, or neither party can terminate it. Or it might be that either party has the right to terminate with a certain amount of notice.
So let’s say that the lease says they have zero termination rights, then that’s where a real estate attorney can be very helpful. And I would suggest that they do sit down with their attorney and review it and see if there’s any opportunities.
The other thing is a lot of landlords are really understanding people. And so sitting down with a landlord explaining the situation and saying, Hey, you know what, when I got this location a couple years ago, I thought it was gonna be great. I thought my business was gonna build. Instead, my business is kind of gone in the other direction.
I need to look for a new location. Is there any way you can let me out of this lease with a certain amount of notice? Some landlords will, if they can find a replacement tenant. So, I would suggest that they have a conversation with their landlord after they first consulted their real estate attorney to understand really what is the lease language and how tight is that and if there’s any exits from a legal perspective.
If not, then I would approach the landlord and, you know, just see, um, have a conversation. Hey, maybe you can fill the space. Maybe they are, they’re allowed to sublease the space, and that would be another way that they could exit out of it as well. A lot of leases don’t provide for that, but you know, each one’s different. So it’s worth explaining.
Crystal: Okay. Well, and like you’re saying, it doesn’t hurt to ask. I think just really sharing the story. I did this when Covid happened. We had a location in Carlsbad, California. Now we can be remote and we were remote, and I decided let’s have an office. And I saw what was happening in Italy and I felt like we’re gonna have shutdowns. So I got ahead of it and I actually contacted you and was like, how can I get out of this? And you gave me a look at the lease. And so I talked to the landlord and he was like, oh, you think there’s gonna be shutdown? We haven’t even talked about it. Well then sure enough, like the next day shutdowns and he said, you know, we are gonna give 40% discount to all of our tenants and you don’t have to pay it back.
That I thought was so cool. To your point of nice landlords, I had a really good landlord. I know that wasn’t the case for everybody. They had to pay it back or they didn’t get those discounts. But then he said, um, you’ll be at the 40% and I’ll try to fill it for you. If I can sublease and if I can get somebody else in, you’re out.
It wasn’t even a sublease and he got somebody within two months I think, which was awesome. So, such great tips. It really is worth it to look at the lease agreement and have those conversations if you really don’t feel like you’re in the right spot.
Patricia: And let me also add that sometimes it’s not like all or nothing, right? It’s not like, okay, that’s it. It’s not working. Maybe you sit down with the landlord to your point and you work on a new negotiation of what the price is. So it’s a considered a rent reduction. And we do a lot of that with our clients. We had a woman that we work with who operates a coworking space.
And unfortunately, when she did her initial budget, it was a brand new business. She’s very optimistic on what her sales were going to be. She thought her margins were gonna be super high, but her business model required a lot more marketing than she ever dreamed when she put together her initial plan.
We all know as business owners that can sometimes happen. You overestimate sales and underestimate expenses. So, a year into operating her business, she came to me and said, “Hey, I’m just like really struggling. This rent payment is 30% of my total budget. My numbers aren’t working and I don’t really know what to do.”
So, um, worked with her to meet with the landlord. And in that particular situation, given how her lease was set up, there weren’t a lot of options for her to terminate the lease early, and she made a lot of investment in improving the space. So she was really motivated to try and figure out something she could do with the existing space and existing landlord since there was this investment in, um, setting up the space for her business. So we sat down with the landlord, presented her budget, and we were able to negotiate down her rent pretty significantly. It was about a $5,000 savings per month, which was a big, big savings and really helped her to get her rent in control.
And kind of change her economics for her business. So there’s always an option. The landlord was so friendly, so nice, he didn’t wanna lose her as a tenant. He felt like she was an ideal tenant, maintaining the space beautifully. And paying her rent on time and he could see where her numbers didn’t work.
And you know, that was it. He worked with her. It was wonderful.
Crystal: Oh, that’s awesome. Such good tips. Okay, so this goes perfect into what we are talking about. Can you share any strategies of how small businesses can save money on rent without compromising their store’s location or quality?
Patricia: Great question.
So how we like to conceptualize rent is there’s kind of the rent model, I guess you would call it, is there’s these levers, and I think there’s three major levers on any rent negotiation. So the first one, and this is again, you know, typical, what the typical lease looks like. There’s always exceptions.
Some landlords, it’s just base rent and that’s it. But on a typical lease, one lever is how much you’re gonna pay in rent. We call that base rent, but rent, essentially. Another lever could be, you might pay a percentage of your sales. So that’s another lever. And then the third lever is what we call extras.
