AboutJames E. Dion Expertise Most questions about trends in specialty retail, how customers are changing both in the US and Europe. Demographics for all countries as they relate to retail trends and issues. Store Operations, Buying and Merchandising.
Experience
Past/Present clients Microsoft, Harley-Davidson, Ritz-Carlton, Hummer, Ace Hardware, Coleman Spas, Aldo, Intel, Dell, Safeway, New Balance, IBM, Kodak, Bata International, Nortel Networks, Honey Baked Ham Co., Man Alive, Highsmith
B.S Chicago State University
M.S. Chicago State University
PhD (abd) Illinois Institute of Technology
Expert: James E. Dion Date: 1/18/2008 Subject: cost of lease and % of sales
Question Ok so I'm in the process of completing a business plan for retail childrens store. I have looked at leasing a space that would be 36% of my sales in the beginning. I have read that your lease should not be more that 8 to 9% of sales.We may be able to reach 12 to 15% of sales in the future. Is the 8 to 9% rule breakable?? Our lease price is cheap compared to other locations right across the street. I could find a cheaper lease, but I doubt I would get much foot traffic, it would be in the dying downtown region. What are your thoughts on leasing price vs. Sales?? Thanks!!
Answer Julie,
There is no way that 36% is acceptable. You will set yourself up for bankruptcy in a very short time. The "average" maintained margin for a children's store is in the 42% range. If you spend 36% on rent, how will you afford to pay employees, advertise, pay for utilities, pay for supplies, pay for insurance and all your other expenses. Are you sure you are doing the calculation right? Your total rent for the year divided by your total sales plan for the year. If you are using this formula and you still come in over even 15% then something is seriously wrong. Your sales plan my be too conservative or the business may simply not be able to support that size/location of store. Do not sign a lease with that high of a percentage of your sales.
