Friday, November 14, 2014

Brick and Mortar Businesses - Box Rental

I am always fascinated by brick and mortar businesses. To be honest I have never worked in a retail outlet where your customers are the everyday people who are shopping. It is only untill recently did I find out about the basic idea of how such businesses are carried out and the kind of economics that you can expect.

It all started when I tried renting a box in those outlets like toy outpost, box king, go to my box etc.

It was my first try at such a 'retail' business. I admit it is not even a decent representation of a retail business but nonetheless it made me look more closely on how retail businesses operate and how profitable these toy box rental businesses are.

To summarize roughly how I fared, it was almost a break even deal. My rental was $180/mth but I was not selling enough of my charm bracelets to cover my costs. And to add on, the only reason that I broke even, was because there was a Vietnamese client who wanted to do mass orders that I happened to meet when I was at the shop. This particular Vietnamese deal was done outside of the shop, hence I did not have to pay an 8% sales commission to the shop.

Below is a summary of such a business

Box Rental Business Model

This particular box rental shop has about 292 boxes, and I am guessing an average rental price of $150. Assuming 85% of the boxes are leased out, the revenue is about $35k

Rental of the shop was about $22.5k. ( I was told about 20-25k)

I am estimating that they have about 2 full time staff at any one time and 1 manager So assuming a salary of 1.8k a month for the staff and 2.5k for the manager This equates to about 6.1k/mth.

Give and take 2k a month.

I would estimate their profits to be about 4.4k/mth. And this excludes the additional commision that they charge the box owners on every sale.

Conclusion / Caveat
All in all, the business model is sustainable for the box shop concept owner, provided they can rent out as much of their space as possible. But one has to consider the return on invest (ROI) as a whole for the business owners.
This type of retail place will typically require at least a 1+2. Meaning paying 3 months of rent upfront at any one time.  So in this, the cash tied up is about 22.5 x 3=67.5k ( I have assumed this to be the investment and have ignored other costs like renovation etc.)
 If you make 4.4k/mth, your yearly profits are about 53k, a ROI of almost 80%. This is potentially much higher if the box take up rate is higher and having strong sales, which leads to higher commission.

In one of my flea market experience, I met a few people who mentioned that they have tried to sell their products through these means previously but have failed miserably, i.e a total loss of 2k. In fact, I hear from box leasers and even the box shop assistants that most box leasers do not make money.

I wonder how much longer can this concept of business last? If you noticed, now a days, some of these shops are increasing having more empty shelves. I personally think that this business model will not be sustainable in the years to come. This is because I believe the novelty of these shops will die out and 'new entrepreneurs' realized that it is not profitable to hawk their products at such places.

No comments: