Can't Afford the Location You Want? Consider Bunking Up With a Fellow Entrepreneur. Two companies, one affordable retail space: Here's why you should consider co-retailing.
This story appears in the November 2016 issue of Entrepreneur. Subscribe »
Jenny Duranski was eight months pregnant, on her hands and knees, cleaning up a flood in her eco-friendly nail salon, Noktivo. She'd signed a lease for the Chicago retail spot just nine months earlier, but as her belly grew, so did issues with the shop: Plumbing leaked after every rain, and this latest flood -- caused by a burst pipe -- would shutter her business for weeks. "It was an old building, and the landlord never fixed anything," she says. She had to move, but her savings were depleted. When another entrepreneur, Kate Jotzat, offered to let her rent out a room in a hair salon, Chroma K8, Duranski jumped. "I was certain it would be temporary," she says. "I planned to stay just long enough for me to find a location on my own."
Related: How This Buzzy Startup Saved Itself from Imploding
Instead, Noktivo found a long-term home. For the past year and a half, the two companies have shared one retail space -- with separate logos out front plus distinct hours and personnel. Duranski still pays the neighborhood average for commercial retail rent ($50 per square foot), but now it covers utilities, wi-fi and common cleaning. "I don't have separate bills to worry about," she says. "And I've maintained the same amount of sales. Because it's a smaller space, I'm making more -- I've gone from $100 to $600 [in earnings] per square foot."
Duranski had stumbled into the entrepreneur's version of sharing an apartment: co-retailing. As the cost of retail spaces continues to rise, particularly in major cities, business owners large and small are increasingly discovering the benefits of sharing: There are financial incentives, of course, but bunking up can also help companies reach new clients and even offer opportunities to collaborate. And there's no end to the possible combinations.
Related: The Five Stages of Screwing Up
The arrangement isn't entirely new: The in-store café has been around for years, perhaps most famously with Starbucks providing a reading space for Barnes & Noble shoppers. But the in-store café, too, can take many forms.
When Shinola, the Detroit-based retailer of watches and high-end leather goods, wanted to open a New York store with a coffee shop, it approached Manhattan café The Smile. The café's owner, Matt Kliegman, was skeptical. "You see a lot of coffee shops buried in the back, like a retailer didn't have use for some corner of the store and convinced some hardworking entrepreneur to try to sell from there," he says. "Those never work." But in 2013, Shinola offered prime, front window space for a grab-and-go café Kliegman dubbed Smile Newsstand. He now has access to a much larger customer base. And while café foot traffic doesn't always translate to watch purchases, it does bring fresh awareness to Shinola. "Fast-forward three years, and there are customers just for them, just for us, and those who overlap," says Shinola CMO Bridget Russo.
That's a common experience at co-retailing spaces: The businesses really do run separately, though there's a naturally shared interest. Noktivo and Chroma K8 even offer cross-promotions ranging from booking integrations (make a hair appointment online and a pop-up suggests a manicure) to seasonal deals (a head-to-toe summer makeover).
And yet, future co-retailers beware: Unless two companies merge into one, they'll always be just dating, not married. Sharing space doesn't mean sharing goals or growth. It's important to be prepared for solo futures and to make sure that customers are never confused about the arrangement. And, where possible, co-retailers should build escape hatches into their leases. Less than two years later, in fact, the beauty parlor pair are already on divergent paths: Noktivo wants to open a second location, but Chroma K8 doesn't. Noktivo is now seeking another partner for its new location.
Jasmin Cromwell faced a deeper challenge when her roommate's plans changed. She owns Bodhi Seed Yoga & Wellness Studio in Mount Clemens, Mich., which shared 4,000 square feet with a bookstore for years. When she first signed on, she negotiated terms with her landlord: If the bookstore closed and she couldn't find a new "roommate" within a year, her landlord could find one, but she retained the option to vacate within six months if the new roomie didn't work out.
Recently, the bookstore did close. She fretted about potential new space-mates. "We have to be sensitive to sounds and smells, or the integrity of my business is at risk," she says. "Having an auto-supply store next door to a yoga studio might be hard, but when you're sharing a space, it's impossible."
She lucked out: The Loft Fine Art opened on the other side of her space this summer. "The owner used to come to yoga all the time," she says, pleased about her new neighbor. "I think art and yoga do have something in common." And now the entrepreneurs have something in common, too: an address.
