So, have you re-negotiated your lease yet? Look around the center, mall or building in which your spa is located. Are there vacant spaces? If so, contact a local real estate agent and find out how much they are asking for comparable spaces and what deals they are offering. You may be shocked to learn that space is being offered at rates lower than you are currently paying. The market rent that existed when you signed your lease is not the market rate today.
Prepare a presentation for your landlord that argues your case for reduced rent. The bottom line is that you want to be here when this market turns around. In the meantime, you need help. Lowering your breakeven means lowering your overhead. Lowering your overhead means re-negotiating your single largest expense which is more than likely your rent. Offer a minimum of $3.50 per square foot less than you are currently paying for the upcoming 24 months. Cost of living increases? Delete them; they are inappropriate in this market. This savings can either be forgiven or added on to the end of the lease in the form of additional months. You may consider offering a percentage of gross sales (service and product only) not to exceed 12% if it helps your cash flow and makes the deal work. Get creative. While you are doing this, make the same presentation to your banker. Nothing is off limits when it comes time to operate at a lower cost when it comes to overhead.
In this market, don’t be surprised if you are approached by a real estate broker offering a great deal on a guest-ready fully equipped business that may have recently closed. This may be a sign of the times as well, but if you are prepared, may create a growth opportunity.
Wellness Capital Management, Inc.
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