Better Business: Should You Move or Grow Your Shop?

Oct 19, 2012

Vacancies in industrial and retail markets remain above 10 percent in the United States, according to research recently released by the National Association of Realtors.

Many shop owners are taking advantage of these vacancies, and the better rents that result, to grow their businesses.

To make the most of these opportunities-having more space for potentially less cost per square foot-retailers have to educate themselves.

“The success of renegotiation is based upon both what the tenant’s leverage points are as well as market conditions which dictate what are the landlord’s alternatives,” said Harold Bordwin, the New-York-City-based co-president of GA Keen Realty Advisors LLC, a firm that helps retailers negotiate or terminate their lease agreements.

“If you can create a compelling story that what you’re offering is better than the landlord’s alternatives, you’ll probably be successful; if you’re unable to do that, then you’re not going to be successful.”

Here, shop owners who are considering moving or have made the move to a new location share the steps they took, and advise you on what to consider when contemplating moving or growing your shop in the current economy.

Looking to Spread Out

Jeff Hunter‘s shop has been at its current 4,000-square-foot location for four years and he’s now looking to move into a larger space to keep up with his workload.

“The amount of business that we get coming in, we spend probably 30 or 45 minutes every morning moving cars out and then 30 or 45 minutes every night bringing cars back in before we can close,” the owner of North Charleston, South Carolina-based performance rod shop HHP Carolina, said. “I would like to have enough room where I could spread everything out and not have to shuffle cars all day long to work on something.”

Hunter’s ideal space would be about 6,000 square feet and have good road exposure.

Though in the early stages of his search, he has found a few promising locations.

The recent opening of a Boeing plant in his community has made the search a bit challenging, though.

“They just built a Boeing aircraft plant here in Charleston and now everybody thinks that their property is worth top dollar, so we’ve started looking a little further out into the suburbs,” he said. “I’ve also talked with my landlord, he’s got some property about 10 minutes from town and he’s entertaining the possibility of building us a new building.”

While Hunter anticipates bringing in more business with the help of a larger building, he’s worried about the additional costs associated with making that move.

“I’m concerned about the expense it’s going to take to move the lifts and all of the equipment, and the possible downtime,” he said. “I think we’d probably be down at least a week to pack up everything from our current location and move to a new location, and of course, [there’s] the added overhead, but I think the new business would more than offset the added overhead.”

Hunter suggests all shop owners weigh the potential added costs of moving to a new location against the potential business benefits.

“If you’ve got a strong business model and you have plenty of work with the economy as it is right now, it’s kind of tough to pass up on looking at a larger space,” Hunter said. “Other than where I’m located at, which is close to the new Boeing plant, the rent is still extremely low. I would definitely recommend [other shops consider moving locations] if they’ve got a good, strong business model, [and] they have more business than they know what to do with.”

“Now is the time to expand,” he added. “[Don’t] wait until the prices go back up and the economy has really picked back up and everybody’s asking premium dollars for their properties. Right now, there [are] a lot of deals to be had.”

Expanding His Offerings

Jeff Donker has been running Star Performance Products out of a 1,200-square-foot space in Corona, California, for three years.

Currently retail-only, Donker is looking to move his shop to a bigger space so he can start installing the crate engines he sells and offer other services.

“We’re not allowed to do any sort of installation work where we’re at now, so we build crate motors but we can’t install them so we’re missing out on a whole bunch of labor revenue that we can’t take in,” he said. “Right now we’re purely dependent upon parts sales and no labor sales, and the margin on labor sales is a heck of a lot better than the margin on parts sales. The incremental cost to make it happen is minimal.”

Donker’s ideal location is a freestanding building in the 5,000-square-foot range with a fenced area for storing cars, which he anticipates will benefit Star Performance Products in several ways.

“We just need a bigger facility in order to be able to do what we want to do because right now the facility that we have is limiting us as far as what we can do,” he said. “[Also,] we can get more space for just an incremental price increase because of the economy the way it is now. We can get about a 30-40 percent decrease in per-square-footage costs with bigger space.”

Donker has made moves in the past with other shops he’s operated, including one that expanded just before the economy dipped in 2008.

He feels this experience has prepared him to ask the right questions and craft the best plan possible for Star Performance Products’ impending move.

“Any time you’re going to make a change in business, you’re always looking at return on investment, so you’re always going to have to take a look and see what the real reason is you want to move,” he said. “The last time that we moved, we moved from 3,000 square feet to 5,200 square feet and we took on $6,000 a month in rent, and the number crunching that we initially did, all the projections that we did, all looked favorable.”

Unfortunately, the economy took a turn after that and the shop closed.

Based on that experience, and having studied economic patterns, Donker is confident that now is the right time to make a move.

“Right now is probably the best time to move, if you’re going to do it, for a lot of reasons,” he said. “First off, real estate is a lot lower, either from a lease standpoint or a purchase standpoint. The economy is moving in the right direction. If anybody’s looking at moving and it pencils out for them, I suggest [they do it] within the next year or two before the real estate market starts to catch on again.”

Room to Grow

Chad Sperry is currently in the process of expanding Auto Rod Technologies, his New Troy, Michigan, restoration shop, into its third building.

