The seafront shop that shuts for winter
Three cousins run a 90 m² ground-floor shop on the seafront of a Maltese village of about 3,200 residents. For nine years they have sold beachwear, souvenirs and inflatables from April to October; from November to March the shutters stay down. Their five-year lease has two years left at €14,000 a year and rises to €16,000 on renewal; the landlord must approve any change of use or subletting.
The best summer week takes about €9,000. A typical January week takes €700. The nearest supermarket is 6 km away, the bus stop is 60 m from the door, a primary school is 200 m away, and roughly 40 new apartments are nearing completion 400 m inland.
The cousins are offered a €22,000 loan at 5% to install refrigeration, shelving and a small back store. Alternatively they could let half the floor to a hairdresser for €5,500 a year.
One cousin wants a year-round convenience store, one wants to keep the souvenirs and add an online shop, and the third wants to sublet and work fewer hours. They meet on Sunday to decide.
1. Evaluate the three options against this shop's location, demand pattern and costs. Which one would you recommend and why? Name two figures you would want before committing.
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Test each option on three things: is there year-round demand at this location, can the fixed costs be covered in the worst month, and what does the option cost if it fails?
Seasonality is the core problem. €9,000 in a summer week against €700 in January means the current model cannot carry €14,000 rent for twelve months. A convenience store lives on small, frequent, top-up baskets: milk, bread, snacks, school lunches. The school 200 m away and the bus stop 60 m away do create that kind of mission, and 40 new flats add households. But 3,200 residents, with a full supermarket 6 km away, is a thin catchment for a 90 m² store, so the margin for error is small.
Cost test. A €22,000 loan over five years at 5% is roughly €5,100 a year. Add higher electricity for chillers, insurance and waste, and extra fixed costs might reach €8,000. At a 25% gross margin, that needs about €32,000 of extra sales a year - around €615 a week - which is only achievable if January trade rises well above €700 a week.
Risk test. Subletting brings €5,500 with no loan and no stock risk, but shrinks the selling area and leaves the seasonal problem intact. Online selling is cheap to start but gives small baskets and adds picking and delivery work.
Recommendation: the strongest case is a hybrid - convenience/top-up trading all year, funded by the loan only if footfall counts support it, with online as a low-cost add-on rather than a substitute. Subletting is the safe fallback, not the best use of the lease.
Two figures needed: (1) measured pedestrian and bus-stop footfall by hour across a school-day morning and a Saturday in winter, not just August; (2) the realistic gross margin and average basket for a small convenience format, checked against a nearby comparable store.
2. List the information the cousins must gather before signing anything, and state the source for each item.
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Demand evidence
- Footfall counts at the door and at the bus stop, at three times of day over at least three days including a winter weekday and a Saturday - counted by the cousins themselves with a tally sheet, not estimated.
- Number of households within 3 km and any planned developments - local council and national statistics.
- Competitor map within 3 km: format, opening hours, prices on 20 comparable lines - visited in person.
- Customer intentions: 30 short exit interviews with passers-by about what they would buy locally.
Cost evidence
- Written quotes for chillers, shelving and shopfitting, including annual electricity consumption.
- Loan terms in writing: rate, term, early repayment, security required.
- Insurance, waste collection and any service charge quoted in writing.
Legal evidence
- The lease itself, read by a lawyer: permitted use, subletting clause, repairing obligations, renewal terms.
- Planning: whether a change of use or any works need development permission - Planning Authority.
- Trade licence for the proposed activity - the trade licensing authority, with the local council.
- Food business registration and hygiene requirements if selling food - Environmental Health Directorate.
- Landlord's written consent to any change of use or sublease.
Supply evidence
- Symbol group or wholesaler terms: joining fee, rebate, minimum order, delivery days, planogram obligations.
Without the lease clause, the licence position and the margin figure, any decision is guesswork.
3. The third cousin pushes for subletting. What risks does subletting carry and how would you protect the business?
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Risk 1 - breach of lease. Many leases prohibit subletting without the landlord's written consent. Subletting anyway can lead to forfeiture of the lease and a damages claim, on top of losing the €14,000-a-year premises. Protection: obtain written consent before signing anything with the hairdresser.
Risk 2 - the subtenant stops paying. The cousins remain liable to the landlord for the full rent whether or not the hairdresser pays. Protection: a written sublease with a three-month deposit, a guarantor, and a termination clause that lets them re-enter on default.
Risk 3 - cost and responsibility creep. Shared electricity, water, waste, toilets, cleaning and insurance are the classic sources of dispute. Protection: a sub-meter for utilities, a clear schedule of who cleans and insures what, and an indemnity clause.
Risk 4 - reduced trading area. Half a floor means fewer lines and possibly a worse offer, so the €5,500 may be partly offset by lost sales. Protection: plan the remaining layout before signing and model the lost margin against the rent received.
Risk 5 - mismatch of footfall. A hairdresser brings appointment customers, not necessarily shoppers. Protection: check opening hours, signage rights and whether the subtenant's clients block the entrance.
Risk 6 - insurance gaps. The head policy may not cover a subtenant's stock or public liability. Protection: require the subtenant to hold its own cover and name the cousins as interested party.
The €5,500 is only a good deal after these clauses are in writing and the landlord has consented.