National chains and large corporations are great for many things, but there is no doubt that America’s 23 million small businesses, including mom-and-pop retailers, fulfill a huge niche in the marketplace as well.
By Nellie Day
The past economic downturn was hard on many companies and individuals, perhaps none more so than the small businesses and mom-and-pop shops run by some of the hardest-working people in this country. While financing for these small-scale operations can still be hard to come by, niche retailers and service providers have very much returned to the industry — and cities, consumers and even commercial real estate professionals couldn’t be happier.
A Return To Prosperity
Healthier market fundamentals have bolstered many industries, including retail. These positive signs not only inspire consumers to be more confident, but oftentimes they inspire the small business owners, as well.
“An improving economy, rising home values, increased consumer confidence and enhanced availability of credit all make it easier for independent retailers, whether independent businesses or franchisees, to make the decision to open new locations,” explains Brad Umansky, founder and president of Progressive Real Estate Partners in Rancho Cucamonga, California.
Many small business owners tend to agree. Wells Fargo/Gallup Small Business Index survey’s recent results show an increase in optimism among small business owners that hasn’t been seen since 2008. The overall optimism index score increased to 58 in November, from 49 in July. A small business is defined as a retailer with fewer than 500 employees that produces $7.5 million in average annual receipts, according to the Small Business Administration (SBA).
The report went onto say cash flow is at a six-year high for small business owners. It also noted about 43 percent of small business owners claimed their revenues were higher now than they were 12 monthsago. The National Federation of Independent Business echoed these sentiments, noting “more” small business owners believed now was an ideal time to expand their operations — and that even better conditions were on the horizon six months from now.
If the Small Business Saturday predictions are to be believed, these savvy business owners may very well be right. American Express noted $5.7 billion was spent on Small Business Saturday — which falls on the Saturday after Thanksgiving, tucked in between Black Friday and Cyber Monday — in 2013. This is a 3.6 percent increase over spending in 2012. Projected spending for this year’s
Small Business Saturday is about $5.9 billion, according to Grasshopper, an online resource for entrepreneurs and small businesses.
With all this money floating around, many brokers believe the industry should pay more attention to the little guy — or “guys,” as it may be. Though many small business and mom-and-pop operations may sometimes only result in one-off deals, as opposed to serving as the exclusive regional broker to a national chain, experts urge this clientele isn’t one to be reckoned with.
“We’re seeing a growth in certain, non-Internet-based mom-and-pop retailers, such as restaurants, bars, cafes, and other entertainment and lifestyle oriented uses,” says Matthew Mousavi, senior managing director at Faris Lee Investments in Irvine, California. “Several national retailers have also closed locations, leaving vacant spaces to be absorbed by other tenants, many being mom and pops.”
This notion makes a lot of sense when you consider the pullback in space that’s occurring with many big box retailers and national grocers.
“Big box users are downsizing space needs across virtually every retail category,” according to Cassidy Turley’s Retail Review Winter 2014. “Grocery growth is on the upswing for smaller concepts, but the industry is in consolidation mode when it comes to traditional space users. Meanwhile, some big box categories are in full retreat. Bookstores, office supplies and toy stores are all seeing major players both shrink the footprint of existing stores and close underperformers as they face greater online competition.”
The report cited Barnes & Noble, Office Depot and Staples as just a few of the big box retailers set to return space in the near future. Barnes & Noble plans to close 300 stores and return as much as 9 million square feet; Office Depot will shutter about 400 stores, while downsizing many of its other stores from 25,000 to 35,000 square feet to 10,000 and 15,000 square feet. Staples will also downsize its current stores and close at least 225 others through 2015, per the report.
Even stores in growth mode, such as PetSmart and PetCo, are looking to move away from the 25,000-square-foot format to a smaller footprint of about 5,000 to 10,000 square feet. Smaller grocers in the 15,000- to 50,000-square-foot realm will continue their expansion, according to the report, while traditional grocers of 50,000 square feet or more will see major consolidations.
“As e-commerce continues to grow, national retailers are having to adjust their footprints and number of locations,” Mousavi says. “Many are facing major losses and potential closures, which could potentially lead to more available space for mom-and-pop retailers in the future.”
One such retailer that has benefitted from this giveback is Wholesome Choice, according to Mousavi. Wholesome Choice is an international specialty market that provides products from Europe, the Middle East, Russia, South Africa, India, Mexico, Southeast Asia and Japan. The concept was founded in 2002, and now includes three locations in Anaheim, Irvine and Laguna Niguel, California.
“This locally owned, international market backfilled a former Ralph’s that had poor sales,” Mousavi explains. “Wholesome Choice has more than doubled the sales Ralph’s had, and has since expanded from this location and opened even more stores in Orange County.”
Its latest concept is Farm Direct, which recently joined several other Asian-inspired food sources at Parkview Shopping Center in Irvine. Farm Direct also resides in a former Ralph’s space. It is situated near complementary mom-and-pop restaurants like Korea House and PhoTasia within the Irvine Company’s center.
