Rising rents, taxes force entrepreneurs to get really creative
Business models are upended to cut costs and find alternative revenue streams
Opening a retail bakery location in Vancouver was simply out of reach for Jordan Pires and Claire Livia Lassam at first, so the co-owners of Livia contracted space by the hour in a shared commissary for three years.
“That gave us the opportunity and stability to build the wholesale side of the business,” Pires said. “The cost of running a business in Vancouver is astronomical.”
Even when the time came to take the leap and open a proper storefront, it took another 16 months to find a space, he said. “The reality is, when you do find one, you are likely buying a lease away from a business that has failed or moved on.”
The struggle for affordable storefront space in major cities is all too familiar for independent businesses, since rents and property taxes keep going up and new development swallows up available commercial space. Many are forced to shut down, move elsewhere or change their business models.
“There has always been pressure on retailers and service sector businesses that need storefront space,” said Dan Kelly, chief executive of the Canadian Federation of Independent Business. “It’s been a struggle for a long time. Retail and hospitality have a natural failure rate that is high to begin with.”
But now the affordability challenge is even greater for both incumbents and startups.
“What real estate is left, rental rates are going through the roof,” Kelly said.
Rising rents make it especially tough for businesses when their leases come due.
“A restaurant paying $30 per square foot is suddenly told it’s now $70. Independents can’t handle that, so many just close their stores and walk away or move to another location,” said Tim Sanderson, national retail lead at Jones Lang LaSalle Inc., a commercial real estate company in Toronto better known as JLL.
Pires said he pushed hard to negotiate a 15-year lease, a rare feat when five is the norm.
“Lots of businesses go down because the building is being sold or the prices go up,” he said. “I’ve seen rents go up 200 per cent overnight. If that happens, there is no margin to compensate for that.”
Rising property taxes are another business killer.
“When I first opened, the taxes were $6,000,” said Nancy Bagworth, who opened her Natureal natural clothing store in Toronto’s Junction neighbourhood in 2011. “At one point they got up to $15,000 when I made improvements, not to mention all the other bills.”
Although Bagworth owned the building, other expenses were simply too much to handle. As a result, she upended her business model, and now runs popup shops and private trunk shows during the peak clothing retail seasons, and continues to sell online. She also showcases her wares at local events, and sets up an ad hoc corner display at a friendly retailer’s site when customers want to visit her in person.
Moving, of course, is one option. For example, rather than fighting for space in Vancouver, Diane
Mitchell and her husband Arjuna Veeravagu, co-founders of kombucha brewer Whistler Elixir, decided to relocate to a less expensive community. They also started out leasing commissary space in Vancouver to test their recipes first.
“It was better than jumping into a high rent situation without knowing a lot about the business,” Mitchell said.
They eventually signed a fiveyear lease on a 900-square-foot location in Whistler’s Function Junction Area at about two-thirds the cost it would be in Vancouver.
Denise Wright-Ianni, an accountant, has seen many of the independent restaurants and retailers she serves look elsewhere for alternative revenue streams or cost cuts.
“I know a few that are now using sites like Etsy or Shopify. One salon started an online store to sell supplies,” she said. “Massage therapy places are getting rid of receptionists and using online appointment apps to save staffing costs.”
Wright-Ianni also decided to go completely virtual for her business.
“I can run my whole business from my smartphone,” she said. “Why rent an office and all the costs that go with that?”
Some people have to become really creative in getting by without a location or a less expensive one, Kelly noted.
“One local dry cleaner near me couldn’t find any affordable spaces when the strip mall was being torn down for condo towers. They went virtual, picking up and delivering to people’s homes,” he said. “Recently, I found a bakeshop, video-game store and cellphone repair business all sharing the same retail space.”
But anyone requiring a decent amount of space to serve customers is finding it tougher and tougher, which Kelly said is an unfortunate trend for the small-business community at large.
“When the independents get squeezed, only the big chains can afford the space,” he said. “You have to sell a lot of pizzas or dry clean a lot of suits to pay those bills.”
The sad part for communities is that independents create neighbourhoods, Sanderson said. “Some were made by the galleries and bars. They are what start getting neighbourhoods recognized.”
When I first opened, the taxes were $6,000.
At one point they got up to $15,000 when I made improvements, not to mention all the other bills.