08-19-2016, 08:22 AM
Whether you are running a store or a restaurant, when you are calculating return on your lease payments you need to focus on return per square foot.
The best example of this is a used furniture store. Lets say you want to sell a couch. It is 8 feet long and 3 feet deep. Considering that you need room for people to walk around it, plus space to present it in an uncluttered manner, the 8x3 couch needs an absolute minimum of 12x5 feet, or 60 square feet. If your lease is $2 sq/ft, it will cost you $120/month to offer that couch for sale. If the couch is for sale for $200 and you don't sell it for two months, you lost $40 on the couch just in RENT. Not counting acquisition cost of couch and other business expenses.
If you run a store or restaurant, when determining how you are going to pay your square footage, you have to consider how much money you can extract per square foot and that drives the products you offer. In one business we ran, the most profitable real estate we had was the gumball machine. It took up nearly exactly 1 square foot of space and returned several times it's expense in profits and didn't require any employees to complete a transaction. AND, it saved us trips to the bank to acquire quarters for the cash register. A real value-added product that gumball machine.
As for grocery stores, my hats are off to them. High rent, the requirement to refrigerate or freeze huge portions of that already high rent, products that lose their freshness and have to be thrown in the trash, shoplifting, high labor costs, high regulation costs... How they can sell a dozen eggs cheaper than we do on the farm is practically a miracle. The only thing they have going for them is guaranteed EBT dollars and the fact that everybody has to eat. Oh... and they probably make much of their profits in liquor sales.
The best example of this is a used furniture store. Lets say you want to sell a couch. It is 8 feet long and 3 feet deep. Considering that you need room for people to walk around it, plus space to present it in an uncluttered manner, the 8x3 couch needs an absolute minimum of 12x5 feet, or 60 square feet. If your lease is $2 sq/ft, it will cost you $120/month to offer that couch for sale. If the couch is for sale for $200 and you don't sell it for two months, you lost $40 on the couch just in RENT. Not counting acquisition cost of couch and other business expenses.
If you run a store or restaurant, when determining how you are going to pay your square footage, you have to consider how much money you can extract per square foot and that drives the products you offer. In one business we ran, the most profitable real estate we had was the gumball machine. It took up nearly exactly 1 square foot of space and returned several times it's expense in profits and didn't require any employees to complete a transaction. AND, it saved us trips to the bank to acquire quarters for the cash register. A real value-added product that gumball machine.
As for grocery stores, my hats are off to them. High rent, the requirement to refrigerate or freeze huge portions of that already high rent, products that lose their freshness and have to be thrown in the trash, shoplifting, high labor costs, high regulation costs... How they can sell a dozen eggs cheaper than we do on the farm is practically a miracle. The only thing they have going for them is guaranteed EBT dollars and the fact that everybody has to eat. Oh... and they probably make much of their profits in liquor sales.