newsletter

Nathan’s Closes in Palisades Mall (Who Cares?)
Retailers Cut Back on Variety, Once the Spice of Marketing
Get The License Plate Number
Contacting pcAmerica

Nathan’s Closes in Palisades Mall (Who Cares?)

I thought this was pretty interesting and am hopeful that some of our readers will offer some more facts and opinions related to mall rents.

The Palisades Center Mall is within a few miles of pcAmerica and is the second largest mall in the United States with more than 400 stores.

Nathan’s is one of the quick service restaurants located in the food court. It was one of the earlier mall tenants and has been open for more than 10 years. They were open last Monday and closed on Tuesday.

According to what I heard from other tenants, their rent was raised from $22,500 per month to $30,000 per month. That’s a lot of rent for a relatively small fast food establishment.

If Nathan’s had sales of 2 million per year, that leaves about 1 million in gross profit. Subtract about 25% or $500,000 in payroll and they are left with $500,000. Subtract $360,000 for rent and that leaves $140,000. Take away insurance, accounting expenses, telephones and other expenses and the owner (not included in payroll above) is left with about $10,000 in profit for the year. That’s hardly worth the effort.

In a past newsletter, I talked about one of our pcAmerica customers who owned a bunch of Burger King restaurants. He worked about 25 hours a day to keep each of his restaurants more or less profitable. He was just making ends meet taking out less than $100,000 a year before taxes.

His big asset was that he owned each of the Burger King locations. His big asset was the appreciation of the land which he purchased for a fraction of the current value. That current value has probably decreased significantly in the last couple of years, but is still far higher than his purchase price.

Unfortunately, mall store owners and other renters have no such assets. Once that lease is over, you own nothing. It’s very hard to sell this type of business since you are always under the control, mercy, agendas, and whims of the landlord who may or may not increase your rent and who may or may not renew your lease.

It is no surprise that a recent survey shows that 38% (according to CBS Radio) of small business owners now wish they hadn’t opened their business and would prefer to work in a secure (government) job for a living.

There are three major reasons why retailing is becoming more difficult.

The first one is simple. We are in a bad recession. Things are not great.

I mentioned the second one in a recent newsletter. In the past ten years, we have had a surge of entrepreneurs that want to own their own business. Retail stores and restaurants were headed for problems because we just had far too many retail stores and restaurants per customer. Mathematically, the amount of retail square footage available to consumers was going up far faster than the population. We just have too many places to buy a cup of coffee.

Finally, the third reason that retailing is becoming more difficult is the Wal-Mart effect. Large, efficient companies are able to out-compete small start-ups replacing the independent businesses in many areas.

Have I depressed anyone?

If you are a true entrepreneur, none of this matters. If you are a good manager and leader, you will outperform the competition and come out ahead. pcAmerica was created during a deep recession. If you can outperform the competition, your business will flourish.

Are we becoming less entrepreneurial? Go to:

http://boss.blogs.nytimes.com/2009/06/30/are-we-becoming-less-entrepreneurial/

Retailers Cut Back on Variety, Once the Spice of Marketing

For years, supermarkets, drugstores and discount retailers packed their shelves with an ever-expanding array of products in different brands, sizes, colors, flavors, fragrances and prices.

Now, though, they believe less is more.” (From the Wall Street Journal)

Walgreen Co. has cut the types of superglues it sells from 25 to 11. Wal-Mart has decided to only sell 4 different types of tape measures instead of 24. Kroger Co. wants to reduce the amount of cereal varieties it carries by 30%. The largest retailers expect to reduce their assortment of products by 15%.

In the past, the retail marketing concept was to ofter a greater variety to consumers in order to increase sales. The new marketing concept is to simplify and cleanup the clutter.

The result of the shakeup will be that more stores will be pushing the #1 and #2 brands and getting rid of or selling less of the #3 and #4 brands.

In simple terms, the theory was that in the 1990’s, people wanted more and more choices. Shoppers now say, “Whoa, you’re bombarding me. Help me figure out what I need.”

The old theory was that the number of choices would get customers to come out of the store with more products. The new theory is that customers are buying less because they have too many choices. Do you need the Pantene shampoo for dry hair with frizz or dry hair with split ends?

Many stores are also replacing some of the great variety of brands with more profitable store brands. Wal-Mart found that shoppers spend an average of 22 minutes in the store. Wal-Mart has a huge database of customer shopping habits. Too much variety takes up too much shopping time and reduces the number of items in the shopping basket. Fewer options increase the number of item in the shopping basket.

Wal-Mart is reducing the amount of shelf space for toilet paper by 44%; mouthwash by 39%; bar soap by 24%; salad dressing by 14%; and sun-block by 6%.

Wal-Mart is increasing the amount of shelf space for men’s shaving cream by 35%; trash bags by 26%; cat litter by 21%; toothpaste by 16%; and batteries by 5%.

For the average retailers, you may want to take notice of the big chains and possibly pick up some of the brands that the chains are eliminating. Depending on the type of merchandise you sell, you may also want to simplify the selection and take advantage of the buying power you may receive by selling fewer varieties in larger quantities.

For restaurant, this is perplexing. Starbucks, Dunkin’ Donuts, and McDonald’s offer a very small, selective variety of items. Your local diner, coffee shop, and The Dog House (my favorite local hamburger place) offer a large variety of items. These smaller, single location restaurants need a large variety of items in order to attract a large enough customer base in order to survive.

To read the entire article, go to:

http://online.wsj.com/article/SB124597382334357329.html

You need to subscribe to the online version of The Wall Street Journal in order to access the entire article (highly recommend). However, if you don’t want to subscribe, write to me at hgosman@pcamerica.com and I’ll email you a copy of the article.

Get The License Plate Number

Over the years, I’ve always advocated knowing and greeting your customers. It wouldn’t hurt to have a database of customers available in your retail store or restaurant to help you remember a customer’s name when he enters your store. A recent marketing tip on CBS Radio talked about a retailer that records license plate numbers into a database. Before a customer walks into his store, the owner accesses his license plate database and immediately knows the customers name and greets his customer by name. I’m not sure what he does if more than one person uses the car, but the thought counts. It is really good to know and greet as many customers as possible by name.