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Salon/Spa Lease Negotiation During COVID-19

April 7, 2020

Bob Meyers, Co-Author Don Weisse

The COVID-19 pandemic has caused uncertainty to be at an all-time high. This global pandemic comes with a new set of concerns much different from threats we’ve seen in the past. In our industry, the financial recession of 2008 seems to be the most similar in terms of deterioration. While clients didn’t stop getting services or buying retail products altogether, we did see them stretch and decline, respectively. The impact on transactions was measurable, fueling a wave of lease renegotiations that, for most, allowed those businesses to weather the aftermath. If the past taught us anything it’s that now is the best and most appropriate time to fully assess your business health and outlook. It’s more important now than ever before to make adjustments that promote financial sustainability for you and those who rely on your employment and business. With the two largest expense buckets for salons and spas being compensation and occupancy, engaging your landlord quickly will build trust and create an adjusted platform for future stability.  Here’s what you can do to prepare and establish a plan of action for rent renegotiation:

 

  • Assess your situation

    Evaluate and have an intimate understanding of your income and outlay of cash.  Did you speak to your bank? Is home equity an option? What do you have on autopay or subscription than can be suspended? This makes the minimum-in and the maximum-out extremely clear. 

  • Be Proactive

    Some may say “stop paying rent”, and while that is an option since evictions are not legal for 90 days, landlords are nervous and will want to know that you are taking inventory of all your resources and initiating protective actions. This might include emergency relief, PBA COVID-19 Relief Fund, unemployment, SBA Loans, grants, etc.

  • Landlords want to keep you

    It’s important that you have confidence that your landlord generally does not want to see your space go dark and deal with the added expenses of vacancy. Some locations and leases have a minimum occupancy of co-tenants contingency and while it may seem landlords hold all the cards, this is in your favor. 

  • Review your lease and consult a specialized attorney
  • Leases have various clauses and provisions that can be hidden in legalese. It’s important to go back and review your lease and the attorney who reviewed your original agreement, if applicable, can be a good starting point here. This also can be a good time to eliminate or change any undesirable lease requirements. Converting to a % rent temporarily is one option, until business begins to normalize.
  • Collect the facts

    The most important tool you have in renegotiating your rent is your profit and loss statement (P&L). If you have a percentage rent deal, you probably already provide this information. If not, knowing your current expense numbers gives you the real-world view of your business and takes the emotion out of it.

  • Project the revenue side of the equation

    If less people are in your business, less services and retail products are sold. In this case, knowing your performance history and future projections is important. This information quantifies the potential or projected impact on profitability.

  • Don’t forget the increased costs to bring people to your business

    If increased marketing efforts are needed to drive the transactions to a higher level, that cost must also be added, changing your P&L. If investment in technology is required to extend the salon and spa experience and keep people connected, that too must be factored in.

  • Work backward from a profitable operational model

    Most salons roughly shoot for a 10% net operating profit. Once your current reality is known, work backward from a sustainable level of profit and establish what your maximum occupancy cost should be. Generally, this might average between 7% to approximately 11%, if all other expenses are in line. Know where you need to be before you start the conversation.

  • Transparency is the best policy

    Showing a landlord the real-world distribution of cash on a P&L is advisable, pending this supports the claim that there are no unreasonable expenses or compensations being assigned to the business that negatively impacts profitability or operating expenses.  This is where laying your cards on the table can have a positive result.

  • Create a complete, fact-based presentation

Whether it be digital or on paper, creating an outline that identifies the situation, provides the supporting information and provides the formal request, increases your odds for renegotiation success. If council is presenting, be sure to review before the actual delivery.

 For additional information, go to the Professional Beauty Associate resource’s page at https://www.probeauty.org/2020-coronavirus-faqs.  We’re in this together because we’re all Connected by Passion. United by Beauty. 

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