So are you paying utilities, is the landlord paying utilities and you’re reimbursing the landlord. And who’s maintaining the space. So there’s these three main buckets. The base rent, the percentage rent, and then these other category, which is the maintenance of the space and the utilities.
So in terms of saving money on rent, let’s say you’re talking to a landlord and they’re looking for a certain amount per square foot, or they’re quoting you a certain amount. Here’s the amount we want for this space per month, and it’s just a straightforward rent deal. And you look at the number, you’re like, oh, this isn’t gonna work for my budget.
You sit down with the landlord, you’re like, look, this is still not gonna work for my budget and the landlord’s, I’m sorry. Like I have to hold, I need to get a certain amount for my space. I have a mortgage I have to cover for it. And, that’s it. I’ve seen deals break apart over that. But you can get really creative with your leasing if you know what you, what to offer the landlord.
And so there you might step into the situation and say to the landlord, look, how about we give you a certain amount in base rent and then a certain amount in percentage of sales? So what does that mean? That might mean that you’re gonna pay, you know, 3% of your gross sales to the landlord, or might mean that you’re gonna pay 8% of your sales after you hit a certain threshold.
A common one is called natural breakpoint, but there’s lots of different ways that the percentage, when the percentage of sales kicks in. So using percentage rent is another way where it creates a partnership between the landlord and the retailer and allows both sides to benefit when the retailer, the more the retailer’s doing in business, the more the landlord’s making.
And, we’ve seen that lever help deals get over the finish line that wouldn’t have. With just the base rent alone. Another point of negotiation that retailers can use and that we do use for a lot of our clients is when they’re making physical space improvements that actually improve the value of the space.
So, this of course is very subjective. We’ve also been a landlord ourselves, and as you know, Crystal, my husband and I really believe in owning commercial properties and residential properties. So in one of our commercial properties, we had a tenant come to us and say, oh, I’m gonna paint the space and we got all excited.
Little did we know, this is kind of early on in our career as being landlords of commercial space, and he painted the space bright, yellow and red, like five coats. So, that was not considered an improvement for us. And actually, after he moved out, it took at least five coats to cover that back up.
So, you could definitely debate over what’s a space improvement in what’s not. Typically speaking paint is not really a space improvement, even though it does cost the retailer money to get the paint on the wall, whether it’s through their own sweat equity or whether they’re paying a painter.
But some of the space improvements I’m talking about are, maybe a space is raw space, which is where there’s no flooring and it’s only subflooring. So the retailer says, “Hey, I’ll come in and put down the flooring in the space.” That would be considered an improvement to the space. Or maybe, the outside of the space hasn’t been well maintained.
It’s gone for a little while. And the landscaping is falling apart. So the retailer says, Hey, I’m gonna invest, you know, $1,500 in bringing in some professional landscaping that would be considered improvement in space, or maybe they’re gonna put new like seal the parking lot and so the asphalt will look better.
So you’d have to have a discussion, but the retailer could come forward and say, ”Hey, look, I’m looking to do X, Y, Z in terms of physical improvements on the space.” And a lot of landlords will consider that as they’re factoring in the rent because it’s increasing the value of their property.
And then there’s non-tangible benefits that a retailer can mention to a landlord that sometimes move the needle on a deal in a very surprising kind of way. So I’ll give a couple examples on that. We were working with a company, a retailer actually in the Texas market, and their business model is to bring in these electronic gaming events into shopping centers. And it’s a really cool concept. The events bring in thousands of people and they’re like in their teenage years. So this is a category that a lot of retailers wanna target this demographic. And so, they couldn’t quite meet the rent requirements on this space, but there are events that they were gonna be hosting.
In a very large space, about a 10,000 square foot space, we’re really gonna contribute towards driving traffic at the shopping center. So we’re able to use that as a selling point for the landlord on, “Hey, look, they’re really, really close in terms of the rent number, but you know what, this retailer’s gonna add a lot of value to the other retailers of the property because they do a tremendous amount of marketing and their events bring a lot of consumers that are gonna purchase food from the food court. They might purchase apparel. These attendees are also gonna have parents who might be hanging around the shopping center as well for eight hours on a Saturday. They’re bored, they’re gonna be shopping.” So we’re able to use some of those non-tangible benefits to sell the deal to the property owner and it got it over the finish line.
