Finding a prime but affordable retail space in Canada's major cities is no small challenge for up-and-coming entrepreneurs. And as major public entities such as pension funds and insurance firms buy up more real estate to diversify their holdings, it's only going to get tougher.
"The trouble is, most high-traffic areas in major retail destinations – Toronto, Montreal, Vancouver – have been bought up by major landowners, often publicly traded companies that need to generate returns for shareholders," says Julian Brandon, senior vice-president of office leasing and corporate services with DTZ Barnicke. "A public company can't say, 'We're going to leave that bookstore paying half the rent we could have a major or national tenant pay ...' because they like books. An independent landlord may be able to do that."
The best solution for savvy small businesses is to look outside core retail areas to emerging districts where landlords are still independents. Those with irresistible concepts and social media prowess have the best shot at making what retail experts call "secondary" spaces – alleys, upper or lower floors – star locations.
"Those astute business people who have some wherewithal with generating a buzz can often survive a secondary location," says Steven Alikakos, senior vice-president in charge of retail for DTZ. To thrive in an unusual or otherwise challenging spot over the long term, he cautioned, a business needs to be a real draw. "I don't recommend it unless you're something special," he explains.
If one had to sum up the 40-year career of high-end bookseller Nicholas Hoare in one word, "sweetheart" would be the perfect choice.
The 70-year-old is known for the namesake bookshops – clad lovingly with custom wood shelves that require a full year to erect – he installed in some of the most sought-after retail districts of Montreal (Westmount), Ottawa (Sussex St.) and Toronto (St. Lawrence Market). Those neighborhoods came to rely on the big-spending customers Mr. Hoare's curated collection drew to the area: symbiotically, his high-overhead business model required him to anchor his stores in expensive neighbourhoods most small businesses would fear to tread.
High rent, though, is the rub. This is an especially serious concern for a bookseller, given the sallow state of sales for all things printed on paper. Here's where the "sweetheart" part comes in: Mr. Hoare has stayed in business for so long by locking in long term (20-year-plus leases), low-rent deals at each location (he opened Westmount in 1972, at Ogilvy's in Montreal in 1988, Toronto in 1990, and Ottawa in 1995).
"They wooed us, they courted us, they begged us to move in," he says of Ogilvy's, a department store where he operated until 2007. "They said 'you're the bait that will pull people in.' We went there and stayed for 20 years." The story was more or less the same at the Westmount location, which had a 25-year lease at below-market rates. That ended last month, when the lease expired and Mr. Hoare shuttered the space rather than shoulder a massive rent hike. He did the same last year in Ottawa when his landlord, the National Capital Commission, proposed a 74 per cent immediate increase in his annual rent.
At the company's only remaining store, the Toronto flagship, the lease rate has been locked in at what Mr. Hoare describes as "a bookseller's rate" for two decades. Whether he'll be able to stay depends on a coming rent review with new landlords: the publicly traded Allied Properties Real Estate Investment Trust.
"If we were to stay, we'd have to have an extension of the sweetheart deal we have now. That's not blackmail," Mr. Hoare says. "It's just common economics. The book business is not quite the same as selling Rolls Royces."
Still, Mr. Hoare is a model for how to succeed in a near-impossible environment – and proof that it can be done, if strategically.
"You have to have a partner and that partner is your landlord," he says. "What small business needs to do, but very rarely does, is work with and not against their landlord. I wish to heaven someone would twig to this rudimentary notion. It's worth its weight in gold."
OFF THE BEATEN TRACK
It's no exaggeration to say 2 Chefs and a Table is in one of the worst parts of Vancouver. On the streets outside, drugs are dealt openly and prostitutes and meth addicts circle the block. Inside, creative professionals lunch on house-made lamb burgers, locally sourced salad greens and a small but exquisite selection of wines.
"We knew there would be some challenges," says chef and owner Karl Gregg, who's built like a hockey enforcer and speaks in a low rumble. "But we actually loved the location." Mr. Gregg and business partner Allan Bosomworth cut their teeth cooking for the likes of Rob Feenie, then running a series of restaurants in the city's more tourist-friendly neighbourhoods.
But in 2008, low rents and a uniquely retro building that housed a '50s diner inspired them to cross "east of Main" – the proverbial divide separating Vancouver's bohemian Gastown from genuinely depressed Railtown, a sliver of former industrial land given over to rooming houses, women's shelters and a large community of homeless, addicts and the mentally ill.
"At first, people had no idea where we were," Mr. Gregg says, "We were the only restaurant out here. But that's changing." The stark, one-room bistro, dominated by a communal oak table, is packed for lunch most days with employees from the tech and apparel startups slowly colonizing the neighbourhood. Revenue has jumped 25 per cent in each of the last two years.
Buoyed by the reception, Mr. Gregg decided to open an artisan butcher shop one block away in 2011, selling homemade duck pate and specialty cuts out of a refurbished storefront. Other restaurateurs have ventured even further east. Nearby, once derelict Railway Street is now dotted with retailers and high-end design showrooms, backdropped by the bright orange cranes of Vancouver's industrial port.
The secret to success in an emerging neighbourhood? "Be a good partner in the community," says Mr. Gregg, who contributes to group barbecues and food banks and even makes sandwiches for shelters. "People around here are great neighbours. A lot of them just happen to live on the street."
When Dina Tsouluhas began trawling for rental space to set up a Moksha hot yoga studio on Montreal's popular boulevard Saint-Laurent, she wasn't enticed by the high-end street-level storefronts known for drawing throngs of traffic to the area. Instead, she found herself looking up.
"I always wanted the second floor because you could see the mountains above the buildings," she explains. She wasn't concerned about going unnoticed because Saint-Laurent is such a busy thoroughfare. "If you have good signage, they'll notice you," she says, adding that second-floor spaces can be easier for people riding buses or in cars to see.
When Ms. Tsouluhas noticed a "for rent" sign above a historical space next to the famous Schwartz's deli, she jumped on it and never looked back. "As soon as we went in, we just knew that this was the place. It had huge windows, so the view was amazing. It had amazing light for the yoga space and the street had a really good vibe."
A big bonus was the price: the second-floor space was about $3 per square foot less than a street-level space would have been, which allowed Ms. Tsouluhas to rent a larger portion of the building than she could have afforded at street level, and it lay early tracks for a potential expansion. She started out with 3,600-square-feet in 2004, and she has nearly doubled the size of her studio to 5,700-square-feet, with two hot rooms and a large common area. The location has done so well, she says, that a third expansion is in the works. But the studio's fast growth, she is certain, wouldn't have occurred in a more compromised location.
"A good location is important. If I went in the same neighborhood but onto a side street, I think it would have taken longer to do as well."
Her advice to new business owners is to not compromise on what you need to shoehorn your business into a street-level space. "Go to the second floor because it's a lot cheaper," she says. "You can be in the same location, you will still have visibility … and you might have the potential to grow."