The Dangers of "Rent-Hopping"
by: Jason Gober
Just two weeks ago, my favorite restaurant relocated when their lease ended. A new shopping complex filled with all of the corporate giants opened across the street, and the owners of the smaller strip mall, where this restaurant and many other local independent businesses are located, are now asking their tenants to renew at FOUR times their previous lease rate. Never mind that these had been loyal, local tenants offering great products and services for years. The increased traffic due to Corporate America's latest shopping complex “justified” the increase in rent. In the business world, this is known as “progress”.
The owner of the restaurant is doing great, at a new location about an hour and a half from my office. I'm happy for him, and his new customers, but my weekly trips are now monthly. I'm sure that most people aren't willing to make the trip to the new location. And I received a valuable lesson in “Rent-Hopping”.
Truthfully, that's just the name I came up for it, but we've all seen it. Your favorite restaurant, boutique or dry cleaner has a sign up with something to the effect of “We're Moving! Be sure to visit us at our new location!” And with a little luck, things will turn out fine, like my friends at the restaurant. But it doesn't always work out for the independent business owner.
I understand the theory: The big-box corporate “anchor store” drives traffic to its location, benefiting all of the surrounding businesses. All of the businesses, because of the traffic, increase in value. Due to this increase in value, the land itself becomes more valuable as well. Therefore, the rents for the properties (and the small business owners) increase. An added bonus to the anchor store (that they didn't need) is sometimes several years of tax relief, one more thing the independent business owners don't receive.
Sometimes, things that look good in theory don't hold up in the real world.
If you're Applebee's, and your rent goes up four times, fine. They can take the loss (if there even is one) and the other 1000 units can pick up the slack. If you're Al's Diner, you're not so lucky. You get to write off the extra expense, if you survive. But your survival is going to depend on cutting costs elsewhere and increasing prices, and your customers may not deal with those cuts and increases.
Chances are, the cutbacks and higher prices will send Al's loyal customers to Applebee's. After all, with thousands of units under the same umbrella, they don't need to increase their prices or cutback, like Al did. So Al and all of his independent counterparts move somewhere more affordable, or close altogether.
Of course, if you move, you're running the risk of another “big-box economic revival”, going though this all over again. I know a guy out in Kansas who has managed to keep his clothing store open for 29 years. He's been a tailor all of his life, and it has been a life of moving and starting over. He is at his sixth location and already scouting a seventh. You never know when the big guy is coming, he tells me.
The small, independent business owners are running out of places to go. In every major metropolitan area, the busy intersections are identical. Wal-Mart, Home Depot, Target, or Lowe's surrounded by McDonald's, Applebee's and Taco Bell. For our communities, this is identity-theft, Corporate America style. It motivates me to drive an hour and a half to my favorite restaurant. If we are each willing to make a sacrifice like that, we can help small, independent business owners and most importantly, our communities. If we aren't willing, Corporate America will continue to run our favorite restaurants, clothing stores, and specialty stores out of town, with help from our local governments, all in the name of “progress”.
About The Author:
Jason Gober is the owner and founder of Independent Business Online (www.myibol.com), provider of small business Internet services including domain names, web design, web hosting and Internet marketing.
jgober@myibol.com
March 2006
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