The Danger of a Low Rent Strategy

Money has legs… In marketing we call this “foot traffic”.

by Wizard Associate Anna Gerard

"The purpose of advertising is to increase the exposure of a business beyond what’s provided by its physical location. An extremely high Cost of Occupancy (rent) for a landmark location is often the least expensive advertising available. Businesses who save money by investing in weak locations always have to advertise much more heavily."

- Roy H. Williams

It’s simple - A good location equals more foot traffic, more foot traffic equals more sales… BUT… More foot traffic also equals more rent… Feet don’t come for free.  

So when you’re hit with a rent increase you need to ask yourself… What are feet worth to my business?  Can my business survive without them?  Do we have a plan to keep store traffic up, if foot traffic is down?

 

Always think of your rent as advertising… Your reach is as wide spread as the foot traffic.  When you spend less on rent, it equates to spending less on advertising…  Underestimate its worth and you could find yourself paying a much higher price in the long run.

 

The story I’m about to tell you is true. I’ve only deleted the name of the store.
 
3 months ago, a local NSW coastal business owner made a decision to relocate his surf clothing store after staring down the barrel of a 34% increase in rent.  The original location was on the esplanade of a high tourist area… lots of restaurants, lots of shops, lots of apartments, lots of feet.  The move took him just one street away... just one street… but thousands of feet from his original location because nobody wanders behind the resorts on the Esplanade.

What happened next?  Sales plummeted by $115,000… and are still going down.

This business has a really tough road ahead… With little to no advertising in the last 3 months, and having moved into a street that is not a retail destination - locals actually think the shop has closed down.  But perhaps his biggest fight is to win back his core business – tourists.  Almost 70 percent of his business comes from holiday makers or day trippers… the kind that don’t listen to local radio, or watch local tv, or read the local paper… they just walk in and spend.

These feet aren’t as easy to buy back with conventional advertising.  These feet were almost certainly bought from the money spent on rent… the future for this business, is cloudy.  

I’m not saying you should accept every 34% rent increase, I’m saying be careful.  Consider the pros and cons… before you choose to move away from a prominent area – answer this honestly – Is your business a destination by itself?  People will travel for a Bunnings Warehouse, but they’ll go to their closest shopping centre for a chemist.  How many times have you said “I’ll just drop into the bakery/bottleshop/fruit barn/servo that’s on the way home” – all these businesses pay to be on busy roads!

So next time your landlord talks about raising the rent, think carefully - if it’s the best advertising you can buy… Remember - money has legs – don’t let them walk away!