Do you own your own properties? Some of them? All of them? Just the main plant?
Each one of these purchases were major decisions and created long-term financial
Once purchased, the locations
were treated as valuable assets with
cashflow from the business
providing payment to the bank and
maybe even income to you without
the added burden of payroll taxes
required from higher salaries.
Maybe you’re even able to charge
over-market rents with larger tax
In addition, these acquisitions reduced the risk of landlord rent increases,
building improvements and threats of redevelopment clauses. It all seemed so
perfect, and then
the environment changes.
We all know that change occurs, but it’s so hard to see when, how or in what direction it
For instance, the dry store you purchased may have been a stand-alone location
on the main
commuting line to work. Perfect.
Then the road changes occurred. The main drag now misses your location entirely.
business activity has been lost. You have disastrous sales and if you’re even able to sell the
property it’s worth less than you paid for it. You took a risk and lost.
Alternatively, the dry store was on an out parcel, next to the primary grocery
store chain in
the area. A great location.
The grocery store moved. You can’t. Half your volume disappeared. Now you’re hoping for a
new anchor to move in, but the center is desolate in the meantime and the future
of these types
of centers does not look good.
Ownership of the main plant has other considerations. It may or may not have had
front counter. Regardless, the investment of the infrastructure along with all
of the equipment is
Moving is a costly exercise, not only involving the moving of equipment, but
pipework for the gas, water and running the electrical. Rarely is there a
financial benefit to just
moving an existing plant, but times change.
In addition, at one time, the main plant may have been central to all your other
Now, the traffic patterns have changed. The customer demographics have changed.
have been proactive and moved the retail locations to follow your customers, but
schedules from the plant are now harder to meet and to add to the challenge, as
perhaps dropped you have more space than you can efficiently use.
Risks outweigh rewards
Today, many operators are tied to their properties, but your customers aren’t. Neighborhoods
may no longer be high drycleaning areas. Shopping centers lose their center draw
grocery store. Customers rely on growing routes and competitors starting routes.
condos and offices slow store growth in densely populated areas.
Sales at the retail locations slowly fall. Costs remain the same or increase,
cashflow in the business to adequately reinvest for the changing business model.
All of these examples are obvious risks connected with purchasing your
properties. During the
purchase decision the risks may or may not be taken into account and often the
risks are hard
to predict as some of these changes occur over 10, 20 or more years of
The question now becomes: What to do when the risks and associated costs begin
than offset the original advantages?
What’s your next move?
Willing to make changes from these imbedded financial structures is critical. It’s a little easier
with a lease. You wait it out for five years and then plan to close it up or
When you own the property it is a much harder decision. It feels like admitting
failure, but it
isn’t. It is just recognizing that times have changed and you need to change, too,
being a little flexible. It may even mean taking a “loss” on a property, but keep in mind, you
received a lot of benefit from it for a long time.
A main plant is a much more difficult decision. It’s probably fully paid for. There is a large
infrastructure in place. It’s very expensive to move. Most people just keep chugging along
dealing with the increasingly challenging delivery times and the slow
degradation in the
infrastructure as you aren’t motivated to maintain and certainly not improve the facility.
Some people have become very creative in this area. As volumes decrease, some
stores may be able to become small plants — laundry only, drycleaning only or even a new,
smaller combined facility.
Brand new warehouses, with 20-year leases and options, are often available.
Renting out a
part of the building or selling the building frees up the capital to invest in
reducing your operating costs and creating a new plan for the next generation of
might look quite different from this one.
Consider what happens if:
• You sell the main plant; move to a smaller operating plant with efficient
productivity improvements, and plans for growth in the newer, expanding product
• You sell your dry store locations, and move to a more mobile delivery system.
• You sell your plant and wholesale your production. Unheard of? Being done more
In any case, this is not the time to give up. It is also not the time to rely on
models. It’s a time to be a bit creative; to think outside of the box.
Consider ways to modify your business model, to improve your cost structures and
to move to
the next level of business activity.
If you plan to stay in this type of business for the next 10 to 20 years, you
have no other