Thinking about opening a shop or restaurant in a Philippine resort? This article will guide you through the ins and outs of resort retail leases, helping you understand what to expect and how to make the best decisions for your business. We’ll skip the legal jargon and get straight to the practical stuff, making sure you’re well-prepared for your resort retail adventure.
Why Resort Retail in the Philippines?
The Philippines, with its stunning beaches and vibrant tourism industry, offers a fantastic opportunity for retail businesses within resorts. Imagine your shop nestled near a white-sand beach, catering to tourists eager to spend their money on souvenirs, beachwear, or delicious food. Resort retail can be a goldmine if you play your cards right but it also comes with its own set of challenges.
First, let’s talk about the market. The Philippines welcomed a steadily increasing number of international tourists prior to the pandemic–the numbers are coming back post pandemic.. That means lots of potential customers. Filipinos themselves also love to travel, especially to local destinations. This creates a healthy mix of customers year-round, not just during peak seasons.
Second, think about the lifestyle. Running a business in a resort area often means a more relaxed pace of life. While you’ll still be working hard, the beautiful surroundings and laid-back atmosphere can be a great change of pace compared to the hustle and bustle of a city. But don’t be fooled, it’s not all sunshine and cocktails. Preparation and shrewd business acumen are essential for any business venture.
Understanding Resort Retail Leases
A lease is a contract between you (the tenant) and the resort owner (the landlord). It outlines the rules for renting the commercial space. It’s crucial to understand every detail before signing on the dotted line.
Key Terms to Look Out For
Here are some key terms you’ll likely encounter in a resort retail lease agreement:
Lease Term: This is how long you’ll be renting the space. Common terms are 1 year, 3 years, or 5 years. Shorter terms offer more flexibility but longer terms provide more stability and amortize the business set-up.
Rent: This is the amount you’ll pay each month or period. Find out if the rent is fixed or if it increases over time. Many leases have an escalation clause, increasing rent annually by a certain percentage, usually tied to inflation.
Security Deposit: This is a sum of money you pay upfront to cover any damages or unpaid rent. It’s usually equivalent to 2-3 months’ rent.
Common Area Maintenance (CAM) Fees: These fees cover the cost of maintaining shared areas like hallways, parking lots, and landscaping. Make sure you know what these fees cover and how they are calculated. CAM fees can fluctuate throughout the lease, so understand how those adjustments are handled–for example, is there an annual audit performed? Are the audited financial statements provided to you?
Use Clause: This specifies what type of business you can operate in the space. For example, a lease might state that you can only operate a souvenir shop or a restaurant. This clause protects the resort management from allowing competing businesses too close to each other.
Renewal Options: This gives you the option to renew the lease at the end of the term, usually with pre-agreed terms or a negotiation period.
Termination Clause: This outlines the conditions under which either you or the landlord can terminate the lease before the end of the term. For example, it may cover scenarios like bankruptcy or failure to pay rent.
Fit-Out Period: This is the time allocated for you to renovate or prepare the space for your business. Typically, rent is reduced or waived during the fit-out period, allowing you to prepare for operations.
Actionable Tip: Always read the lease carefully. Don’t be afraid to ask questions or negotiate terms that don’t work for you. It’s always a great idea to have someone review the lease before you actually sign it, especially if you are unsure.
Negotiating Your Lease
Don’t be afraid to negotiate! Many lease terms are negotiable, especially if you’re a strong tenant with a good business plan. Here’s how to play your cards right:
Research Market Rates: Find out how much similar spaces are renting for in the area. This will give you leverage when negotiating rent. Talk to other business owners, check online listings, or work with a commercial real estate agent who is familiar with commercial space rentals in the specific region you’re interested in.
Highlight Your Strengths: What makes your business a valuable addition to the resort? Do you have a unique product or service that will attract customers? Do you have a proven track record of success? Emphasize these points when negotiating.
Be Prepared to Walk Away: Know your limits. If the landlord is unwilling to negotiate on key terms, be prepared to walk away and find another space.
Work Closely with the Resort: Many larger resorts have existing promotional calendars. Enquire about collaborating with them to create promotions for your business and the resort itself. The resort benefits, and your retail business benefits.
Understand peak and non-peak seasons: Negotiate with the resort for more lenient lease terms and other fees (e.g. CAM fees) during the off-season, if possible.
Cost Considerations
Beyond rent, there are several other costs to consider when leasing retail space in a Philippine resort:
Security Deposit: Typically required, usually 2-3 months’ rent.
Advance Rent: The landlord may require you to pay a month or two of rent in advance.