So for a retailer who does invest a lot of money in their marketing and it’s at a center where there’s other tenants who could benefit from that traffic that it’s going to be driving, that’s something that I encourage them. Talk about that with your landlord. There’s a real benefit there.
Crystal: Wow, this is fire.
This is so good. Oh my gosh. These are such great tips. I’m loving this. This is such an interesting question because yesterday Dustin and I looked at a property to pur possibly purchase and it’s a commercial building. And you know, we have ideas for this and I won’t get into all of that on this show, but what are the benefits, like some pros and cons of the retailer owning their space, right?
Patricia: So there’s so many pros, you know, I’m super pro real estate, but we will talk about the cons too, and we could make this a whole episode just in and of no kidding itself. So, you know, at some point we should do a deeper dive on this, but super high level, the pros are, I always believe it’s better to pay rent to yourself than paying to somebody else, right? So, real estate is a great way to grow your net worth. And, you know, I’m all about that. I talk a lot about that. So, that’s just in my mind like the number one benefit that’s really up there on the list. Secondarily, it gives retailers a lot of control.
So there’s gonna be no termination of their lease. There’s gonna be no relocation. They’re just in complete control of that space. There’s also a lot of tax benefits and I feel like that’s pretty high up on the list too. If they are buying the building, then there’s going to be depreciation on the building that they can use as a tax writeoff.
And if you don’t know what this is, I definitely would suggest that you work with your CPA to understand all the tax benefits of retail ownership. And there’s a lot of books out there that you can buy, just books on how to leverage tax benefits on real estate. So, definitely take a little time to learn more about that.
And bottom line is real estate shows that over time there’s appreciation on it. So if you have some time to own the property, then there’s the potential appreciation of your asset. That’s gonna make you even more money as well. So those are, you know, a lot of pros and we could keep going and make that list even bigger.
But let’s touch on a couple of the cons cause I think it’s important to understand those too. Real estate is a big investment that ties up a lot of cash and that tying up of cash, not only in what you’re putting down as your down payment for your mortgage but also just ongoing maintenance for the building.
And as a building owner, you know, we own a lot of different buildings. We know that there’s all these unexpected expenses that come up from time to time. So that’s like a continual cash resource that we need to maintain and upkeep the properties. So really I guess in terms of con, you wanna make sure that the building cash needs are not competing with your business’ cash needs.
Because we know that running any kind of retail business, there’s usually ongoing or service provider ongoing needs to invest cash in your business to keep it growing. So, you know, maybe for some real estate might be a better investment when you know you’ve got an established business with established cashflow and you can meet the cashflow needs of your retail business, but also meet the cashflow needs of your real estate business.
And that’s, you know, sort of high level where I would. Kind of caution folks, but ultimately we’ve been very successful through owning properties and we’re very appreciative of for that opportunity because it’s really helped us to grow.
Crystal: Yeah. Love it. Oh, awesome. So good. If you can get that building. Get that building.
Crystal: Yeah. Lastly, could you share a success story of a retailer who you helped to effectively negotiate their lease or expanded to new locations and the lessons we can draw from it.
Patricia: So one of our retailers that we started working with had one temporary retail location, and by temporary, I mean there’s something called a license agreement in our industry.
And oftentimes, landlords will use this type of instrument when it’s a shorter term deal. So instead of putting the deal on a lease, which can be a 30 page document, for some landlords, they’ll use this license agreement, which is kind of an abbreviated version of a lease. So we met this retailer when they were operating with one license agreement in one shopping center out of Connecticut.
And they were looking to build their, their store locations and just said, “Oh, we’re so glad we could work with Blue Butterfly. Can you help us grow our strategy, you know, we wanna go all across the country and we wanna go national.” So, I do wanna back up to something that you said earlier that ties into this.
You know, we talked about the art and the science of finding your right location. I mean, really, at the end of the day, to me, your location is just as important as the products or services you sell. So this one decision alone, you can have the most awesome products in the country and if you do not have the right location, that can absolutely break your business. So I just wanna really hone in on how important your location decision is to the success of your business.
So they knew that they were gonna be making very critical decisions and next steps. They knew they wanted to grow on a national scale but didn’t know how to create that strategy to grow all across the country.
So they started throwing out locations. “We wanna be in Chicago. We wanna be in Austin, Texas. We wanna be in California.” Throwing out all kinds of A+ shopping centers. What we said to them is, that’s great. We do wanna help you build a national strategy, but let’s build it in a way that makes sense that also ties in with your logistics and operations so that we’re not just, you know, going all across the country. You’re opening a store in California, then you’re flying to Miami to open the next door, then you’re going to Chicago. And how is that all gonna work from a warehousing standpoint, from a logistics standpoint?