His shop, which opened in 2001, grew into a second building in 2006. Sperry owns all three buildings.

“I don’t think there’s any value in renting; when you’re done you have nothing to show for it,” he said. “I started out renting for a couple of years and that’s how I got the first building, I was looking at buying some other property and [the owner] asked me if I would be interested in purchasing the building that I was renting.”

The new building is a barn located behind his other two buildings.

Sperry knew the former owners were planning to move out and he was able to bid on the property before it was even listed.

“I had to wait for them to move out and they’ve been talking about it for the last four years,” he said. “The property was never actually listed, they knew I was interested and a couple of other people, and [when] they purchased another piece of property, they came and asked me if I was interested in purchasing it.”

Sperry had wanted to expand beyond the two buildings for several years.

“The two buildings we’re in, it’s pretty tight in here, so the new building is basically going to be used as a clean assembly room to finish the vehicles in,” he said. “We’re putting [in] a hoisting in the next couple of weeks, which is going to be used for taking bodies off of the frames and putting them back on, but other than that it will be pretty much a clean room for assembling vehicles after they’re painted.”

The new space will help Auto Rod Technologies keep up with its workload.

“We’re doing pretty good, we’re really busy,” he said. “Everyone says the economy is not good but we’re pretty busy, so it makes the property value affordable while we’re still busy and capable of growing.”

Grabbing an Opportunity

Dave DiMaria had been thinking about moving Vintage Car Works from its 4,000-square-foot location in Englewood, Colorado, to a larger space, but wasn’t sure if the time was right to make the move.

When the glass shop that occupied the other half of the subdivided building Vintage Car Works occupies went out of business, DiMaria’s landlord asked if he’d like to take over the entire space.

“It was probably early in 2011 when we started saying we really needed more space and just started looking for other places to move and then it more or less fell in our lap,” he said. “Our landlord had talked to us about taking it over and I was a little bit hesitant and it took a while, just talking with him occasionally as far as the lease terms, duration and price per square foot.”

DiMaria did have concerns about expanding, wondering if the shop could maintain its pace and handle the additional overhead.

Working with his landlord, he was able to quell some of those fears.

“You hear stories sometimes about landlords just [saying], ‘Your lease is up, it’s time to renew, the rate is going up,’ and so on,” he said. “[My landlord’s] a realist, he owns an engineering company as well, he knows what his workload is like. The last thing he wanted was for me to go out of business or to move on so he was more than willing to negotiate and work with me so that it was fair for both of us.”

Once they reached an agreement on the space, DiMaria’s landlord gave him one month rent-free to clean up the new space, which he was quickly able to fill up with projects.

“It helped us tremendously because we filled it up with new projects literally instantly and we were fighting for space before,” he said. “We were the proverbial 20 pounds in a 5- or 10-pound bag, just always crammed. We’re very fortunate where we have work, I can’t really take anything other than small projects in -¦ until next summer.”

Because of his workload, DiMaria is confident taking on the additional space was a wise decision.

He suggests other shops consider the amount of work they’re bringing in when planning a move.

“If your workload can support it, now is a great time to do it as far as being able to lock in good lease rates for the future,” he said. “If you’re brand-new and just starting out, maybe not, but if you’ve been in business [for a while] and you have a good following with customers, [a] good referral base, then, by all means, I would certainly do it.”

Making a Smart Move

After nearly 30 years in Norfolk, Virginia, Alan Thornton moved Flatlander’s Hot Rod Shop more than 250 miles to Randleman, North Carolina.

Despite moving more than four hours away, Thornton held on to many of his old customers and most of his suppliers.

He did several things to keep in contact with them during the six months it took for him to establish his new shop after making the move.

“When I moved, I made up fliers and sent them to all the manufacturers that I represent,” he said. “I had a P.O. Box set up and any new catalogs or information that came [when] I wasn’t set up for a street address I had sent to the P.O. Box.”

Thornton recommends other shops do the same thing so their relationships don’t lapse in the course of a move.

In addition to maintaining communication with suppliers, Thornton recommends shop owners take into consideration what equipment and inventory they’re going to take with them.

“If you have a supply house that you’re dealing with in your local area that knows you and is giving you really great prices, it wouldn’t hurt to stock up,” he said. “I spent probably $5,000 or $10,000 on fasteners before moving here because in Norfolk there are 15 supply houses -¦ but down here there’s one shop.”

Thornton learned about suppliers in the Randleman area because he spent several months investigating the region while setting up his new shop and building a new home.

“When I moved here, I checked the registration in different states on vehicle years that are registered and from the research I did, North Carolina is only second to California with pre-1972 vehicles registered,” he said. “Thursday through Saturday, down here somewhere there’s a cruise-in, car show or swap meet. It’s amazing; I’ve never seen so many old cars.”

Becoming familiar with the new area is vital for shops that are moving, he said.

“Acclimate yourself to the area,” he said. “Attend cruise-ins or local industry shows and swap meets to re-establish yourself in the area that you’re moving into.”

The steps he took in making this move seem to have paid off for Thornton. Flatlander’s is in the process of expanding into a third building.