Fit-Out Costs: This includes the cost of renovating the space, buying furniture, and installing equipment. Fit out costs can range from a few thousand pesos to hundreds of thousands, depending on the size and complexity of the project.
Business Permits and Licenses: You’ll need to obtain the necessary permits and licenses to operate your business legally, particularly from the local government (municipality or city) where the resort is located.
Inventory: The cost of stocking your shelves with merchandise.
Operating Expenses: This includes utilities, salaries, marketing, and other day-to-day expenses.
Example: Let’s say you’re planning to open a small souvenir shop in a resort. The rent is PHP 50,000 per month. You’ll likely need to pay a security deposit of PHP 100,000 – PHP 150,000 and 1-2 months of advance rent which is another PHP 50,000-PHP 100,000. Fit-out costs could amount to PHP 100,000 – PHP 200,000, including shelves, displays, and signage. And don’t forget the cost of initial inventory, which could be another PHP 100,000 or more. That’s a significant initial investment, before you even sell your first item.
Lifestyle Considerations
Opening a business in a resort isn’t just about the money. It’s also about the lifestyle. Here’s what you can expect:
Follow us on LinkedIn!
Beautiful Surroundings: You’ll be working in a beautiful, relaxing environment.
Strong Community: Resort communities often have a strong sense of camaraderie. You’ll have the opportunity to build relationships with other business owners, resort staff, and locals.
Seasonal Fluctuations: Business will likely be busier during peak seasons and slower during off-seasons. You’ll need to plan your finances accordingly.
Unique Customer Base: Your customers will be primarily tourists, so you’ll need to tailor your products and services to their needs and preferences.
Potential for a slower pace: While running a business is always a challenge, resort life offers something unique. You can balance entrepreneurial spirit with the serenity of nature. But remember, effective management is crucial to thrive while having more time on hand.
Employee Housing (or lack thereof): A crucial consideration is the availability of housing for your staff. Rent or the cost of owning property near resorts can be high. If accommodation cannot be provided or subsidized, it will increase the likelihood of your staff going to seek employment elsewhere.
Desires and Features: What Resort Guests Want
To succeed in resort retail, you need to understand what guests are looking for. Here are some key desires and features to consider:
Convenience: Guests want to be able to find everything they need without leaving the resort. Make sure your store stocks essentials like sunscreen, toiletries, and snacks.
Souvenirs and Gifts: Tourists love to buy souvenirs to remember their trip. Offer a variety of unique, locally made items.
Experiences: Consider offering experiences like cooking classes, craft workshops, or guided tours. This adds value to your business and attracts customers.
High-Quality Products: Guests are willing to pay more for high-quality products that reflect the resort’s brand.
Excellent Service: Friendly, helpful service is essential to creating a positive customer experience.
Instagrammable Moments: Create visually appealing displays and products that guests will want to photograph and share on social media. This free advertising can significantly boost your business.
Locally-Sourced Products: Customers are increasingly interested in products that are made locally and sustainably. Highlight these items in your store. This can even qualify your business to promote itself as a local business partner with the resort.
Example: A small boutique in a Boracay resort could showcase handcrafted jewelry made by local artisans. They can also offer a “make your own bracelet” workshop, which would attract both kids and adults. By offering high-quality, locally-sourced items and a unique experience, the boutique can attract customers and differentiate itself from other shops.
Experiences: Making it Memorable
In today’s market, it’s not enough to just sell products. You need to create an experience that customers will remember. Here are some ways to do that:
Themed Events: Host themed events like beach parties, fashion shows, or art exhibits.
Live Music: Bring in local musicians to play live music in your store or restaurant.
Interactive Displays: Create interactive displays that allow customers to try out products or learn about local culture.
Personalized Service: Offer personalized service to each customer, such as custom-made products or tailored recommendations.
Comfortable Atmosphere: Create a comfortable and welcoming atmosphere in your store, with comfortable seating, good lighting, and pleasant music.
Unique Workshops: Offer unique workshops that cater to the resort’s location. For example, a shop in Palawan might offer a pearl-making demonstration or a weaving class.
Example: A restaurant in a Cebu resort could offer a “lechon tasting” event, where guests can sample different types of lechon and learn about the history and culture behind this famous dish. This creates a memorable experience that customers will be eager to share with their friends and family.
Statistics and Trends
Staying up-to-date on the latest statistics and trends is essential for success in resort retail. Here are some key statistics and trends to keep in mind:
Growth of E-commerce: While physical retail is still important, e-commerce is growing rapidly in the Philippines. Consider offering online ordering and delivery to reach customers who are unable to visit your store in person.
