I was walking down the street a few days ago. There is a shop that I pass from time to time. It’s not a large store, but it obviously has been reasonably successful. Although they are not clients of ours, I know who owns it and I would guess, but I don’t know, that they are wanting to retire. Now, don’t get me wrong here, this is a bright modern looking shop generally with 2 or 3 staff and there are always customers browsing the shelves. It has clearly been run as a business and although I have never seen their accounts, I imagine it has provided a reasonable return to the owner.
There has been a discrete “for sale” board in the window for a while. I see plenty of shops like that. Now, there is a banner across the window that you just cannot miss, proclaiming that the asking price has been reduced by around 10%. Judging by the asking price, also splashed across the window, this must include the property as well as the business.
My first reaction was why would anybody want to pay that much for a small shop. The return on the investment would be poor and the only way the price could be substantiated was that the property itself would be an investment. Given that this is retail premises in a row of shops, I wonder if this can really be the case.
It then set me thinking about values and valuations. What, for instance, would be the value to us of such a property. It is probably only a quarter of the size of our own nearby office. What could we do with it that would generate a reasonable return. We could indeed use the premises. We have a first-floor office so it would be useful to have somewhere close by that was more accessible. But it would add nothing, or virtually nothing, to our bottom line. So, from a business perspective, our valuation of the building is zero.
So, who is going to pay the asking price for this shop. The answer surely must be someone who values the building and business at least as high as the price that the seller now wants. That will be someone who has a profitable use for the building, perhaps due to its location or maybe they have a more optimistic view of the potential growth in retail building valuations than myself, and I am no property expert.
We, therefore, come back to perception. Personally, I feel that you must be brave to move into a retail business of any description these days. Others may have a different view. However you look at it, retail these days is always going to be hard. There will always be room in some shape or form for a niche business but just the same, I would still think long and hard before going down a traditional retail route.
Having said that I know of some retail businesses that are thriving. But these are often long established family businesses that offer a variety of products and clearly understand their markets and are flexible and responsive to customer demand. It would be hard for a new start retail business to get to this favoured position. I accept that nothing is impossible, but I would explore all other avenues before trying.
Indications are that we will see a lot of businesses disappearing over the next 12 months. More household names will either shrink further or disappear altogether. But, where there is market turmoil there are opportunities, so we will just have to wait and see what the future brings. We should not fear change. At the end of the day, the only constant is change.
If you want to carry on this discussion but you are not sure where to find us, please click here.
Alan E Long
The Long Partnership