I'm investigating a business housed in a mall. What do you guys think of these lease terms from the mall?
Rent Fee - Monthly Gross Sales Rent Percentage
0 - $25,000 2%
25,501 – 41,667 7%
41,667 – 50,000 9%
50,001 – 58,334 10%
Utility Fee: Includes, lights, electricity, gas, water, HVAC
Monthly Gross Sales Utility Fee
$0 - $33,334 $ 850
$33,334 - $50,000 $1,250
I cannot provide any comparative data. I do not know what mall leases are running for in your area. Besides, any info I provided would be useless. The "value" of that location is going to depend to a very great deal on how busy a mall it is. If the mall is a magnet, and brings tons of customers, it may be worthwhile. If the mall is dead or dying, or inappropraite for your products and merchandise, its a looser. If you are located in an Airport mall, will huge traffic levels and good sales, an expensive lease may be justified. if you are located in a dad mall and have a very low lease cost, even that low cost might be too much....
The question really should be: "will this store location, in this mall, with this amount of traffic and this demographic provide the kind of sales required to justify the lease and utilities I will be paying?"
The next question should be "will this mall improve, remain stable, or decline over the course of the lease?" What happens if the anchor stores bail out??? Do you have an out?
The next question is this: What are my intended margins? If you generate $100,000 monthly in sales but only make 15% in margins, this lease sucks. You'll be giving 12% to the mall. If you are going to run a high margin item (jewelry?) that generates $10,000 a month in sales, but has 65% margins, this lease is a bargain.
I am unfamiliar with mall lease terms. If its a fixed % of sales, that helps when sales are down. However, make sure you are in a decent margin business if you are going in under those terms.
My accountant told us that she had several clients who put out of business by that type of lease and advised us never to sign that this kind of lease. Just how optimistic do your projectios have to be to make your a success? Unless you are a roaring success, the story of your business will be; you take the risk, landlord takes the profits.
Unless you have a number of stores from whose operation in this type of mall you can project healthy margins above the landlords share I'd run away.
Actually, I think you need to re-evaluate your entire position. You really need to be a little more sophisticated in your approach and the level of experience you bring to a new business. If you don't have it yourself, find it somewhere-and in someone else. Try to find something like a local SCORE (Service Corp. of Retired Executives) or other small business supprt organization in your area. Network in ways that will bring you to people who may have the experience you need.
Have you asked the Mall management for recent demographics and foot traffic reports? Did you ask for a video of the last months foot traffic so you can see for yourself? Have you spoken with other owners, and filtered out the rosy talk designed to draw you in to help their store? Is the Mall in the center of town-and the new freeway bypass under construction?
Seriously, pull back and re-evaluate your position if this is where you are. You have to really know your market and your business to have much control over how successful you will be.