Introduction
“The white elephant in the house”, a simple way to describe rental charges in a retail business model. The most expensive part of the entire “Opex” calculation is the rent of premises and likewise given utmost priority and emphasis on Rent Negotiation tips.
Post-COVID era, it is predictive that your sales will be going drastically down as low as to 40% compare to expectation if not less due to low footfall. Further, the market recovery is not seen any sooner than a period of 12 months from here.
So, for any retailer relooking and reworking of the rental part is extremely important to be alive in the game. The game of retail will be even tougher from here onwards for the next 12 – 18 months at least.
Rentals that way need a re-negotiation with the landlord and need a laser eye approach while signing a new property. Let’s discuss the 6 best Rent Negotiation tips or ways to do that:
1. Be Prepared in advance before the Negotiation
Pl, read and study about the Property in advance if you are looking at hiring a new space.
Collect information from previous tenants, the sales they use to do, and the reason they left.
Taxes applicable & rebates in GST or any local charges like Society Maintenance charges.
Yearly donations if any (in some metro cities, especially at the time of festivals it’s a huge amount you have to pay for these activities).
A related survey of surrounding Brands in the area and their monthly sales figures will give you a fair idea of the sales potential of the respective market.
2. Check with the landlord for a reduction in rent amount
Start the discussion with the current scenario of the Post-COVID era, as it is predictive that numbers will be going down badly, and getting previous sales figures is most likely impossible.
Explain to him about the predictable shortage in expected visitors to the store/shop.
Courteously ask the landlord if he is willing to renegotiate the rent prices and when is a good time to talk would be.
If you’re facing a rent rise instead, surprise the conversation by giving an offer of at least 50% or even less to previous rent.
Give an example of success stories from other brands or from your network where any good rent reduction deal has materialized.
Go with proper sales data of the past 2 years at least, as it is important to match the rent to revenue ratio for better clarity
3. Explain the Importance of your strengths as a tenant
Highlight & play hard on your strength & importance as a tenant for him.
Speak about the best in class Brands you do retail for and the quality and value addition you add to his rental place.
Your employee treatment & attrition rate of the past few years shows how stable and efficient retailer you are and a suitable long run candidate.
Your past regular rent payments & what a reliable, responsible tenant you’ve been. It can help prove your worthiness and give them an incentive to keep you as a tenant longer with some compromise.
Advantage of Future property rate and reputation escalation if existing tenants are lasting the premises for long.
You can also display you’re a stable tenant by offering few months of rent in advance or signing on for a longer lease which allows the landlord to save money in the long run without worrying about the lapse period if he looks for another option.
4. Prepared Commercial Analysis in advance before Negotiation
Prepare ROI sheet (Profit & Loss calculations) for the property with expected sales figures for the next 12 months. Pl read this post – Calculate the ROI of the store.
Prepare 2 -3 scenarios of the expected loss of income (ROI) working with 100%, 60%, 40% rent decline per month.
Prepare expected rent to revenue ratio for the next 12 months by considering precise and practical sales figures.
Examine all possible expenses while you calculate new break-even sales like staff requirement, Electricity expenses, Misc expenses, Credit card expenses, etc. Be ready with your Retail Math
This entire exercise will give you a fair idea of how much rent per month will be a survival point & what amount will be an anchor point of negotiation.
5. Drive the Negotiation
Negotiate directly to the point with pitching the anchor amount (least possible rate) in the start itself.
Negotiations generally work best when done face to face, during times like these, you can have the conversation on the phone or video calls app.
Remain calm, polite, and professional during the meeting – never be impolite or apologetic.
Follow up the meeting chat in writing within 24 hours with a brief email of Minutes, thanking them for the meeting and restating your proposal.
6. Be ready with a backup plan a major Rent Negotiation tips
You have to decide if you’d be willing to pay the current or higher rent just in case the negotiation doesn’t go as intended.
If you’re looking for a hard negotiation for an existing place, like an absolute one-way acceptance then you should have more than one option in mind as “more will be the options less you will be worried”.
If it is not working out commercially to pay the existing rent, it’s a good idea to start exploring new premises as there is no point swelling your ass out to make money for someone else.
In case you agree to stay with mutually agreed compromised rate and ready to pay more each month, you can request property refurbishment at least to make the deal increase more on your side, such as repainting the walls, revamp the façade, new lights, refurbishment, sprucing up parking area, New Signage request, Free insurance, reduction in lock-in period, etc.
Bonus Rent Negotiation Tips
- Show them that you are worth more than just money but an asset.
- Anticipate the needs of your Landlord in advance
- Be creative with your approach and develop an emotional connection before the discussion
- Prepare the agenda a month in advance by initiating discussion or giving the sign of rent rebate.
- Download the scenario from two or three different surrounding networks.
- Be ready to do compromise if the location is really good and you don’t have an option
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Great read