Is "the rent too damn high" for some DC businesses?
In the coming weeks and months, a handful of businesses along 14th Street NW will close their doors. The retail corridor appears to be booming, but high commercial rents make it difficult for low margin businesses to compete.
This Saturday, Mid City Caffe on 14th Street will serve its last latte. Citing insufficient sales and a less-than-ideal second floor location above Miss Pixie's, the coffee shop opted not to pursue a lease extension; instead, they will simply close for good.
Perhaps more noteworthy than the closing of the shop itself is the fact that the Mid City brand will not live on. Ownership is not seeking new retail space.
Jeffrey Lamoureux, the shop's general manager, says that decision is driven by the challenging business climate along the 14th Street corridor: "If we were to relocate and hope to capitalize on the customer base and brand identity we've developed since 2009 we would have to find some place within a few blocks, where an affordable rent would be extremely hard to come by."
Earlier in the month word spread that Miss Pixies is in the market for new retail space. It's reported that the building's landlord wants to quadruple the rent for the storefront at 1626 14th Street NW. Jeffrey Lamoureux says that's a problem for businesses like his, where "high commercial rents make places like Mid City, low-volume neighborhood-centric spaces, untenable."
Mid City did have a loyal customer base. The shop was often busy, popular among coffee lovers, and on the surface, appeared to be successful. That's not to say there wasn't enough demand for Mid City Caffe, or that the shop wouldn't be filled with customers if it re-opened nearby, but it does suggest there isn't enough demand to justify the cost of running such a business on 14th Street.
High rents directly impact businesses by raising the average total cost. Barista wages and coffee prices likely don't waver much from city to city, but the amount a coffee shop pays to its landlord every month can and does vary greatly.
The result is that coffee shops in high-rent neighborhoods, for example, face a challenge that coffee shops in low-rent cities and neighborhoods don't: They have to pay handsomely for the privilege of simply being able to open their doors.
In order to make it work, businesses either need to sell high-margin goods and services, or do brisk volume on low-margin items. Coffee is the kind of business where strong volume is key.
That's the strategy at Peregrine Espresso. The successful Capitol Hill coffee brand opened its second location earlier this summer, exactly one block north of Mid City Caffe. Even so, there are notable differences between the Peregrine and Mid City.
Peregrine owner Ryan Jensen says that his shop caters to a different type of customer. "When we found our space up there, we realized that we really didn't have the space to accommodate a sea of telecommuters," he says, "so we thought it best to keep the chairs turning over so that the space doesn't get too stagnant."
With less than 600 square feet of space and enough seats for only about a dozen customers, Peregrine is banking on strong take-out business. They don't have wi-fi and aren't trying to lure customers looking for a place to hunker down for hours.
Jensen acknowledges that high rents make doing business on 14th Street a challenge. "If you only want to serve coffee (not lunch, dinner, or alcohol) and aren't necessarily interested in being a music venue, it becomes very difficult to sell enough cups of coffee to cover high rent," he says, "particularly in a neighborhood that doesn't have the same type of daily pedestrian traffic that you might find closer to downtown or in Penn Quarter.
Peregrine chose its micro-sized storefront in part because, even though the rent is high on a per-square foot basis, the monthly payments aren't astronomical. They also benefited by securing a long-term lease in July 2010, before some of the new developments nearby had broken ground. While small annual rent increases are expected, Peregrine is at less risk of the price shock that Mid City and Miss Pixies are currently experiencing.
High rents impact more than just individual businesses. Topher Matthews recently questioned the future of DC's "third places". In neighborhoods with high rents, the primary concern of any business is covering its costs. No matter what role it plays in the community, if it can't pay its bills, it won't be around for long.
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