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Tough Times: Renegotiating a Lease, Finding a Better Utility Rate
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To stay afloat in a recession that shows no sign of abatement, savvy indies are cutting costs through careful planning and well-thought-out business decisions. For some, this includes renegotiating a lease or signing on with a lower-cost utility provider.
According to the 2007 ABACUS Study, on average, booksellers spend 23 percent of their gross profits on occupancy costs -- the second largest expense after compensation. The greatest part of occupancy expense is generally rent (which may include common area maintenance charges, real estate taxes, insurance, shared marketing costs, etc.), followed by utilities, such as electricity and heating costs. While a lease is a binding agreement, and hence a fixed cost, given the right set of circumstances, any contract can be renegotiated. As the recession leaves landlords with more and more unoccupied real estate, some who previously may not have been receptive to the idea of renegotiation now may be willing to rethink their positions.
But, booksellers who spoke to BTW for this article noted that renegotiating a lease should probably not be the first, or only place, anyone looks to cut costs. Most landlords will be much more willing to negotiate some form of lease reduction if they know that a bookseller has already cut costs in other areas.
Before approaching a landlord about renegotiation options -- which can include a reduction in rent, a move from a flat rent to a percentage of sales, and rent abatement -- Bob Sommer, co-owner of Changing Hands Bookstore in Tempe, Arizona, suggests booksellers check out ABA's Curriculum Guide, especially the education handout "Negotiating a Lease." That's what he did when sales began lagging at Changing Hands.
Sommer said that it's times like these that demonstrate how important it is to maintain a good, ongoing relationship with your landlord. "You have to establish a relationship," he told BTW. To show "how much sales were down," Changing Hands sent a statement to the landlord. In addition, Sommer kept the landlord abreast of other cost cutting moves that were being made at the store. "There has to be trust these days," he explained.
Though Sommer couldn't get into the details due to a confidentiality agreement between the store and its landlord, he did report that, in the end, Changing Hands' landlord provided the store with a four-month rent adjustment.
Kim Perkins of Elysian Fields in Sarasota, Florida, noted that the recession in the housing market hit her region in the fall of 2007, earlier than it did in most states. Elysian Fields' sales suffered because of it, so she approached her landlords in April 2008 to renegotiate the store's lease. Perkins reported that her relationship with the store's landlords is excellent, and they were open to working with her. "We've been here since 1995, and they were amenable to talking with me," she told BTW in a recent interview. "They knew other people were having problems, and we were behind in rent."
The landlords sought financial information from Perkins. "They took the information that I printed out and they could see that we had already cut expenses in other areas: payroll costs, the phone company ... and we cut back some benefits for employees. Instead of a monthly employee appreciation dinner -- which cost about $100 per month -- we now do employee appreciation gift cards.
In June 2008, Perkins' landlords agreed to lower Elysian Fields' rent by 20 percent for six months, and they forgave one month's rent. "The landlords saw the value of a loyal tenant," she explained. Now, however, the six months are up, and the rent has risen again. Perkins would like to negotiate a base rent plus a percentage of sales -- so the landlords would benefit from sales, too. "That's what I want to investigate," she said. "They've been great, so I think they should benefit [if the store does well], and they don't want to have open space right now." She added that the ABA "Surviving Tough Times" webinar provided her with another great idea for cutting costs -- renegotiating rates with her electric company.
A webinar participant who did just that, and to great effect, was Mary Boyle of Greenville Booksmith in Greenville, New York. The idea of renegotiating the store's electric rate came to Boyle after she received a bill from Central Hudson Gas & Electric that had increased to nearly $600. Enclosed with the bill was a pamphlet. "It said that you can shop around for a lower kilowatt cost," Boyle said. "So I went to the New York State Public Service Commission website for more information." The website provided a list of electricity providers.
Agway Energy responded to Boyle's inquiry. "They adjust rates seasonally," Boyle said. "The kilowatt-per-hour rate [we had been paying] was 12 cents; Agway was seven cents." That five-cent difference provided significant savings. Now, the Agway cost is 10 cents per kilowatt. In addition, Agway removed the $20 monthly surcharge that Boyle had been paying to CH Gas & Electric. Moreover, she also renegotiated her residential electric bill, too.
But Boyle didn't stop there. Because "nine percent of electric usage is vampire energy" (even a turned-off TV uses electricity), she hooked everything up to surge protectors that are turned off each night. Boyle replaced traditional light bulbs with compact fluorescent light bulbs, and she is now investigating even more efficient LED light bulbs. The savings thus far has been dramatic. Instead of a $575 bill, Greenville Booksmith's latest bill was $247. Not only that, Boyle added, it doesn't hurt that these cost-saving measures are good for the environment, too. --David Grogan