Mobile Commerce: Mobile devices are increasingly used for online shopping in the Philippines. Make sure your website is mobile-friendly.
Social Media Marketing: Social media is a powerful tool for reaching potential customers. Use social media to promote your products and services, and engage with your audience. Understand the different platforms and demographics of the resort’s target markets. Some platforms, like TikTok, cater best to short-term visual stimulation while other platforms cater to more mature and longer-form content. Tailor your content accordingly.
Sustainability: Consumers are increasingly interested in sustainable products and practices. Consider offering eco-friendly products and implementing sustainable business practices.
Personalization: Customers want personalized experiences. Use data to tailor your products and services to their needs and preferences.
Cashless Payments: The Philippines is increasingly adopting cashless payment methods like GCash and PayMaya. Accepting these payment methods can make it easier for customers to purchase your products and services.
Responsible Tourism: Visitors may be interested in patronizing businesses that benefit the local community and preserve the local environment.
Actionable Tip: Regularly monitor key performance indicators (KPIs) like sales, traffic, and customer satisfaction. Use this data to make informed decisions about your business.
Features: Making Your Space Stand Out
The physical features of your retail space can have a big impact on its success. Here are some features to consider:
Location: Choose a location that is visible and easily accessible to customers. It helps to be situated near common guest amenities, like the pool, concierge, and hotel lobby.
Size: Choose a space that is the right size for your business. If the space is too small, you may not have enough room to display your products. If it’s too big, you may have to pay rent for unused space.
Layout: The layout of your space should be functional and inviting. Make it easy for customers to browse your products and find what they are looking for.
Lighting: Good lighting is essential for showcasing your products and creating a welcoming atmosphere.
Display: Your displays should be attractive and eye-catching. Use creative displays to highlight your best-selling products.
Cleanliness: Keep your space clean and well-maintained. This will create a positive impression on customers.
Accessibility: Ensure that your space is accessible to people with disabilities.
Example: A retail space near the beach in a resort could feature large windows that offer stunning ocean views. The space could also have an outdoor seating area where customers can relax and enjoy the scenery. The interior of the space could be decorated in a beachy theme, with natural materials and colors. These features would create a unique and memorable shopping experience for customers.
Frequently Asked Questions (FAQs)
Here are some frequently asked questions about resort retail leases in the Philippines:
Follow us on LinkedIn!
What is the typical lease term for resort retail space?
Typical lease terms range from 1 to 5 years, but this can vary depending on the resort and the type of business. Shorter terms offer more flexibility but longer terms provide more stability. It is advisable to negotiate for a trial period to allow you to test out the market.
What are common costs associated with leasing resort retail space?
Besides rent, you’ll also need to factor in security deposits, advance rent, fit-out costs, business permits, inventory, operating expenses, and CAM fees.
Can I sublease my resort retail space?
Subleasing depends on the terms of your lease agreement. Most leases require the landlord’s written consent before you can sublease the space. This is often a point of negotiation before signing the lease.
Can I negotiate the rent or other terms of my lease?
Yes, most lease terms are negotiable. Research market rates, highlight your business’s strengths, and be prepared to walk away if the landlord is unwilling to negotiate.
What happens if I want to terminate my lease early?
The consequences of terminating your lease early will depend on the termination clause in your lease agreement. You may be required to pay a penalty, such as forfeiture of your security deposit or payment of the remaining rent.
Is it better to lease or buy commercial space in a resort?
That depends on your financial situation, business goals, and risk tolerance. Leasing is generally less expensive upfront and offers more flexibility. Buying provides more control and potential long-term appreciation but requires a significant investment and brings more risk.
What legal documents are needed to enter into a commercial lease agreement?
Generally, you’ll need to provide proof of business registration, identification documents, and financial statements. The landlord may also require a business plan.
What should I do if there’s a dispute with my landlord?
First, try to resolve the issue amicably through communication. If that doesn’t work, you may consider mediation or legal action. Maintain detailed records of all communications and transactions.
References
Statista: Number of tourist arrivals in the Philippines
Philippine Statistics Authority
Department of Tourism (Philippines)
Ready to turn your dream of owning a resort retail business into reality? Don’t just dream about it – take action! Start by researching potential resort locations, developing a solid business plan, and understanding the key terms of resort retail leases. Reach out to resort management, local commercial real estate agents (that specialize in retail shops), and fellow entrepreneurs to get expert advice. Remember, successful resort retail requires careful planning, smart negotiation, and a commitment to providing exceptional experiences for your customers. Your tropical retail adventure awaits!
