Retail is unforgiving of a bad site, because the lease is long, the fitout is sunk and foot traffic cannot be manufactured. The decisions made before opening determine most of the outcome.
Count the foot traffic yourself
Do not rely on the landlord’s description or the agent’s enthusiasm. Stand outside the site and count people, at the hours and days you would actually trade, across at least a couple of weeks including a weekend.
Then watch what they do. Passing traffic is not the same as shopping traffic — a busy commuter route where nobody stops is worse than a quieter street where people browse.
Note also which direction people walk, which side of the street they use, and where they park. Small differences in position change trade materially.
Neighbours matter more than rent
Retail benefits from proximity to complementary businesses. A cheaper site in a block with vacant shops is not cheaper — vacancies break the continuity of active frontage and damage everyone in the row.
Look for anchor businesses that draw people, complementary rather than directly competing traders, and evidence that the block is stable rather than emptying.
The lease
Most New Zealand commercial leases use the ADLS standard deed, which is well drafted. The commercially decisive terms sit in the schedules and further terms, and they are negotiable.
- Outgoings — what is included, whether capital costs can be recovered, whether there is a cap. Ask for two years of actual figures, not an estimate.
- Term and renewal. Your fitout needs a horizon long enough to depreciate it, and that horizon is the final expiry date, not the initial term. Diarise renewal windows; missing one can extinguish the right.
- Rent review mechanism, and whether a ratchet applies.
- Make good at the end, which is frequently the largest unbudgeted cost in a tenancy. Get a photographed condition report at the start.
- Assignment, since the lease is often the constraint on selling the business — and note you may remain liable after assigning unless released.
- Trading hours requirements in centre leases, which can be uneconomic in an off season.
- Permitted use, which should be broad enough to allow your range to evolve.
Fitout and consenting
Establish the consent position before signing. Changing a building’s use — office to food premises, retail to gym — triggers requirements around fire, accessibility and structure that can cost more than the fitout.
Negotiate a landlord contribution or rent-free period; both are common and neither is offered unless asked for. Budget 15 to 20 percent contingency on fitout in an existing building, where conditions are unknown until linings come off.
Working capital is larger than people plan for
Opening consumes cash in several directions at once:
- Bond or bank guarantee, commonly several months of rent.
- Fitout and signage.
- Opening stock, which must be broad enough to look credible.
- Equipment, point of sale and security.
- Rent and wages before the store is trading properly.
- Marketing for the launch.
Then allow for a slow first few months. Most new stores take time to build a customer base, and running out of cash in month four with good stock and improving trade is a common and avoidable failure.
Compliance to sort before opening
Depending on what you sell: food premises registration and a food control plan, alcohol licensing, weights and measures, product safety and labelling requirements, and consumer information standards.
Consumer law applies from your first sale. The Consumer Guarantees Act cannot be contracted out of, and no-refund signage misrepresents customer rights and creates Fair Trading Act exposure. In-store surcharging on most card and EFTPOS payments is now prohibited, so acceptance cost has to sit in your pricing.
Launch
Open properly rather than quietly. Get your online listings accurate before day one, since a business that cannot be found is worse than one that has not opened. Local media, community networks and the businesses around you are cheaper and more effective than paid advertising for a single-site retailer.
business.govt.nz publishes retail startup guidance, and the Commerce Commission publishes plain-language consumer law material for businesses.
General information only, not legal advice.
