Mom-and-Pop

Mom-and-pop retailers are community favorites, establishing deep customer connections and personalized shopping experiences. Often family-owned, small businesses can range from drugstores and restaurants to auto shops, grocers, and specialty offerings. Unlike large national chains, mom-and-pop owners rely on their store performance as their primary source of income, making them especially vulnerable during economic downturns. COVID-19 introduced billions in aid to small businesses, but now, post-pandemic, business owners face additional challenges with high inflation and rising interest rates. To increase profits, mom-and-pop owners seek specific storefronts and carefully consider their leases.

There are 33.2 million small businesses in the U.S., which account for 99.9% of all U.S. businesses. – Source: Small Business Association

The Appeal of Mom-and-Pop Stores

Although small in scale, mom-and-pop shops attract a solid and loyal customer base due to the store’s community focus and specialized services and products. Customers also receive more personalized service at mom-and-pops, as small business employees are able to engage with clients compared to the one-size-fits-all service encouraged in large chains. As small businesses continue curating personalized retail services at independent locations, customers will return.

40% of millennials are in support of helping local businesses thrive, and 75% of people say they prefer to do business with stores that have already patronized and are satisfied with. – Source: First Union Lending

Mom-and-pop stores appeal to strip and neighborhood retail centers as they increase occupancy of smaller spaces and can complement the center’s anchor stores. While anchors draw customers to the centers, landlords seek small businesses as in-line tenants to provide higher yields. These tenants benefit from the traffic, and landlords increase the property’s occupancy and customer offerings.

Anchor tenants can positively impact mom-and-pop shops by helping them establish credibility and increase foot traffic.

What Mom-and-Pop Tenants Want

Profit margins are narrow in a small business, meaning negotiating strong lease terms is critical. The lease term agreement for mom-and-pop tenants varies based on the property’s location, business type, and area demographics. The economic climate and shifting market fundamentals also greatly impact owners’ preferred rent structures and willingness to negotiate, meaning mom-and-pop tenants may need to look longer for the right space, landlord, and lease combination.

Sustainable Rent Rates

Small businesses do not have the luxury of large amounts of indispensable income. Mom-and-pop business owners must utilize their cash flow efficiently and ensure payments fit their budgets. This is especially true for rental rates. While small businesses typically require less square footage, approximately 800 to 1,500 square feet, the limited square footage won’t offset the rent if the rental rate is out of budget. As of Q1 2023, the average rate per square foot for retail space is approximately $24, expected to increase by 3.3 percent throughout 2023. However, mom-and-pop owners typically pay slightly below the market rate. Small business owners need to ensure the rate they receive is sustainable long-term. If the mom-and-pop is a restaurant or food-based service, the rent should be at most six percent of sales. For non-food-based businesses, rent should be at most 10 percent of sales.

Another way mom-and-pop businesses can find more affordable rent is by looking to lease in secondary or tertiary markets. Major markets will experience rent growth faster than secondary markets, making it difficult for mom-and-pop shops to keep up with rent prices.

Rent Concessions

Tenants who are on the fence about renewing their lease often leverage rent concessions. Rent concessions offered by landlords include a discount or an adjustment to rent, renovations, or free utilities. Concessions can incentivize tenants to extend their stay. Typically, with mom-and-pops, the incentive to renew their lease comes in the form of free rent periods. If the tenant agrees to extend the lease for five years, the landlord may offer one to three months of free rent or agree to a smaller rental increase (typically 10 to 12 percent) to encourage renewals.

Rent concessions can also be made if the lease includes a co-tenancy clause. This clause, popular in mom-and-pop leases with an anchor tenant nearby, allows the secondary tenant to have a level of reprieve if the anchor tenant leaves the retail center.

Reliable Landlord

Having a landlord who is organized, responsive, and transparent is key for mom-and-pop tenants. Since mom-and-pops are subject to unique difficulties, financial or otherwise, it is crucial for tenants to have landlords that are willing to be flexible. It may help for tenants to look for landlords with ties to the community rather than institutional investors, as local investors can be more empathetic to small businesses.

Desired Location and Space

As a result of mom-and-pop’s lack of notoriety, they require locations with established high-foot traffic to bring in customers. Often, mom-and-pop owners prefer in-line spaces in community or neighborhood centers anchored by grocers, department stores, or essential retailers catering to a large audience. In-line retail spaces can charge more per square foot if the space is in a premium position, like an end-cap, or close to large retailers.

Securing a Lease as a Mom-and-Pop

When looking for the right tenant, landlords seek stability, experience, strong business initiatives, and a good financial background. As a small business, it’s important to provide the right credentials and present the benefits of having the shop as a tenant to potential landlords.

Personal Guarantee

Due to small businesses having greater risk, landlords prefer a personal guarantee from mom-and-pop owners. A personal guarantee allows the landlord rent security if the business occupying their space defaults. A small business should guarantee the entire lease term; however, it is possible to get a “floating guarantee,” so the tenant isn’t responsible for more than that term (I.e., floating two-year guarantee).

Complementing Tenants

It’s important for landlords to research area demographics and current consumer trends before signing a tenant. Small businesses need to showcase that their products or services are curated to the community and bring a fresh customer base. In addition, landlords want to ensure their smaller tenants complement the anchors. For example, suppose a local juice bar owner is looking to sign at a retail center anchored by Whole Foods. In that case, the owner should explain how their business complements the center’s established health-conscious customer base.

Clear Vision

Property owners look for tenants with well-thought-out business plans, including where the money is coming from. Mom-and-pops need to produce a marketing strategy, a detailed description of labor and supply costs, committed employees, and a clear plan for bringing in revenue.

How Mom-and-Pops are Navigating a Difficult Market

During a shifting market, small business owners must focus on some key operational areas to ensure stable net income.

First, businesses must keep accurate sales, inventory, and client data. Trackable measures such as busiest transaction times, product stock, and more help keep the business on track and make it easier to assess what budgets can be cut and/or stretched in economic downturns.

In addition, working with an experienced small business broker can be a lifesaver for small businesses in a volatile market. Collaborating with a a specialized broker helps mom-and-pop business owners negotiate the best possible lease terms to achieve the greatest financial outcome. A broker who has worked with small businesses understands the nuances and obstacles that mom-and-pops run into, making them well-equipped to navigate a transaction.

Future for Mom-and-Pop Businesses

Mom-and-pop businesses are making a comeback from the pandemic, thanks to consumers’ prioritization of supporting small businesses, forming personal relationships, and having access to one-of-a-kind product selection. Mom-and-pops thrive on maintaining a loyal customer base built from success in popular locations, like strip malls or shopping centers in local neighborhoods.