((Please answer the part in "red" box only))

You own a successful junior boutique on Wisconsin Avenue in Georgetown, which you started three years ago. Your business has grown steadily, and you have developed a loyal clientele. Your store has 1000 square feet, and lies out well, although you wish it were a bit wider. Sales last year, your third year in business, were $450,000, an increase of 15 percent over the previous year. Sales to date this year are running about 10 percent ahead. Your lease will be up sixty days from today, on May 31. Your landlord has advised you that you may renew at $45 a square foot and pay overage rent of 10 percent on all sales over $500,000. Your previous rent was $27 a foot, plus overage rent of 7 percent on sales over $300,000. Recognizing this as a reasonable rent in Georgetown, you are prepared to sign on for three more years, but then you get a call from Georgetown Park Mall, which offers you an interesting proposition. There is a 1000-foot space available, which lays out far better than your current space, and is very well located within the mall for your kind of business. Rent for this space would be $60 a square foot, and overage rent would be 8 percent on sales over your present $450,000 You feel that the Georgetown Park location will enable you to realize sales considerably higher than at your present store, although it may take some time before your present customers find their way to the new location. You recognize also that you won't have to spend anything on advertising because the mall itself will draw crowds of shoppers. You are tempted by the offer but need to know more. You go over to look at the space. It is now occupied by a "go-go" store that was unsuccessful. The decor is dreadful, and you figure it will take at least a month to renovate from the time the lease is up, which is the same date as the end of your lease May 31. Returning to your store, you look over your inventory. It's all spring merchandise and will be ready for a markdown about the end of May. You think you can run a spring clearance in June while renovating the new store, but you wonder whether this would be the best way to announce your presence. Or you could begin taking markdowns earlier than usual, call it a "Moving Sale," and buy a fresh new stock of summer goods for the new store, which might result in a significant loss of gross margin. Or, as you say to yourself, you can just stay where you are and not bother with the hassle of moving. Discussion Question What would you do and why? First fill in the rental payment grid using the current lease, the new lease at the same location and the new location. Use sales of $450,000, $500,000, $550,000, 600,000, $650,000. Use the following grid for your work. Present Lease--S27/square foot + 4% overage after $300,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $27 $27 Overage 16,667 18,519 $550,000 $27 20,370 $600,000 $27 22,222 $650,000 $27 24,074 New Lease--S45/square foot +10% overage after $500,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $45 $45 $550,000 $45 + 10% overage 13,333 $600,000 $650,000 $45 + 10% $45 + 10% overage overage 14,444 15,556 Overage 10,000 11,111 GeorgetownPark-S60/sqare foot + 8% overage after $450,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $60 $60 + 8% overage Overage 7.500 8.933 $550,000 $60 + 8% overage 9,767 $600,000 $60 + 8% overage 10.600 $650,000 $60 + 8% overage 11,433 After reviewing the financial information answer whether you would move or not and why. You own a successful junior boutique on Wisconsin Avenue in Georgetown, which you started three years ago. Your business has grown steadily, and you have developed a loyal clientele. Your store has 1000 square feet, and lies out well, although you wish it were a bit wider. Sales last year, your third year in business, were $450,000, an increase of 15 percent over the previous year. Sales to date this year are running about 10 percent ahead. Your lease will be up sixty days from today, on May 31. Your landlord has advised you that you may renew at $45 a square foot and pay overage rent of 10 percent on all sales over $500,000. Your previous rent was $27 a foot, plus overage rent of 7 percent on sales over $300,000. Recognizing this as a reasonable rent in Georgetown, you are prepared to sign on for three more years, but then you get a call from Georgetown Park Mall, which offers you an interesting proposition. There is a 1000-foot space available, which lays out far better than your current space, and is very well located within the mall for your kind of business. Rent for this space would be $60 a square foot, and overage rent would be 8 percent on sales over your present $450,000 You feel that the Georgetown Park location will enable you to realize sales considerably higher than at your present store, although it may take some time before your present customers find their way to the new location. You recognize also that you won't have to spend anything on advertising because the mall itself will draw crowds of shoppers. You are tempted by the offer but need to know more. You go over to look at the space. It is now occupied by a "go-go" store that was unsuccessful. The decor is dreadful, and you figure it will take at least a month to renovate from the time the lease is up, which is the same date as the end of your lease May 31. Returning to your store, you look over your inventory. It's all spring merchandise and will be ready for a markdown about the end of May. You think you can run a spring clearance in June while renovating the new store, but you wonder whether this would be the best way to announce your presence. Or you could begin taking markdowns earlier than usual, call it a "Moving Sale," and buy a fresh new stock of summer goods for the new store, which might result in a significant loss of gross margin. Or, as you say to yourself, you can just stay where you are and not bother with the hassle of moving. Discussion Question What would you do and why? First fill in the rental payment grid using the current lease, the new lease at the same location and the new location. Use sales of $450,000, $500,000, $550,000, 600,000, $650,000. Use the following grid for your work. Present Lease--S27/square foot + 4% overage after $300,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $27 $27 Overage 16,667 18,519 $550,000 $27 20,370 $600,000 $27 22,222 $650,000 $27 24,074 New Lease--S45/square foot +10% overage after $500,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $45 $45 $550,000 $45 + 10% overage 13,333 $600,000 $650,000 $45 + 10% $45 + 10% overage overage 14,444 15,556 Overage 10,000 11,111 GeorgetownPark-S60/sqare foot + 8% overage after $450,000 Sales Volume $450,000 $500,000 Cost per Sq. Ft. $60 $60 + 8% overage Overage 7.500 8.933 $550,000 $60 + 8% overage 9,767 $600,000 $60 + 8% overage 10.600 $650,000 $60 + 8% overage 11,433 After reviewing the financial information answer whether you would move or not and why