We are completing our due diligence on a small "OFF-PRICE" apparel business. Through the process it was disclosed that the owner of the property will be raising the rent when the lease expires in 6 months. Since the current lease was 5 years the rate of increase is substantial. As such we are considering moving the business and have found a better property just a couple miles away in a very busy retail center anchored by a couple of "Majors" My question is this:
One of the anchors is similar to our operation and we share some brands. Is it a good idea to place a small business near a major? The two schools of thought are: We will benefit from their traffic, but the other is that their customers will ignore us altogether and perhaps siphon off ours.
Your thoughts please
Answer: This is the million dollar question. Personally, I am against any business relocation immediately after an acquisition if it's the type that relies on location to drive the revenues. As you know, the three most important factors in determining a retail operation's success are: location, location, location.
This is a very difficult situation. My first preference would be to try and negotiate a reasonable lease extension with the current landlord. Keep in mind that the cost of a move alone may wipe out any first year lease savings or more. As well, it has been proven over and over again that businesses that undergo big changes with a new owner usually go under altogether.
Plus, there is absolutely no way to predict what will happen in the new location. The anchor tenant may not have any impact on your business or, they could be terribly detrimental. If the business has a loyal clientele, will they follow you to the new premises? Moreover, will a move instill the perception in your clients that the business is no longer the same with new ownership?
While I wish I could gaze into my crystal ball and tell you what to do, that is simply not the case. I think you need to take a very hard look at what the consequences of a move can be. As mentioned, drastic initial changes usually are met with poor results. If forced to suggest anything, it would be to try to work out the lease in the current location. As the old saying goes: "The devil you know is better than the one you don't."
|Get more expert advice in Richard Parker's How To Buy A Good Business At A Great Price - the most widely
used reference resource and strategy guide for buying a business.
|Richard Parker is the author of: How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center.|