Lease Management

10 Tips to Negotiate a Retail Lease in your Favor

10 Tips to Negotiate a Retail Lease in your Favor 1440 428 ASG

Where you establish your next brick-and-mortar store will significantly impact your retail profit margins. There is no doubt that a poor location leads to slow foot traffic, bottoming sales, and store closures, but even an excellent location does not guarantee success. There are other factors to consider, and one that should be discussed as diligently as location is the retail lease. These ten tips will help you ensure that a retail agreement is in your favor.

1. Determine your budget

Do not try to stretch your finances too thin in the hope that sales will make up for lost margins. Your budget should be non-negotiable, and your discussions should only be with landlords that have spaces within your price range.

2. Separate your wants from needs

Budget may not be a negotiable aspect of the agreement, other than trying to lower the rent, but you can determine your retail space needs in advance, as well as those items on which you can compromise. Have a few bargaining chips ready and understand that while it would be nice to have everything on your list, some items may not be necessary.

3. Decide on the desired lease length.

Landlords have traditionally preferred long-term leases, offering cheaper rent in exchange, but with the influx of pop-ups and the demand for short-term leases, retailers have more flexibility. There are options to meet short- and long-term leases, so decide before the negotiations what term length your business will thrive on.

4. Have options

You should never put all your eggs in one basket. It is completely acceptable to negotiate more than one lease, even if you only plan on opening one location. This gives you an extra bargaining tool, as well as the ability to walk away if negotiations are not in your favor.

5. Prepare to barter

Never accept the initial price offer from the landlord. The asking price is deliberately high because they expect retailers to aim for a lower price. Start low with your initial bid and work towards a middle ground.

6. Beware phantom space

Measure the square footage of the retail space that you are considering for rent. Previous renters may have rearranged the space to suit their purposes, changing the available square footage, or landlords could be exaggerating is the size of the space offered.

7. Allow for mistakes and changes.

Measure the square footage of the retail space that you are considering for rent. Previous renters may have rearranged the space to suit their purposes, changing the available square footage, or landlords could be exaggerating is the size of the space offered.

8. Push certain responsibilities to the landlord

There are matters of renting a retail space that should stay in the hands of the landlord. A broken HVAC system can drain your finances considerably, as well as costs associated with whatever adjustments you must make to the space. You can incorporate a fixturization period into the lease, where the landlord waves rent and utilities for a month in exchange for creating an updated space.

9. Consider the perks

Once you near the end of the retail lease negotiations, you can return to the wants that you set aside from the needs earlier in the discussions. Employee parking and Wi-Fi can be expensive and can be arranged as free perks in the lease agreement.

10. Ask for legal assistance

A poorly negotiated lease can drain your business financially. When in doubt, never hesitate to solicit the skill of a retail real estate expert. They can ensure that the final lease offers the most opportunity for your business’s success, and that there are no loopholes that you could get caught in. Location is important, but the retail lease agreement is crucial to how well your business fairs in the space provided.

4 Ways Retail Leases Must Change

4 Ways Retail Leases Must Change 1440 428 ASG

Across virtually every industry, big data is being favored as the must-have to drive strategic company-wide initiatives. The retail industry, particularly in terms of real estate, must be willing to utilize critical information that can have a massive impact on decision-making related to marketing and location. Businesses must move in ways that are parallel to how consumers are moving, and there is only one way to effectively do so: big data.

The retail real estate evolution is here, and retail leases must change to reflect this. Ignoring the overwhelming change that is occurring will harm both landlords and retailers. Core functions of retail strategy, such as leasing, are historically conservative, but for retailers, innovation is essential, and lease language must reflect the changes retailers are making to meet the needs of their consumers. Retail leases must consider these four areas:

Smaller stores have more potential.

Retailers are no longer interested only in square footage. More space means higher fixed costs. Today’s savvy omnichannel retailer often needs less space; consumers do not need hundreds of aisles to roam when an iPad with overnight shipping is placed conveniently in a smaller setting filled with touchable displays. Smaller stores offering a more personal experience to the consumer who wants to be considered an individual – not a number – will thrive.

Pop-ups are popping up everywhere.

Retailers of all kinds are seeing the benefits of the pop-up store; neglecting to include this retail lease option leaves landlords unable to compete for new business. Long-term tenants used to mean security, but if you insist on a long-term lease, you may end up with space that simply sits empty. A pop-up lease offers benefits to both parties, as costs can be negotiated monthly. Perhaps a retailer simply wants to create a buzz about a new product but does not want a permanent store. Another could be considering a location but desires a test-run before signing a long-term lease. With clauses in place that protect the interests of everyone involved, the pop-up lease is likely to become more common.

In-store sales have less importance.

Traditionally, the cost of the retail lease is based in part on a percentage of profits. However, with the significant shift in the measurement of KPIs, basing lease costs on sales is no longer the most strategic approach. Some retailers are piloting stores with inventory for customer viewing only, directing consumers to make purchases online. Other retailers are offering a space for patrons to simply meet with other coworkers and are not demanding a sale. With the growing trend of delivering experiences, with purchases being made between multiple platforms, a lease based on profits per location is no longer applicable.

Usage is always fluctuating

The language of many leases includes specifics (like operating hours) and outlines the approved usages of the space. With the retail landscape shifting quickly, such language is outdated. An innovative retail lease should include language that allows the retailer to be flexible to meet the needs of the consumer.

Consumers are demanding an innovative approach from their retailers, and for retailers to deliver, landlords must adjust leases accordingly. A retailer’s efforts to retain and grow their customer base, improve brand loyalty, and remain profitable require nimble flexibility, and lease language needs to be drafted accordingly. The inability to be flexible with the lease language can result in empty space.

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