Retailiatory strike: don't let the big boxes win without a fight. There's plenty of room for start-ups to make their mark in retail

Entrepreneur, Dec, 2002 by Chris Penttila

But the Heningers' success in retail started with a single kiosk. They were both working for the IRS in Utah in the early 1990s--and tiring of it--when a friend in Dallas, who was running a successful key chain and magnet kiosk, suggested they break into the retail business. They opened a similar key chain and magnet kiosk in the Mall of America in 1992, signing a one-year lease and paying $1,500 per month in rent.

Starting with a kiosk meant less inventory to carry and less stress knowing their lease wasn't locking them in for years if their idea didn't work. Learning about retail on a smaller scale "was worth it," Randy says. In their first year of business, they had the second-highest sales of the mall's 50 kiosks.

They opened an additional kiosk in the Mall of America, and by 1994 they had three other kiosk locations in tourist malls in Fort Lauderdale, Las Vegas, and in Canada's West Edmonton Mall, the biggest mall in the world. They also opened in-line magnet stores in Myrtle Beach, South Carolina, and Ontario, California.

By 1997, the couple began to look for a new business concept because the magnet and key chain business came with some downsides: Margins are low, and once people buy a magnet or key chain, they don't need another for a while. After gaining retail experience, they decided to make the switch to bath and beauty, where consumers spend a lot of money and replenish their supplies regularly.

Basin was finally born in 1998 after a year of careful planning. The Heningers sold their magnet and key chain business and signed a $3,500 per month, one-year lease to move into a temporary, 500-square-foot in-line space in the Mall of America to test their bath and beauty concept. The mall provided color schemes, signage and merchandising, which was "a big help," Randy says.

Eventually the couple signed a five-year lease and upgraded to a 750-square-foot permanent in-line space in the mall. Starting with temporary space eliminated some onerous construction costs. "It's expensive to open a permanent store," says Randy, who paid $100,000 in costs, from fixtures to merchandise, to bump up to a permanent location. Starting with a kiosk was the right move. "It taught us how to run a business when we had no clue," he says. "If we had started with an in-line space, it would have been a lot harder."

But do some research before you leap into retail. Make it a point to ask shop and kiosk owners at your target location how they're doing before you sign a lease. Mall managers aren't fond of tenants dishing the dirt, but it's the only way to find out things you may not learn otherwise about a mall's foot traffic, rental rates, marketing plan, security problems and repair issues. "It's amazing what [tenants will] tell you," Randy says. "It doesn't hurt to ask."

Negotiating the lease can be a daunting process. But mall developers are willing to work with new retailers, Norins says. One place to save money is in your overage rent--the percentage of sales a mall takes when you sell over a certain amount each week. Don't be afraid to ask for extras that might lead to cost savings. "Say 'Look, I really need your help these first couple of months,'" says Norms. "[Mall developers] might say they won't charge you any overage rent, or they might throw in a free week at the end of the two months."