When your customers buy from you they want the lowest possible price and you want the highest possible price, and to achieve a result both parties can live with, an amount of haggling takes place. How much the customer really wants the item (fallen in love with it) determines the top price they are prepared to pay. Depending on how much you want to sell it (old stock or cash flow) determines how little you will accept for it. The secret to achieving the best possible price is knowing how much your customer loves it.
Let's reverse the role. You are the buyer and your landlord is the salesperson. It's time to re-negotiate your store lease. It does not matter how much your business is suffering, how loyal you feel you have been to your landlord, how little grief you have caused them, your landlord’s agent will be trying to get the highest possible rent from you. It's their job. They will not keep their job if they don't achieve the best possible contract. They are skilled in the art of negotiation as it is their job. They know the market, as it's their job. They negotiate leases day in and day out. It's their job. Get the message that you will be up against a skilled negotiator.
You on the other hand only negotiate a lease renewal every 3 to 6 years. You don't know the current market and it’s likely you are in a comfort zone in your existing location. You know it costs money to move. You have a business to run so have limited time to devote to preparing for the negotiations. Adding all this up, you can see you are definitely behind the eight ball going into a negotiation. Talk about an uneven match.
BUT… yes, there is a but… read on to see how you can level the playing field.
Rule number 1 - Unless you have an option available that you can move to, you have mentally lost a major negotiating chip. How many times have you dropped a price to a customer because they have said they are going to shop around? Before you renegotiate your lease look for alternative sites that would be an option if your present landlord did not renew your lease. List them and their prices so that you are mentally prepared to renegotiate knowing you have options. In working with clients in the USA, Australia, Canada, and New Zealand renegotiating shop lease over the last couple of years, in every case, I have had the clients look for an alternative option before they went in to renegotiate and in every case, they have negotiated a better outcome because they were in a stronger mental position.
Seek to negotiate face to face. Emails will work against you. Seek a face-to-face discussion to discuss their offer (you know the chances of a customer buying from you is greater if they are standing in front of you).
Use the "Law of Supply and Demand". If you are in a shopping center and there are shops around you that have been vacant for some time, then you have a better chance of a better outcome than if there are no vacant shops. However, don't let this stop you from trying for less than they are wanting. Just be aware you have one less bargaining chip.
Most leases have an X month (typically 6 months) notification period at which time you have to advise if you are going to renew. DON’T wait until the last moment as you lose all chances of a better outcome. If you go into a negotiation only a couple of weeks out, the landlord knows you have no options.
Go in low and shock the other party. Of course, they will say no, but it's a start. In renegotiating an office lease in 2012 when the landlord put forward a 10% increase I negotiated the existing rent down by 31% PLUS 6 months free rent (it was really interesting when I first counter offered their 10% increase with an offer of half the existing rent).
Have a bottom line but don't disclose it. I have clients who due to a downturn in business are paying a way too high percentage of sales in rent, often due to the shopping center becoming tired, or the town business center has moved over the years. Look at what you were paying as a percentage of sales when you last signed the lease and draw your line in the sand to be at least no higher percent than the previous lease. If you have a bottom line it will strengthen your resolve. The resolve and strength you show in face-to-face negotiations will help you get a better outcome.
The negotiations may include items other than annual rent. For example, shop fit contribution, advertising subsidy, lower annual increase, predetermined mid-term negotiations. Another office lease I negotiated in 2012 I got the asking price down 8% with the landlord advising he could not go lower due to a bank covenant, so I negotiated that the landlord paid our electrical bills for the term of the lease. Think creatively when you hit an impasse on the actual rent amount.
It's not a secret that shopping centers charge a higher per square meter rent than other store types. But they want jewelers so this works in your favor.
Are you negotiating with the right person? Just as your sales staff cannot exceed a given discount without going to a higher authority, then if you hit a brick wall you might like to say. "I appreciate you have hit the limit of your position, but to conclude this to a successful contract we both can live with, we need to elevate this to a higher authority."
Take control of the negotiations. Meet face to face and on your turf. Let them put their offer on the table first (then you know their upper limit enabling you to calculate your first counter).
Hire a skilled negotiator.
If you feel uncomfortable going into a lease negotiation, ask your local retailers association, or business connections if they know of a strong lease negotiator, and meet this person to see what they have to offer.
The difference between a strongly negotiated lease in dollar value is measured over the term of the lease. A five thousand per year saving over a six-year lease is worth $30,000. A ten thousand per year saving over a six-year lease is worth $60,000. How many hours of work and product do you have to sell to make the additional $30,000 profit? This shows just how much time and effort you should be putting into the renegotiations.
Are you the landlord and the tenant? I regularly come across clients who are both the tenant and landlords. The fact is these clients have two businesses, jewelry business, and property business, both of which should turn into a profit. On more than one occasion I have been told, my jewelry business is profitable as I don't have to pay rent. The jewelry business should be profitable after allowing for rent at market value for that location.
The second point about being both the landlord and tenant, is often the owner will stay in that location even when it dying "because I own the building." This is a very costly reason to stay so you need to analyze savings in rent versus lost sales carefully.
Final advice. Remember, if you are paying too much rent you are just working for the landlord, and only you can determine if that’s what you want.
Good luck with your next negotiations.