Gift Basket Review - November 1997
Moving from Home to Store: Three Journeys - By Kathy Horak

- More -

A Broker's Lease Tips

The first advise on site selection from retail real estate broker Geneva Henderson isn't surprising, "Hire a broker," she advises.

That advise may make sense for a potential store owner as well as the broker, however. Brokers' fees usually are paid by the landlord, just as the broker in a residential real estate deal usually represents the seller. And it's the brokers' business to know available retail space, prevailing rents and neighborhood demographics.

The easiest way to find a broker is to check the leasing signs outside shopping centers that interest you, Henderson, who leases stores in the southeastern United States for Lat Purser & Associates, says 80 percent of her business comes that way.

Have copies of your business plan and financials to share with a prospective landlord, "They show you're serious."

Negotiating Terms

Don't try to browbeat a landlord, but don't settle for terms you can't handle, either, "You have more power than you realize," Delap asserts.

Most malls charge each tenant a monthly fee for common area maintenance, known as a CAM charge, Delap shied away from one location after a tenant told her "the landlord constantly upped the CAM charges. She was paying $300 to $400 per month and had just gotten a letter saying they were going up another 15 percent."

Some sites regulate the size and type of signs. Some malls, especially larger strip centers and regional malls, specify the hours stores must be open.

A major item to negotiate is interior renovations (also called tenant build-out) and who pays for them.

Delap paid for track lighting and more electrical outlets. Both charges required city building permits as well as landlord approval. She also negotiated an exclusivity provision which means no other gift basket business can open in the mall.

"I thought I would die before the store was opened," she recalls. "Things kept coming up -- first the exit light didn't work, then the emergency lights burned out."

Delap estimates her move-in costs at $5,000, including the state's fee for a food handling permit so she could sell chocolates. After her store's first Christmas, she spent another $2,500 for the lighted sign her lease requires.

Outfitting the Store

Display fixtures and signs are the major investments here.

Zielke estimates she spent $4,000, "I'm nuts for auctions and garage sales, so no I have antiques that are conversation pieces." She also bought wicker furniture; unassembled wooden shelves or $20 apiece from Wal-Mart; and two colorful carousel ponies that set off her store's entrance.

At Delap's store, a cast-off wooden cabinet displays bath products. She also shopped garage sales and kept an eye out for store and restaurant renovations and closing, which often mean fixtures for sale. She paid a discount chain store $79 for a reject display table and transformed an old bookshelf with fabric and paint.

"Don't throw anything away," she advises. "Start thinking for the future."

Hours

"At home you can do a lot of basket work in your pajamas," Delap observes. "At a mall, the hours may be 9-to-9 Monday through Saturday. Are you willing to work those hours?"

Consumers generally expect more of a store than a home-based business. In a retailing environment where competition is fierce and specialty retailers can't compete on price with national discounters, service makes the difference. What service is it to corporate buyers (or many consumers) if a gift basket shop opens after everyone is at work and closes before they're commuting back home?

Overhead: the $30,00 Hill

Here's some of what Stella Delap pays each month to run Basket Kreations:

* Payroll and inventory costs are low in summer and high at the holidays; figures are averages. Total excludes other business expenses such as shipping costs, licenses, delivery vehicle expenses, etc. Figures from Stella Delap.

Zielke's hours are 9am to 6pm six days a week. Come September she'll stay open until 8pm on Friday.

"You're committed and you have to be there.   You can't take family holidays. If you try to close at 5:30 in the summer, sure enough people will walk in. When I'm working on a window display, people are buying at 8:30 at night."

Employees

Even an owner who lives at her store needs extra hands sometimes. That means employees. All three women in this story rely on part-time help while working much more than full-time themselves.

"You deserve to make a paycheck, Delap comments, when you're paying other people and you're working three times as hard as they are." "Sometimes I didn't get to cash my check or the lights would be cut off, but I always took one."

Staff at Basket Kreations ranges from eight people in August to 18 during the holidays. Delap's father prices inventory and handles the UPS shipping. Delap likes to hire high school students who'll work during school breaks right through college.

At Applegate's, Zielke relies on family: son Ryan; his fiancée Tammy; daughter Brekke; and mother Rose Marie Sinnott. "They don't freak if you don't give them a paycheck," Zielke says -- adding that because the store is new, she pays them through another company for now.

At A Tisket A Tasket, Cannady relies on two daughters and three part-time workers. She keeps her total part-time payroll to 60 hours a week.

"Finding employees isn't hard," she says. "People offer to help all the time because they think it's the neatest thing."

As for processing payroll, Cannady says, "it's simple. If you can balance a checkbook, you can do a payroll. And I have an accountant to help."

Which raises an important point about the entire process of moving from home to store. Do your homework first. Research. Study up. Ask for help.

Reliable sources range from the U.S. Small Business Administrative office nearest you, to local colleges and universities (some have SBA-sponsored workshops), to chambers of commerce and networking groups, to public libraries and bookstores. Shop-keeping is no easy feat.

Sales and Overhead

Scale is the essential difference between a home- and store-based gift basket business. Basketeers like Delap say they wanted many more sales than they could make from home. But the opportunity becomes a mandate: Store owners must have those sales to survive and profit.

Delap's overhead adds up to more than $ 30,850 a month (see box). That's just her typical monthly bill for rent, utilities, insurance, inventory, payroll and some advertising. Zielke's monthly overhead jumped to about $23,000 from $4,500 when she had her warehouse. Cannady declined to specify her monthly outlay.

Delap and Zielke pointed out that they sell individual products as well as gift baskets. "It's volume sales," Delap says. "We sell 10 to 50 baskets a day. Summer is lower but we still average 20, plus sales off the floor.

Zielke carries about 100 gift lines from 25 vendors plus 300 food items -- "wine jelly to Virginia cider" -- from 15 suppliers. She also has a wholesale license to work as a distributor. She's western Canada's exclusive distributor for Bonard's coffee, for example.

"I sell to competitors too, so I have to figure out a real fair blend of product and pricing," Zielke says. Basket designers who want just one or two of an item receive a 15 percent discount; those who order in bulk receive the standard 50 percent off retail.

"Competitors were stand-offish for a while, but I think there's plenty of business for everybody," Zielke says. "I don't see resistance -- more envy that they didn't think of it first. Two women came in the other day, partners, and I overheard one say to another, "We're no threat to her. Look at the size of this shop."