Maggie Montez, senior vice president with Lee & Associates in Palm Desert, believes this is the kind of ideal tenant mix both shopping center owners and small businesses need to succeed.
“Mom-and-pop businesses need grocery-anchored, neighborhood centers,” she argues.
“With a grocery store, a customer may visit the grocer two to three times a week. It is imperative for small businesses to have that large number of trips into the center.”
Main Street USA
If an independent grocer like Farm Direct or Clark’s Nutrition and Natural Foods Markets, a family owned and operated health grocer that is gaining popularity in Southern California, can serve as that neighborhood center anchor, great. If not, Montez believes there is still a valuable, mutually beneficial relationship that can be gained when mom-and-pops round out these centers’ rosters.
“I have a center in Indian Wells, California, that is anchored by Ralph’s and CVS, but other than that it is all mom-and-pop stores,” she says. “The center has a great mix, which is a goal all landlords should have. We have hamburger, Italian and Mexican restaurants. The retailers range from golf wear shops to kitchen supplies to stationery, and candles and gifts. For the customer, it’s a delightful center to walk and shop.”
Like Montez, Umansky also believes many smaller retailers have tremendous benefits not just in the urban cores, but in many of the smaller cities out West as well.
“In terms of pure retailers, mom and pops seem to do best in strong Downtowns where the local residents and tourists enjoy the unique shopping experience of mom-and-pop stores,” he says. “Although I am sure there are numerous examples of such communities throughout the West, areas such as Manhattan Beach, Claremont and San Luis Obispo, California, are communities that have a significant number of independent retailers that are doing very well. These areas are generally higher-income communities where people are willing to pay for unique retail products.”
Many small business owners also feel they can benefit from a niche environment. About 63 percent of small business owners surveyed for Rocket Lawyer’s Semi-Annual Small Business Survey 2014 said they believed smaller cities were ideal for small businesses. They said they preferred this environment due to the lower taxes, more affordable rents, lower costs of living, fewer regulations and more opportunities to network.
Once again, it’s not just the retailer that can benefit, but the city and consumer as well, when all parties involved work together.
“Restaurant and service businesses are the mom-and-pop retailers that seem to be most successful,” Umansky says. “This is true because these are businesses where an individual entrepreneur can frequently offer a higher level of service and a unique experience for their clientele. Independent retailers can compete when they sell a product that has a unique positioning in the market.”
Umansky lists King’s Streetwear in Montclair, California, and Clark’s as two of his biggest success stories when it comes to mom-and-pop clients.
“King’s Streetwear sells merchandise to the ‘skater’ crowd,” he explains. “The owner’s ability to connect with his clientele is unbelievable. He does this by hiring staff who understand his clientele, utilizing socialmedia, holding special events and just providing a great experience to his customers. We also recently did a deal with a specialty grocery store called Clark’s Nutrition & Natural Food Markets that leased a 45,000-square-foot space. The key to their success is extremely knowledgeable and well-trained staff that makes the shopper’s experience very personal.”
Clark’s opened at Mountain Village Plaza in Chino, Calif., this past August. Like some of its fellow mom-and-pop comrades, it has also absorbed a former Ralph’s space. The health grocer even operates a juice bar, something the patrons at neighboring tenant Fitness 19 likely appreciate.
The Nitty Gritty
Getting a mom and pop off the ground can be extremely challenging. These obstacles not only extend to the founders, but to the commercial real estate community that must assist them with space equirements. Oftentimes, they’re not your normal transactions.
“As brokers, we need to be willing to be a real assist to the mom and pops,” Montez says. “They don’t lease often, so they need help with a letter of intent. They need help understanding basic terms of a lease, which, in most cases, sound like a foreign language to them. I think the best thing a shopping center owner can do is meet with the tenant. Nothing takes the place of a face-to-face meeting to help the landlord understand the small business’ scope of experience and their future plans.”
Unfortunately, financing can also be an issue for many small businesses, especially post-recession.
“Mom-and-pop tenants have to prove themselves to landlords and lenders, which frequently involves jumping a lot of hoops,” Umansky says. “By the nature of the fact that they are risk takers, many mom and pops have credit blemishes that they have to overcome in order to secure space and/or funding. Shopping center owners and brokers should not discount someone because they have failed in a prior experience. This is a very expensive education that they already received and should benefit them in their new endeavor. Finally, be respectful of the prospect. This is a major life decision for them and not just ‘another deal.’”
Our experts agree, however, that it’s not an unbeatable uphill battle. It just takes time, some patience and a whole lot of transparency to get many of these deals off the ground.
“Mom-and-pop retailers should formulate a strategic business plan,” Mousavi advises. Be very clear as to your core business, clientele and whether opening more locations is economically feasible. Then, structure your financing options and capital structure. Lastly, we should remember that all of today’s retailers — including the largest retailers in the world — started with one location. The next national grocer, or the next major restaurant chain, may still be a mom-and-pop concept in a retail center. With that said, I believe the market needs, and will always have, the mom-and-pop retailers within our shopping centers.”