So building out territories and launching in more of a regional way and really taking time to understand what that strategy is behind their launch and choosing the right locations, understanding their target audience, getting locations that align with that. And it’s been really fun to work with them.
They’re up to 30 locations now and they’ve just done a huge round of fundraising and really, they’ve grown so substantially. We’re so proud of all their efforts, and it’s been exciting to be part of that in helping them to get these a plus locations across the country. So you know, I’ll say that the lesson from that story is really building a strategy that works best for your business and ties in with your overall operating strategy instead of just locations that sound really great, but there’s no rhyme or reason to why you’re choosing them.
Crystal: Mm. Great advice. And that has to be really cool to see him go from one location to 30. That’s awesome. Okay. Are you ready for the resilience round?
Patricia: I’m ready. Let’s go. Bring it.
Crystal: Ok, let’s go. Best business book?
Patricia: I’m gonna say The Millionaire Next Store by Smith and Stanley.
Crystal: Awesome. Best retail technology like an app or software?
Patricia: I’m gonna go with Google because you can find almost anything when you search for it online and as it pertains to leasing, it’s your friend. Google, you know, spaces for rent, do the market research, and utilize Google. It’s right there for you. Make sure that’s part of your strategy.
Crystal: Awesome. How do you keep up with the ever-changing retail landscape?
Patricia: I am a huge believer in getting the newspaper delivered to our door every single day. Yes, we still reprint even though we embrace digital. So we get the Wall Street Journal every single day. Helps us to stay in touch with macroeconomic trends, which I think are a super important part of the retail landscape.
It helps us to understand which big box retailers are expanding and why, which big box retailers are contracting, and why. New retailer concepts are talked about all the time. On top of that, love attending conferences, and of course, I love your podcast and follow that to make sure that I’m staying up to date on all the latest retail trends.
Crystal: Yay. Love the plug. Thank you. Because retail is ever changing. How do you recharge your batteries?
Patricia: For me, working out is a huge part of creating mindset, mind space for myself. So for me, going on my morning run or morning bike ride is really how I can make sure I can be there and available every day for top notch negotiations for our clients.
Crystal: Love it. To help retailers be stronger, rooted in success, what’s a leasing foundational best practice?
Patricia: I’m gonna say do not do everything yourself. Invest in hiring the attorney. Invest in making sure you have a really great CPA. Have a retail advisor, work with other people, and build a team around you so that you have a team of resources and you can benefit from all of their knowledge.
Crystal: Mm. So good. Finally, what do you think the future of independent retail looks like?
Patricia: Bright. At the end of the day, people, you know, love to go into stores, touch, feel, try, buy, and I think that we’re losing in terms of big box stores, we’re losing that customer service experience and independent retailers can offer that.
They offer curated retail as well, and I think people are overwhelmed by all the choices. At big box stores. So if you can walk into a really cute apparel store and you know that they’re, they’ve curated all the top retail trends and the store owner maybe knows you by name and can help you find some outfits for a specific occasion, that is totally different than walking into your big box store.
I walked into one the other day, clothes were just heaped on the floor. How am I supposed to find an outfit for my next event when there’s nobody to talk to? The store is a mess. And so I just think there’s a huge, huge opportunity for independent retail, because there’s that lack of customer service with big box stores and because now the, um, playing field is really being leveled with platforms like social media where retailers, you know, Bob was just talking about this on his podcast, instead of just being a local retailer, you can now be a national retailer through TikTok or Facebook or Instagram.
Patricia: The opportunities are endless to promote your business on a national scale.
Crystal: Yeah, it’s so true and I couldn’t agree more. The future is so bright. Patricia, how can retailers contact you if they want more information for their location expansion, their leases? What’s the best way?
Patricia: I would love for them to go check out our website at bluebutterflyllc.com.
bluebutterflyllc.com, and we’d love to have a conversation. Let us talk about growth strategies or their current lease, or what they’re looking for as they’re evaluating their next location opportunity.
Crystal: Beautiful. And we’ll link to that too. Patricia, thank you so much for your wisdom and insight and tips and time today. I so appreciate it.
Patricia: Thank you for having me.
Crystal: Awesome. Everyone remember that I’m rooting for your success. Have a great week ahead. Bye.
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