Reference no: EM13910347

Understanding Nontraditional Retail Sites and Store Design and Layout

Consider how to apply retail marketing concepts to your new role as the owner of a framing and art supply shop.
Complete the following activities:

- As you consider how to develop the business, write an analysis listing potential non-store and nontraditional possibilities for the future. What are the benefits and drawbacks of each?

- It was great of your grandfather to deed the building to you as part of your inheritance. However, lately you have been considering some of the drawbacks of owning the building and wonder if leasing might have been more beneficial. Using the given directions, perform a cost-benefit analysis on ownership versus leasing.

- The layout and design of the store is crucial for projecting the right image and atmosphere. Consider the following list of factors that can impact the store's atmosphere and your plans to provide room for workshops and seminars:

- Employee type and numbers-consider factors such as dress, behavior, and skills
- Merchandise displays
- Fixture types
- Sound-consider options such as music, talk radio, silence, and craft video tapes
- Decoration-colors, fabrics, carpeting, and wall hangings
- Access to the shop, lighting, seating, and accessibility of goods

Clarification: Cost Benefit analysis on ownership versus leasing

First you need to consider the direct costs of leasing. This includes:

- Initial capital investment.
- Legal fees for review of the lease agreement (On-going expense in later years)
- Increases to the rent in future years
- Leasehold improvements (You will improve the interior and may or may not see any financial gain from the investment)
- Tax issues. Is the lease payment tax deductible? This will in large part depend on the ownership; are you a sole proprietor or a corporation?
- Costs to get out of the lease. What if you decide to close? What will it cost you to terminate the lease?
- Other expenses. Who pays for different insurances, utilities, shoveling the walkway, and changing the light bulbs?

There are also direct costs to buying the real estate:

- The down payment and costs to secure a mortgage loan. Or the use of the cash to purchase the real estate. Remember, there are also opportunity costs here. If you buy a building, you have committed cash that cannot be used elsewhere for other opportunities.
- On-going interest payments to the bank if you have a mortgage. Can these be deducted from your tax return?
- Responsibility for all insurance, taxes, utilities, shoveling the walkways, changing the light bulbs and meeting municipal requirements like sign, access, lighting etc.
- Upkeep and deferred maintenance will require ongoing investment.

There are also many indirect costs to consider when leasing:

- What are commercial rental rates doing? Are they increasing dramatically? If so, can you get longer than a one year lease to lock in today's good rental rates?

- If you sign a long term lease, will the neighborhood continue to be a good place to run your business, or are the demographics and traffic patterns changing in your location?

- Do you wish to invest in real estate for long term growth?

- Are you able to change the interior to suit your retail needs?

- Is your landlord reasonable and easy to get along with, or difficult and stubborn?

And of course, there are indirect costs to consider in purchasing the building or site.

- Do you want to be in this location forever?
- Will you wind up outgrowing the building?
- What will happen to the neighborhood, will it continue to be a good place to do business?
- Will public transportation change (Improve or decline?)

These are just some of the questions you need to ask regarding the benefits and drawbacks of leasing over buying. Address some of these as you consider (In hindsight) whether owning the framing and art supply store is the best option for you. Of course, since you had little outlay in capital, it probably was not a bad financial deal, but consider the other questions to analyze the potential benefits and drawbacks of each method of operation.