Did you hear?... Renegotiating leases key specialty strategy used to bump up Rack N Road’s bottomline

In this turbulent economic climate, all retailers would be wise to take a page from the advice book of Greg Bauer, co-owner of eight Rack N Road stores (www.racknroad.com) in California, Washington and Utah: Look under the rocks for any expense reductions. For Bauer, one big opportunity to shave costs was reducing the amount his businesses were paying in leases.
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In this turbulent economic climate, all retailers would be wise to take a page from the advice book of Greg Bauer, co-owner of eight Rack N Road stores (www.racknroad.com) in California, Washington and Utah: Look under the rocks for any expense reductions.

“So many people are walking down the riverbed right now, and not looking under the rocks,” Bauer told SNEWS®. “You have to look under the rocks if you want to find hidden opportunities.”

For Bauer, one big opportunity to shave costs was reducing the amount his businesses were paying in leases.

“If, as a specialty retailer, your rent factor is over 10 percent, you have a massive problem looming,” said Bauer. “Paying $100,000 in rent on $1 million in sales is flushing your margin away. Retailers need to use this information, and go to their landlords with open books to ask about rent reductions.”

Bauer, who calculated that some of his stores were in excess of 10 percent, went to his landlords and said, “I need your help.” The responses he received were perhaps surprising to some, but not to Bauer.

“The landlords are thinking long-term too. If they lose a retailer as a tenant, in this climate, who are they going to fill the space with?” Bauer told us.

Bauer ended up negotiating a savings of about $120,000, approximately a 20-percent cut, from his annual lease totals. He was also able to exit a lease in an underperforming store three years early, something that he did not expect.

“The ways landlords worked with me varied, with some agreeing to sliding scales where my rent is lower in slower months, higher in traditionally more profitable ones and others simply agreeing to rent reductions as much as 50 percent,” said Bauer.

Bauer noted that most of his landlords have owned the buildings where he leases for over 20 years, and many of them have their properties fully paid off, which made it easier for them to be more flexible with terms.

His search under rocks for places to trim expenses is not limited to rent control, he said.

“I have been and continue to go through every expense line, and I pick up the phone and talk to anyone I owe money to,” says Bauer. “It never hurts to ask, and if you ask nicely, all they can do is say no.”

Bauer says he is working with everyone, including his vendors, to ensure his business remains a healthy partner to do business with – for his customers and those he is a customer of.

“I would say that I have managed to hit 97 percent of what is possible in terms of reducing expenses, and as a result, I am not nearly as stressed about the economic climate as I once was,” Bauer told us. “My sales numbers are certainly better in the last few months, an indication the market may be turning…slowly. But either way, there is a saying that ‘great businesses are built in down markets’ and I believe that.

“Since I am able to run my business profitably and lean, with an eye to keeping all expenses in check,” he said, “I believe we are poised for even greater success when the market does turn around, which it will.”

--Michael Hodgson

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